Let’s talk it out - Negotiation and Mediation

Published in BC Roofing Magazine - Spring 2008

Negotiation and mediation better than court to solve business disputes

As a lawyer engaged in the area of business disputes, I have experienced a shift in my practice from traditional litigation towards more flexible, cost-effective approaches to settlement, such as mediation and negotiation.

Litigation is the process of pursuing a legal contest by judicial process that is ultimately decided by a third-party adjudicator, usually a judge. Litigation is often described as a “win-lose” process, or a “zero-sum” game, with one party prevailing in the end and the other losing. As any business owner that has been faced with lawsuit knows, litigation is expensive and often everyone loses, even the victor in the court proceedings, given the high cost of legal fees and the inevitable delays involved. Other approaches to resolving disputes, such as negotiation and mediation, are often described as “win-win” processes, where both parties to the dispute have a role in creating the solution. Although these processes are often referred to as alternative dispute resolution methods, or ADR, vastly more civil cases are ultimately resolved by negotiation and mediation than by adjudicated outcome. Indeed, it is widely acknowledged that only two percent of civil lawsuits that are initiated end up in trial.

“Many a litigation lawyer
has reached settlement
of a dispute on the courthouse steps
the day a trial is scheduled to proceed
or even in the courtroom corridor
after the case has commenced.”

What is important is the approach and attitude of the professionals involved. For example, does a lawyer actively approach a business legal dispute from the perspective of traditional litigation, or does he or she approach it from the perspective of solving a problem?

Negotiation
Negotiation can lead to a settlement at almost any stage of a legal process. Typically,
negotiations in legal disputes are informal and usually occur between the lawyers involved rather than the parties themselves. Many a litigation lawyer has reached settlement of a dispute on the courthouse steps the day a trial is scheduled to proceed or even in the courtroom corridor after the case has commenced. Yet, to achieve the real economic benefits of a negotiated settlement – reduced legal costs – it is incumbent on the parties to resolve their dispute at some earlier stage.

Mediation
Mediation is a process for facilitating settlement or agreement between two or more disputants and is facilitated by a mediator who is trained to encourage dialogue between the parties and uncover the underlying interests of the parties. In mediation, the parties themselves define the terms of their agreement rather than having a decision imposed by a third party adjudicator. Business owners are increasingly recognizing the many advantages of mediation processes versus traditional litigation paths.

Advantages of mediation:
The main advantages of mediation to small businesses are as follows:

1. Certainty of outcome: In mediation, the parties themselves control the terms of the settlement; nothing is imposed on them by a third party adjudicator. The mediator facilitates settlement but the parties make the final decisions. Mediation, therefore, eliminates the huge factor of uncertainty that is present in all courtroom trials, given that the final outcome in a trial is within the power of the judge and out of the control of the parties.
2. Focus on interests rather positions: Mediation focuses on the underlying interests of the parties and attempts to create solutions that meet those interests. Skilled mediators are adept at ferreting out hidden interests that, once dislodged, may facilitate settlement. For example, a party’s concern about the confidentiality of the terms of settlement, or concern about an ongoing business relationship with the other party may be significant factors in why a case will settle in mediation. By contrast, the court process is open and adversarial which often can damage business relationships.
3. More durable agreements: Mediations often result in more durable agreements because the parties themselves have negotiated the terms rather than having terms imposed on them by a third party. It is presumed that parties will have a greater investment in honoring their own terms versus those that are ordered by someone else.
4. Cost effective and faster: Perhaps the most important reason business owners choose mediation is that it is almost always less expensive than marching on with court proceedings. A typical civil case can take years before a final outcome at trial, and even after a successful trial outcome it can take months or even years to implement or collect on the judgment. By contrast, a mediated settlement can often be resolved in one or two sessions over a few days or weeks. And the terms of settlement can be implemented immediately. Litigation is expensive, despite constant efforts by the court system to streamline procedures. The benefits of litigation can often be outweighed by its costs.
5. Confidentiality: Unlike most court cases, which are matters of public record, most mediation is confidential. With the advent of the Internet, the final judgment in a court case is disseminated around the world the moment it is pronounced. The terms of a mediated settlement are confidential and do not leave the mediation room.

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Meldon Ellis, BA, LLB is a business dispute resolution lawyer in Vancouver. His firm, Ellis Business Lawyers (www.ellislawyers.com) practices in the areas of commercial debt collection, and business and tax litigation.

How to survive costly disagreements.

Financial Post article. Published March 03, 2008. How to survive costly disagreements. Lawsuits over contracts or leases can be crippling for SMEs. Read the article here.

Fishing for Freedom

Meldon Ellis speaks at Fishing for Freedom public meeting re: Halibut Class Action Lawsuit, January 27th, Richmond Inn, Vancouver, BC and January 28th, Dorchester Hotel, Nanaimo. BC. BC Fisherman v. DFO Class Action Lawsuit blog.

DFO named in fishermen lawsuit.

DFO named in fishermen lawsuit. Read the press release here.

EBL files Class Action lawsuit.

Ellis Business Lawyers files Class Action lawsuit against the Federal Department of Fisheries and the Pacific Halibut Management Association. Read the Statement of Claims here.

EBL wins jugdement

British Columbia Supreme Court issues decision in Livramento v. Millennium Powder Coating Ltd. EBL helps plaintiff obtain an audit and compensation for his shares in a shareholder oppression trial. * Read the full decision here.

Legal affairs

EBL article published in Western Investor Magazine - June 2007
Click here to download article - or read it below.

Collecting bad debts
Whether to pursue a bad debt or not is a delicate commercial balancing act. As commercial debt grows in Western Canada, so should business owners’ awareness about bad debt preventive measures, as well as an understanding of effective collection processes.

Preventive measures
Keeping extensive, accurate documentation of transactions is a critical commercial practice. These documents not only provide clear initial notice of non-payment, but also strengthen any subsequent claims made against a debtor whether as evidence in court proceedings or just as supporting documentation to a letter of demand.

Early warnings
The following actions of the customer are often warning signs to a business that a bad debt is looming:

• Failure to return phone calls and correspondence;
• delaying tactics such as breaking promises to pay;
• disputing specifications only well after the invoice becomes due; and
• claiming financial difficulties without specifics.

Collection agencies
Once a creditor has exhausted their lines of communication with a debtor, a collection agency may be engaged on their behalf who will generally work to collect the debt on contingent fee basis for a percentage (often 50 per cent) of monies recovered. However, a large number of debtors will not respond to a collection agency.

The legal route
When a collections agency cannot persuade a debtor to pay, it may be time to consult a lawyer to analyze the pros and cons of filing a writ in Supreme Court (for claims over $25,000 in British Columbia) or a notice of claim in provincial (small claims) court (for claims under $25,000 in B.C.) excluding interest and court costs.

The small claims court system in B.C. has settlement opportunities, including mediation and a mandatory Settlement Conference before trial. These can be used to resolve claims much more quickly than Supreme Court procedures.

A creditor with a claim resting on the $25,000 threshold may want to consider waiving (or giving up) its incremental amount over $25,000 in order to file in provincial court and take advantage of the more cost-effective and efficient procedures.

Pre-judgment
In both levels of court, there are pre-judgment remedies that may leverage a debtor into paying before reaching the lengthy and costly trial procedure. These include:

1. Pre-judgment garnishing order: A garnishing order from the court allows a creditor to collect money owing to the debtor directly from a person (the ‘garnishee’) who owes money to the debtor.
2. Preservation of property: A creditor’s lawyer may apply for the detention, custody or preservation of property. Aside from securing the amount in dispute, this tactic may force a debtor into settlement discussions. The Rules of Court also allow for the appointment of a receiver to recover payment of debts from the debtor’s assets in certain circumstances.
3. Default and summary judgments: Once a claim is filed and served on the debtor, the debtor has a finite amount of time within which they must file a response. If there is no response by this deadline, the creditor may apply for default judgment against the debtor.
4. Other pre-judgment securities: If there is concern about the debtor having significant assets that may be disposed of, or taken out of the jurisdiction prior to judgment, interim orders can be obtained upon application to the court to prevent this. These options should be explored at the initial stages of deciding whether to file suit.

Going to trial
While the judgment of a court is a weapon against a debtor, it can often be a blunt weapon. There are a number of reasons that a creditor may wish to resolve its collection matter before reaching trial, including the following:

• Diversion of time and resources of the creditor towards a court proceeding rather than the creditor’s daily business affairs;
• lengthy delays before the matter is resolved;
• no guarantee of outcome;
• further delays before the debt is recovered after judgment;
• delays caused by debtor relying on bankruptcy provisions to avoid payment; and
• limited recoverability of the judgment debts.

Mindful of these potential difficulties, the best measures are preventive, but when collectors fail, it is time to call in legal team Lower Mainland creditor’s lawyer will assess whether going to trial is the most appropriate course of action.

The good news is that a court judgment will permit a creditor to enforce both pre- and post- judgment interest on the outstanding debt.

Getting paid
While obtaining a judgment does not guarantee payment of a debt, the advantage of receiving a court order is that the following enforcement options become available to the creditor once judgment is rendered:

• Debtor examinations;
• Debtor subpoenas;
• Committal for contempt;
• Execution against personal property;
• Execution against real property; and
• Post-judgment garnishment on any monies owed to the judgment debtor, e.g. wages.

Again, these procedures do not guarantee payment, but can exert significant pressures on the judgment debtor.

Statutory limits
A creditor must be aware that it only has six years from the date of the debt in which to bring an action in court against the debtor in B.C. In determining the date of the debt, it is safest to assume that the limitation period commences from the date that the payment became due as stipulated on the creditor’s invoice.

The unfortunate reality is that rarely will the creditor recover all of the expenses they incur in collecting a debt.

Conclusion
The bottom line is that it is always preferable to manage the accounts receivable to avoid or limit bad debts rather than allowing them to accumulate.

The burden is always on the creditor to prove the agreement and the debt, so there is nothing stronger than an organized system and proper documentation.◆

Meldon Ellis, BA, LLB, is a business dispute resolution lawyer in Vancouver. His firm, Ellis Business Lawyers (www.ellislawyers.com), practises in the areas of commercial debt collection and business and tax litigation. Phone 604-688-7374.

Ellis Business Lawyers - New Address

New address and contact information for Ellis Business Lawyers.

#440-319 West Pender Street,
Vancouver, BC
V6B 1T3

T (604) 688-7374 or (604) 671-7374