Pre-dispute mediation – the new norm?
“Life after COVID-19 will be tricky for those businesses that survive.” says mediator Jane Player at IPOS Mediation about the business landscape after the coronavirus pandemic.
Mediation can be an effective tool helping all parties involved to find productive solutions to conflicts that inevitably arise about unfulfilled contracts, project interruptions or debt claims.
“Mediation has allowed existing tolerant partners to discuss new projects as well as given parties the opportunity to work through current obligations to enable them to survive the crisis and work together again.”
Picture the scene. Two parties want to sort out an issue with a contract. We’re not talking a full-blown dispute but a situation where the opposing sides want to explore the next steps so they can maintain their working relationship and keep the project running. Enter a third party neutral to mediate pre-dispute proceedings and facilitate a mutually agreeable solution. An unlikely scenario – or could this be the brave new world of mediation?
Life after COVID-19 will be tricky for those businesses that survive. Most businesses, helped by furlough provisions by the Government, can hopefully sit this out if they batten down the hatches and cut all unnecessary costs. However, many will be faced with claims post- lockdown. Business interruption claims against insurers, debt and insolvency claims, litigation in respect of abandoned or delayed projects – they’ll all be waiting in the wings.
Contractual rights are, of course, the first port of call for lawyers advising their clients on future and past obligations, rights to damages and any ‘Get out of jail’ clauses available such as force majeure or limitations of liability. Just as we saw in the 2008 financial crisis, businesses will weigh up whether it might be better to abandon a contract and face the contractual consequences rather than struggle on with these uneconomical terms – especially if the contract excludes certain indirect losses or limits damages to price paid or a multiple thereof.
But those contractual clauses are academic if parties don’t have the cash to litigate or fear the other side couldn’t meet a claim even if an action were brought.
Even before this current crisis, there was a backlog of cases and post-coronavirus the courts will be inundated. To assuage the situation, Supreme Court judges are urging parties to consider mediation and compromise before litigation, while other jurisdictions have gone as far as changing legislation to allow for pause periods for businesses to assess what’s possible.
Thankfully, remote mediation and arbitration is proving that mediation now is not just possible but highly effective. Indeed anecdotal evidence from users, mostly businesses direct rather than their advisers, show that results have been achieved that simply wouldn’t and couldn’t have been available to them at court, through a compromise in a mediated settlement. Mediation has allowed existing tolerant partners to discuss new projects as well as given parties the opportunity to work through current obligations to enable them to survive the crisis and work together again.
This could well become the new norm for dispute resolution. What COVID-19 has taught us is to expect the unexpected – and to recognise that contracts simply can’t anticipate every eventuality. In the future, we may even find that parties entering into long-term business relationships will appoint a third party neutral alongside the contract.
As and when an unexpected issue arose – even if was pre-dispute – this pre-emptive set-up would allow a short contractual pause and a day’s meeting without prejudice to the contractual liabilities to see if the project could be put back on track before delay and costs escalated further.
Back to today, what’s for sure is that chasing an impecunious opponent will be a mug’s game and an open and transparent conversation now may be a much more sensible first move. Mediation, giving the parties a safe environment to sound out the possibilities for a sensible and quick compromise, at a relatively small fee shared by the parties, must be the way forward. Or at least the first port of call. A neutral helping the parties reach that compromise can hear confidential worries and needs from both sides and can guide the parties to a solution much better than in a positional conversation between parties and their advisers alone.
Let’s see how many external lawyers ensure this is on the agenda for their clients. And how many sensible CEOs and their general counsels take up the opportunity to keep control of their business relationships, resolve issues early and climb back out of this crisis to fight another day.
This article was first published on the website of In Place Of Strife Mediation.