Avoiding Disputes, Resolving Disputes, And Getting On With Business

SMEs play an important role in national and regional economies, and in the global economy, because they employ large numbers of people in aggregate, they outnumber large enterprises considerably, they are generally entrepreneurial in nature, and they help disproportionately to shape innovation.

Yet, SMEs are the forgotten consumers of all forms of commercial dispute resolution. Often SMEs lack the knowledge and resources to effectively engage in disputes, particularly cross-border disputes. And because they operate in smaller economies, the short, medium, and long-term costs of a dispute on their business relationships, reputation and future business prospects can be disastrous.

Differences in dispute resolution behaviour and preference between SMEs and large businesses exist because, for one thing, SMEs often build their business relationships on trust more than is the case with large businesses. Usually negotiation is their preferred – or default – method of dispute resolution. That is not a bad thing, if the negotiation ‘succeeds’, ie. the SME achieves a fair and reasonable resolution, and is not forced to ‘throw in the towel’ because it is unable or unwilling to take the dispute further.

SMEs need dispute resolution mechanisms that are accessible, timely, affordable, and importantly, capable of maintaining business relationships where possible.

Having effective and efficient dispute resolution creates confidence for trading and for investing parties and reduces risk. In turn, the real costs of transacting cross-border are reduced.

The uncertainty in obtaining effective resolution to cross-border disputes is a major trade barrier for businesses engaged in international trade, particularly for SMEs. They need efficient and effective mechanisms to resolve both domestic and cross-border disputes.

Going To Court

Resorting to the courts to resolve disputes is time-consuming, expensive, slow, and uncertain. Businesspeople do not like uncertainty. They cannot afford to be in court, and they cannot afford to wait for a resolution of their disputes, especially when they are the claimant facing a cash flow crunch.

Courts in the Caribbean, as in many jurisdictions, are backlogged.

Even if they were not backlogged, court procedures and processes are quite standardised – often not readily adaptable for expeditious and cost-effective dispute resolution, particularly for smaller and even medium-size disputes.

In cross-border disputes, one party is going to wind up in the home court of another party. Whether that party is actually disadvantaged or not, it may feel less comfortable, may need to retain an unknown lawyer, and may incur greater costs.

Arbitration

There is a growing acceptance of arbitration to resolve commercial and other disputes in many jurisdictions worldwide, including in the Caribbean.

Resolving commercial disputes through arbitration facilitates trade, commerce, and investment, and in turn enhances economic development. Slowly, the acceptance in the Caribbean of using arbitration is growing. Caribbean litigators, having ‘grown up’ using courts, may be concerned – unnecessarily – that they might not be as effective in arbitration. Businesspeople are realising that their commercial contracts often should provide for dispute resolution by arbitration.

Arbitration offers numerous advantages over courts for commercial parties, particularly across borders. Using arbitration effectively is key. It can result in faster and often less expensive adjudicated resolution of commercial disputes. An arbitral tribunal decides the dispute using less formal, customised, and often expeditious procedures that fit both the parties’ needs and the dispute.

One widely recognised advantage of arbitration is that arbitral awards are easier to enforce internationally than court judgments. Under the New York Convention (1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards), courts of contracting states must give effect to arbitration agreements, and they must recognise and enforce arbitration awards. Sixteen of the 172 contracting states are from the Caribbean, an increase from 10 in 2000.

Mediation Should Be The First Port Of Call

For many disputes, the first port of call for the disputing parties should be mediation – ideally before heading to court or to arbitration. Otherwise, at the earliest opportunity during the court proceeding or the arbitration. Essentially mediation is assisted negotiation. It can be arranged and conducted reasonably quickly, and often can lead to an agreed resolution in anywhere from one-half of a day to a couple of days.

What happens in mediation? A mediator assists the disputing parties to negotiate a resolution – their own resolution, not one imposed by a court or arbitral tribunal. If the disputing parties have lawyers, they participate in the process.

Mediation enables the disputing parties to try to clear the air, but whether they can do so or not, it enables more creative resolutions to the dispute. Sometimes the parties will even agree to new commercial arrangements as part of their resolution.

Many businesspeople – indeed some lawyers – do not appreciate what mediation is, the difference between mediation and arbitration, and the potential advantages of mediating disputes that are heading to, or are in, court or arbitration.

Why Not Avoid Disputes?

For SMEs, the current growth of dispute avoidance mechanisms should be a godsend. Indeed, focusing on dispute avoidance is becoming increasingly important for all businesses.

Dispute avoidance can mean ‘nipping disputes in the bud’, before temperatures rise, before the rhetoric becomes aggressive, before ‘tools are downed’.

When parties see a dispute emerging, they – and their lawyers – should consider engaging a mediator if the parties and their lawyers are having difficulty negotiating a resolution on their own.

For ongoing project contracts and most other longer-term business relationships – construction, technology, all forms of services, product development, technology development, hotel management, natural resources development, many forms of joint ventures, shareholder relationships (among themselves and with the company), partner relationships, and more – trying to nip disputes in bud can lead to irritants being resolved, new understandings being reached, perhaps contracts being modified, and so on.

For some of those kinds of ongoing relationships, skilled mediators are being engaged when the relationship is just beginning and there are no emerging disputes or even irritants. Sometimes the person or persons engaged will follow the project along, so if called upon, there is almost no need for a background briefing. The mediator understands the commercial arrangements and appreciate what has been happening on the project or otherwise under the contract.

For the reasons discussed, dispute avoidance makes a lot of sense for smaller jurisdictions and SMEs.

Contract Negotiation Mediation?

Usually, parties negotiating contracts work out the terms directly, which of course is the best way. But sometimes the negotiating parties get bogged down, and may be heading towards terminating their negotiation and walking away. Sometimes walking away is best; other times it is a missed opportunity.

With the assistance of an outsider – a mediator who is experienced in assisting parties with pending disputes – the same skills that are used to try to resolve disputes can be brought to bear on the stumbling blocks in the contract negotiation.

‘Contract negotiation mediation’ may be particularly valuable in Caribbean jurisdiction, and indeed for all smaller jurisdictions and for many SMEs.

Emerging Techniques

As outlined in this article, there are emerging techniques for avoiding disputes, resolving disputes, and getting on with business. Knowing about them, and making sure that effective provisions are written into contracts to try to avoid disputes (and to resolve disputes that could not be avoided) is a critical part of today’s risk management.

Businesspeople need to know about these emerging techniques so that they can take charge effectively, and not let their business succumb. They need not watch helplessly as the train starts to go off the tracks. In fact, they are empowered to keep the train on the tracks.

The Honourable Barry Leon
Independent Arbitrator and Mediator. Independent Consultant and Professional Services Provider (independent corporate director; independent corporate meeting chairman; consulting to professional services firms in senior supporting roles and providing strategic and tactical advice and assistance). Commercial disputes experience as arbitrator, judge (Presiding Judge, BVI Commercial Court, 2015 - 2018), mediator and counsel includes corporate and commercial, contract, shareholder and business breakup, joint venture, insurance, IP, technology, expropriation, natural resources, construction, and executive employment disputes.