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12/09/24
Business Disputes Should Be Handled In Business-Like Ways
As most businesspeople know, in business there is almost always the potential for business disputes. The disputes may be external, with customers, suppliers, financiers, borrowers, investors, governments and regulators, and others, and they may be internal, with shareholders, partners, trust participants, joint venturers, and others.
Both types of disputes commonly arise in international financial centres. The international aspects of the businesses produce different and greater risks of disputes due to different business cultures interacting, and the parties having different ways of doing things, and sometimes even different business ethics.
It behooves businesspeople in all IFCs – and certainly in the Caribbean – to recognise the more likely types of disputes they face, to view them as business problems to be identified, avoided whenever possible, and if not avoided, resolved cost-effectively and on a timely basis in line with their business’ objectives and overall strategy.
Left to grow and fester, business disputes can become a distraction (or worse) from the main objectives of the business and its management.
Preventing emerging disputes from expanding, and resolving disputes sooner, offer many benefits in addition to saving legal costs. Businesspeople can get on with their business, be productive, and keep or get a contingent liability off the business’ books. Management can get on with life without the dispute hanging over them.
Importantly, businesses can preserve relationships with their suppliers, customers, lenders, and investors. Preserving relationships is particularly important in smaller jurisdictions like the Caribbean, as usually a business cannot readily replace those relationships. The countries are small, with a limited number of suppliers, customers, lenders and even investors, as compared with larger jurisdictions. In most instances, it is critically important to try hard to maintain business relationships.
Early resolution of a dispute avoids the legal position of the business getting worse: witnesses forget, move on, lose any desire to work on an old problem, or sometimes die.
If the party against which a claim is about to be brought, or is being brought, has a good defence, it can be well advised to try to resolve it sooner. If the party does not have a good defence, it should try to settle – defendants usually get a better settlement before the claimant incurs more legal and other costs and gets more ‘dug in’.
Risk Management And Dispute Avoidance
Risk management includes trying to anticipate, avoid, and resolve expeditiously and cost-effectively the range of business disputes that a business is most likely to encounter, as well as unanticipated types of disputes.
A hot topic in the business disputes world is “dispute avoidance”.
What does that mean? While there isn’t a uniform definition or process, essentially it is what it sounds like. Dispute avoidance involves taking various steps during the life of a commercial relationship, starting right at the beginning, to identify differences and try in various ways to resolve them before they grow into disputes that can derail the business relationship, lead to litigation or arbitration, and cause irreparable harm to the business relationship.
In a diplomatic context, there was recently the following description (using slightly different terminology): “The term ‘preventive diplomacy’ was coined by former UN Secretary-General Dag Hammarskjöld in the 1950s, who defined it as "action to prevent disputes from arising between parties, to prevent existing disputes from escalating into conflicts, and to limit the spread of the latter when they occur". Since then, the concept has evolved to include a range of activities, such as good offices, fact-finding missions, confidence-building measures, preventive deployments, and sanctions.”
Note the three elements of preventative diplomacy that apply squarely to commercial disputes:
- Preventing disputes from arising.
- Preventing disputes that arise from escalating.
- Limiting the spread of conflicts (in the commercial world, litigation and arbitration) when they occur.
Spotting an emerging problem and acting quickly to try to make it right – to get things back on track – is key. This needs to happen before temperatures rise, before the rhetoric becomes aggressive, and before ‘tools are downed’. This needs to begin on the front lines. Senior management may not even be aware of the problem before it has blossomed into a dispute.
In contrast to transactions, for ongoing relationship projects and business relationships in construction, technology, outsourcing, product development, joint venture and so on, one or more independent outsiders with mediation (and/or adjudication skills) may be engaged to follow the project along, so that they are able to step in quickly at the request of one of the contracting parties. They will be aware of what the project is about, how it is intended to proceed, who the people are, what has been happening, and so on. They can implement the agreed type of processes immediately.
Dispute Resolution Provisions
When entering a contract or other business relationship – such as when incorporating a company or settling a trust – some thought needs to be given to the ‘what if’s’. What if things go off the rails? What if one of the key players exits? What if the party on the other side turns out not to be what it seemed? What if the market for the product or service changes? What if the economy changes? What if the unforeseen happens, such as a global pandemic?
Adjusting mechanisms can be built-in to cover some of the risks. Dispute avoidance provisions as described above can prevent disputes from developing and expanding. If disputes arise, there needs to be efficient, timely, and cost-effective means to resolving them.
Parties need to consider in advance such things as the types of disputes that are more likely to arise – whether the party is more likely to be asserting a claim or responding to a claim, or how important it is that the disputing parties stay out of the public eye – and resolve the disputes privately and confidentially.
Mediation
When businesspeople and their legal representatives cannot negotiate a direct resolution, the first stop for assistance should be mediation, no matter what the next stop will be if mediation does not lead to a settlement.
Mediation is assisted negotiation. The mediator cannot decide the dispute or impose a settlement. The mediator’s job is to assist the parties in their negotiation. The settlement, if there is one, is their deal, not an imposed resolution. Skilled mediators are proficient in assisting parties with their negotiations.
Many people are surprised at the number of ‘this will never settle’ disputes that do settle with a mediator assisting and facilitating the parties’ negotiations, sometimes adding insights and creativity that allude the disputing parties.
Building mediation into the dispute resolution process means it can occur without one party needing to take the initiative, which the party may wrongly believe is showing a sign of weakness. Business-like conduct is not a sign of weakness.
In mediation, parties sometimes wind up agreeing to things that a court or arbitral tribunal could not order – a tax efficient settlement, a modified or new commercial arrangement, a recognition of unintended harm or offence to the other party, and so on.
Court Or Arbitration?
Even with quality court decision-making, the court processes do not have many of the advantages of arbitration. Many courts in the world that hear commercial cases operate on an ‘open justice’ (transparency) principle. Even those that do not, are not fully private, especially when decisions are appealed. Those jurisdictions such as BVI, which have courts that offer greater privacy and confidentiality than, for example, one finds in many onshore centres, are not totally private through the full process.
While arbitration proceedings can wind up in court for court assistance or limited court review, some jurisdictions such as BVI have strong provisions to maintain arbitral confidentiality. The arbitration law in BVI prohibits publishing, disclosing or communicating information relating to arbitral proceedings and awards. Arbitration-related court proceedings are heard in camera, in closed proceedings; the court file is automatically sealed and cannot be inspected except by the parties thereby preserving confidentiality.
Court processes usually take time – rarely do they move at the speed of business. Courts in the Caribbean, as in many jurisdictions, are backlogged. Arbitration, done in a customised way, can be expeditious. The procedures can be tailored to fit the nature, size and complexity of the dispute. Usually, court rules have much less flexibility. Resorting to the courts to resolve disputes is time-consuming, expensive, slow, and uncertain.
Businesspeople do not like uncertainty. They cannot afford to wait for a resolution of their disputes, especially when they are a claimant facing a cash flow crunch or other business imperatives that are time-sensitive. A speedier resolution ends the uncertainty.
Arbitration involves less formality, in the sense that arranging hearings and filing materials can be simplified. Some hearing can be scheduled and conducted quickly. Rarely are there long wait-times for a hearing date. Done right, costs can be lower (even after paying the arbitral tribunal).
While some judges have subject matter expertise, parties usually cannot choose who their judge will be. In arbitration, they can. Also, they can choose a single arbitrator, or a three-person arbitral tribunal.
A 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 – which include most countries in the world – must first give effect to arbitration agreements, and second, recognise and enforce arbitral awards.
Handling Business Disputes In Business-Like Ways
Those businesspeople who treat business disputes as business problems to be handled in business-like ways – by being informed about the processes for avoiding and resolving them, and by dealing with them as a reality of their business, without emotion – will wind up with better outcomes, not only for their disputes, but for their businesses as a whole.
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.
