FAQ'S - Business Dispute Resolution

Business Dispute Resolution
Business dispute resolution can involve mediation as well as litigation, but my orientation from the outset is always going to be: how do we get into a position to resolve this dispute? I am always trying to arrive at an efficient, effective resolution of the dispute without spending unnecessary amounts of resources. I am looking at an alternative to the typical litigation process, which can often take months or years to reach a resolution. I try to find an opportunity to use mediation or negotiation at various stages, but I will always attempt to resolve the dispute from the outset by encouraging dialogue between the parties, giving them both an opportunity to explain where they are coming from and create an opportunity for resolution. This doesn’t happen in every situation, however.

Sometimes, by the time they have contacted a lawyer, the relationship between the parties has soured, and some litigation will be necessary. What we do then is start the litigation process and take as many steps in that process as are necessary.

Any lawyer who is dealing with business dispute resolution needs to be competent at litigating and using the various litigation tools that are available, as well as having skills as a problem solver. Those problem solving skills involve analytical skills to understand what is going on with the business disputes. Having a sound understanding of business helps a lot in this area too, and I think my previous experience as a business owner and the business manager of various businesses including a public company gives me that background. A knowledge of business is helpful as well as expertise and experience with alternative dispute resolution methods, primarily mediation and negotiation.

Mediation
The benefits of mediation in business dispute resolution.
Litigation is a fairly expensive process, particularly civil litigation. The disadvantage is not only the cost of litigation but also the time involved. A typical civil case can take 18 months to two years to resolve. On the other hand, mediation can be done in a couple of days or in an afternoon, and within a few weeks of understanding the issue. Certainly a major advantage of mediation is its reduced cost and time efficiency.

Another advantage is that the mediation process is not adversarial. The litigation process in Canada is adversarial: it places two parties in opposition to each other in order to test and arrive at the truth. The adversarial process can create a lot of bitterness. A mediation setting encourages discussion between the parties and encourages both parties to have input into the resolution, and so the damage to the relationship is much less.

Mediation is also beneficial because both parties have a role in creating the resolution. They have an investment in it and they are usually happy with the outcome because they have some control versus an outcome being imposed on them by a third party, such as a judge or an arbitrator.

Mediation is a win-win proposition whereas going to litigation is a win-lose proposition. In litigation, one party usually prevails and one loses, and the cost of the litigation goes to the victor. In mediation, both parties have an opportunity to come out as a winner, as long as they go there with an open mind and with a real view to resolving the dispute.

There are some other advantages as well. In mediation, the parties can control the outcome in a way that they cannot in a litigated solution. In litigation, both parties present their best case before the judge. The judge then makes a decision and at times that outcome might be very surprising. Also, mediation aims at encouraging the parties to put their interests, as opposed to their legal position, forward. Often in mediation you will find that a party may have taken a legal position throughout the dispute. This position is based on a legal entitlement but they haven’t explained what their real interest is behind that position. A mediator tries to understand what the underlying interests are. Once those interests come to the foreground, a resolution is usually a lot easier to achieve because now there is a mutual interest in resolving the dispute, not just in saving money or in some other hidden interests. The mediation process encourages the parties to put those interests on the table. That just does not happen in a litigation procedure, which is based on more technical legal positions.

The final benefit of mediation is confidentiality. Civil cases take place in an open courtroom, which means that all of the pleadings and all of the testimony is available to the public. Mediation can take place in a confidential setting and typically a mediated settlement will be confidential unless the parties agree otherwise. There are many situations in business where confidentiality has a high value. So that’s another significant advantage of mediation.

Mediation
Overcoming the disadvantages of mediation in business dispute resolution.
One of the real problems in mediation occurs when the parties have unequal bargaining power. This means one party is a lot stronger than the other.

In a business context, fairly typical situations would be ownership disputes, shareholder disputes, or partnership disputes. One shareholder may be the majority shareholder and also the one who controls the company’s board of directors and all of the resources. This party controls the bank account and can pay for legal fees through the company. As well, he has access to all of the company records and all the financial information about the business. In this situation, it is pretty tough to go in as a minority shareholder and mediate that dispute because of the complete lack of knowledge and negotiating power. One party is holding all the cards.

Mediation is least effective when one party stands to gain a lot and the other party only stands to lose a lot. Our approach is to use litigation to level the playing field because mediation works best when both parties go into the process in the same position: being able to lose the same amount.

Reasons for consulting a lawyer in a business dispute resolution.
It would be great if you could develop a computer program and put it up on the Internet to help people conduct business resolutions themselves. But in reality, there is tremendous skill required to use all of the tools that are available through the litigation process, the court, and mediation. Even choosing the right mediator requires skill in order to match the personality of the mediator with the parties involved. There are a lot of these intangible skills that a dispute resolution lawyer brings to the table in order to help the client resolve disputes more effectively than they could themselves.

A certain number of cases are straight forward, commercial debt for instance, and if the client has a relationship with the third party, the client could probably resolve that by picking up the phone and talking to the person who owes them the money about why they have not paid. Often I recommend that strategy. If it’s a straight forward dispute, then the client can proceed by himself and save the cost of hiring a lawyer. I will even give a prospective client a few tips. We do not typically get involved unless we both believe that legal representation can add some value to the process of resolving the dispute. A lawyer offers a combination of legal experience and business experience, all of which we have gained by resolving hundreds of business disputes.

The process of preparing a client for mediation in a business dispute.
We spend time with the client at the beginning, analysing the case, determining what legal rights and legal entitlements our client has. One way to increase the effectiveness of mediation is to use litigation to ensure that both parties are on equal terms at the outset. If one of the parties conducting the litigation has control of the company’s bank account and can pay for the company lawyer to handle the dispute, that party is going to be at a significant advantage over the party who, for instance, has been squeezed out of the business, has no income because he has been cut off from working at the business and has no access to company resources. We will start the litigation in order to obtain court orders that will level the playing field somewhat. For example, the court can order the other side to disclose all of the relevant documents through the document discovery process. Without litigation, that information may not be available. The person controlling all the key documents is often reluctant to release documents that would be helpful to the other side. We develop a plan at the beginning of the process in order to take a few steps in the litigation process to put our client in a strong position to negotiate. The mediation will be much more likely to succeed if our client is going in with full disclosure.

We also spend a lot of time having the client prepare a chronology of key events. At a certain stage, we will determine what witnesses and documents will be required to prove our client’s case. Once we have that material, we are in a position to mediate, but not before.

Sometimes we turn to expert witnesses, but we use them sparingly because they are very expensive. In certain cases, expert witnesses will be helpful. In business disputes, the main expert we use is a financial expert. Often, business disputes come down to accounting, so accountants are very helpful witnesses in determining the value of a business asset or determining what a business is worth. Business evaluation experts, who are accountants with a specialized designation in business evaluation, can be helpful in cases where the business is going to be split up. They can help determine what the value of that business is. Often the resolution is the process of bridging the gaps between the competing experts: one party’s expert says his value of assets is a million dollars and the other party’s expert values them at half a million or two million dollars. A big part of the job then is to get behind those evaluations and assumptions and find ways to bridge the gap between the two positions.

We are strong proponents of mediation and dispute resolution, but we also know that we have to use the court system as a strategic resource to level the playing field. There are all kinds of other ways you can resolve disputes, other than litigation, once both parties are on an equal footing

Scenarios that require the expertise of a lawyer to resolve a business dispute.
We are often required to assist with either a shareholder or partnership dispute, which is basically an ownership dispute. This would be an internal dispute between the owners of a business sometime after the business has been established. Such disputes are often the result of the lack of considered structuring at the outset of the business venture. Partners or joint venture participants often go into a business arrangement with a lot of enthusiasm but have not really taken the time to think about the future. Quite often when businesses are started, the partners are equal going in and no one has put any thought into the question of what happens if the two equal partners disagree on the direction of the business or on a particular decision to be made. If they are 50:50 owners of the partnership or 50:50 owners of the shares to the company, there is no easy way to resolve a deadlock. A lot of disputes arise from that scenario. The participants have not agreed on a proper structure for the business from the outset and later on when one partner decides he or she wants to leave and focus on other enterprises, a dispute arises about how to deal with that.

Another kind of dispute that business owners face involves a third party. This category includes a number of situations such as contract disputes; payment disputes where a third party fails to pay for the goods and services; and intellectual property disputes, where someone is using someone else’s intellectual property.

Ownership or shareholder disputes and third party disputes are the major categories of situations that arise in business and require dispute resolution services.