Creating wellbeing through resolving commercial disputes

Written by Denise Evans – Principal, Dispute Resolution

Swiftly and effectively resolving commercial disputes is in everyone’s best interest, both in terms of economic and social wellbeing. It is widely known that conflict can take a physical, emotional and financial toll, if not managed properly. In the business world, it is often said that there are no relationship issues in commercial mediation and that the best approach is through settlement focussed mediation. But is it in anyone’s best interest to resolve a dispute without considering the relationship?

Commercial mediations often end in late night haggling about "splitting the difference", use of impasse breaking strategies such as silent auction, stair casing settlement offers, using mediator knowledge, experience and gravitas to provide evaluative comments aimed at promoting settlement as well as mediation fatigue. Without commenting on the legitimacy of any of those techniques, this article is written to promote discussion on the proposition that all commercial mediations would be enhanced through the parties spending time on their relationship.

One of the essential elements of contract is the intention to create a legal relationship between the parties to the contract. Any person whether that person is an arbitrator, judge, conciliator, who is asked to make a decision about any issue that comes out of a contract or other arrangement, first has to look at the relationship between the parties to determine the nature of the relationship and therefore the legal rights and responsibilities that flow from that relationship.

There are many examples of efforts by Parliament to determine whether or not there is a relationship between people from which legal rights might flow. For example, a relationship between two people has to have lasted for at least 3 years for certain rights to flow under the Property Relationships Act, there has to be a relationship based on sanguinity for rights to flow under the Administration Act. So too is it in a commercial contract dispute.   

The first enquiry is about the parties to the contract. It is important to know whether the contract is between individuals, or legally constructed entities such as a company or Trust. Where there is more than one named party on any side of the dispute the relationship between the parties determines the liability and therefore enforceability of any agreement reached. This enquiry is important as it cannot be assumed that the parties on each side of the dispute have between themselves an agreement on how matters might be resolved. It may be, and often is that the parties on each side may have to resolve conflict between them before they are ready to resolve issues with the other party to the contract. This has been a part of the resolution of insurance disputes arising out of the Christchurch earthquakes where as a result of the stress of the earthquakes and other factors, couples relationships have ended and they have needed to sort out issues between them as well as resolve the issue with the insurer or EQC.

Most commercial mediations begin with opening statements made often by an advocate on behalf of the party. These statements establish the contract, the facts leading up to the default or breach and state the position held by any particular party.  From these statements the mediator is asked to establish the issues and the parties interests, set an agenda and start work on resolving the problem. The conversation is often focussed on brainstorming possible outcomes that the parties can "live with".  I have often heard it said that a good commercial mediation outcome is one where all parties feel equally disadvantaged.

These meetings are often held with the parties in separate rooms where the mediator "shuffles" backwards and forwards between the rooms conveying offers, reducing party’s expectations, challenging the advice and assumptions on which the parties have established their Best Alternative to a Negotiated Agreement (“BATNA”) and their Worst Alternative to a Negotiated Agreement (“WATNA”).   

This type of mediation not only enables the parties (who are responsible for the creation of the dispute) to avoid taking responsibility, it also in my view loses much of the richness which is promised by mediation. Before you stop reading this all together, we are not proposing the use of transformative mediation as a way of saving commercial disputes.

For example, some people from an agency responsible for managing the development of a major road met with members of the community who were affected by this. They were impressive advocates for the project and conveyed their message to the people recognising fully the relationship which the agency had with the community, with the ecological environment that was being affected by the project and importantly with a willingness to hear, understand and respond to the concerns based on a "power with" approach to problem solving. It should be noted that this project has received accolades from the community about how the project has been managed in a respectful problem solving way. In an article advising progress the Manager of the project said:

"We wanted to be good neighbours. Working closely with the people around us has been key to getting this job [done] ahead of schedule."

This approach demonstrates the correlation between making commercial decisions and the relationship with the people both making those decisions and the people who are affected by them.

FairWay’s commercial mediation process starts with a discussion about the relationships between the people. Three simple questions elucidate a wealth of information that is so useful when it comes to those difficult times when it looks like a solution if hard to find. Those questions are who are you? How did you get into this relationship? What is it that you want to achieve from this meeting?

These are not easy questions for parties to respond to, especially not in a joint meeting however they respect the fact that this is a problem created and therefore to be solved by the people in the room. They have to accept responsibility for their part in the dispute whether that was an unreasonable reliance on the promises made by either party or the fact that the solution requires further decisions from them to be made. Through staying together in the relationship, they are required to redefine the relationship that will be the outcome of the meeting. The result may be that they will suffer disappointment and feel saddened, aggrieved and angry, however they will also have the promise of finding acceptance through the resolution of the problem. 

This approach enables conversations to develop about how the dispute might be resolved in a way that is sustainable and where the outcome can be described by the parties to interested third parties, who are often not present. It opens the possibility for non-monetary solutions and I am not talking about a commodified apology in this regard.

It also enables the use of mediation techniques which require active participation by the parties such as brain storming and reality testing with the people who are going to have to live with the solution at the end of the day.

For some parties it is important that the terms of the agreement should remain and that neither party will speak in a derogative way about the other. For these provisions to have meaningful effect, parties need to discuss the reason why such provisions are so important and the consequences if one or other party decides to break this agreement.   

In an increasingly joined up world, reputation is often one of the most important attributes in commerce. Sometimes those reputations are enhanced through resolving conflict. As one of New Zealand’s more famous retailers Alan Martin of LV Martin Limited used to say "if it’s not right we will put it right and it’s the putting right that counts".

Commerce makes the world go around and is a relationship activity - it makes no sense if mediators fail to address relationship in resolving commercial disputes.

About the author

Denise Evans is Principal, Dispute Resolution at FairWay. As part of this role, Denise provides Dispute Resolution leadership within FairWay and champions the use of Dispute Resolution services in New Zealand and internationally.

Denise has over 30 years’ experience as a lawyer, mediator and arbitrator, and she has vast experience in resolving commercial disputes. If you would like to get in touch with Denise, please contact her by email at denise.evans@fairwayresolution.com