Management

A Better Way To Resolve Costly Business Disputes

Dated: 12 November 2003

It is often said our litigation system is too costly, too painful, too destructive, too inefficient for civilized people. However, it is interesting to know that a quiet, steady and escalating revolution is changing our adversaral system. In the last couple of years, more and more disputes, either already in litigation or in the pre-litigation stages, are being resolved by alternative dispute resolution (ADR) methods.

Leading that quiet, steady and escalating revolution is none other than the very hardworking attorney-at-law-trained mediator Donna Parchment, who is Executive Director of the Dispute Resolution Foundation, located at 5 Camp Road adjacent to the Gun Court in Kingston 5. Recently the Businessuite spoke with both Donna and her able assistant, Ronald Mason, who himself is an attorney-at-law-trained mediator and had over 12 years experience as an attorney and mediator in Atlanta, Georgia, USA.

The core of the discussion centered around the fact that disputes between companies and individuals, which previously wound up in court with consequent huge legal fees, can now be settled extremely inexpensively through the ADR, a service which the foundation offers.

ADR originally meant another form of dispute resolution as opposed to litigation. Now, arbitration, adjudication etc. are lumped in with litigation, the results of which are of course binding, and ADR is a non-binding alternative. The advantages of arbitration over litigation are: ability to select a decision-maker with expertise in the field of the dispute in question, procedural informality, privacy of proceedings, speed and so lower cost, and finality. Business disputes can be resolved in a businesslike manner by integrating all of the essential players into an effective dispute resolution system. The parts of that system are the parties to the dispute, the lawyers who represent them, the neutrals (judges, arbitrators, mediators, facilitators, etc.) and the rulemakers who establish the process that runs the system.

A truly efficient system contains sufficient options of inherent flexibility which allow the parties to resolve disputes in a manner best suited to their particular needs. Successful dispute resolution cannot be achieved when the players work at polar odds. They must work in synchronization. The principles of ADR create that synchronization. Board rooms and executive committees in Jamaica are just now beginning to embrace ADR as the appropriate method of resolving disputes with clients, vendors and customers, because at the heart of ADR is the inherent flexibility and control necessary to achieve the best results possible under the circumstances.

Most successful local organizations are now beginning to have mechanisms designed to resolve internal disputes because they understand that disputes must be resolved efficiently at minimal expense of corporate resources in order to focus on the business of the venture. This is the fundamental philosophy of ADR. Business disputes with clients, vendors and customers can successfully be resolved efficiently at minimal expense of corporate resources when the parties work in synchronization to reach the common goal of the best possible result under the circumstances. Executives are accustomed to being in control of their environment. They are used to logic, reason and business analysis. They problem solve, bring structure from chaos. This is precisely the approach that ADR uses to resolve business disputes. When a dispute enters the web of the judicial system, control is often lost as the process takes control. The players become pawns, being relegated to a reactive rather than a proactive role.

They may become confounded, perplexed, dismayed and often frustrated. This does not occur when basic, problem solving techniques generally employed by successful companies to resolve internal disputes are applied to the resolution of disputes with clients, vendors and customers through the use of an ADR process. ADR is perfectly suited for the resolution of business disputes for just these reasons. A properly executed ADR process incorporates all of the essential players to the dispute, depolarizes them and focuses on the common goal: resolution. Rather than attacking each other, the parties attack the problem. The interested parties and the lawyers, who represent them, with the help of a neutral, embrace their inherent power to become their own rulemakers for the resolution of their own dispute. Rather than working at odds with one another, the same, basic principles of problem solving utilized to resolve internal disputes are put to work to resolve disputes with clients, vendors and customers.

Business analysis, logic and reason prevail. The fastest growing ADR process is mediation. In its most basic form, mediation is a private, voluntary process in which an impartial person facilitates communication between parties to promote settlement. Many similarities exist between basic mediation principals and those applied by executives in the day-to-day management of conflict resolution. When faced with conflict, business leaders understand that issues must be dealt with directly; that there are likely hidden agendas and unspoken motivations driving the dispute; that all parties truly believe they are "right"; and that the establishment of "objective truth" may not be necessary to a successful resolution and may never even be known. And quite often the resolution must take into account a continuing relationship between the disputants. These same principles are the fundamentals of mediation. Mediation seeks to understand the underlying interests and motivations driving the dispute.

It seeks to satisfy those interests without the necessity of determining "right" and "wrong." Mediation does not necessarily seek "objective truth," although it certainly creates a safe environment to do so if necessary to resolution. Mediation seeks a mutually satisfactory resolution in a manner which either preserves or cleanly terminates the relationship allowing the parties to move forward, sometimes together, sometimes apart. All of the attributes of an effectively designed mediation fit the needs of business dispute resolution. The following are a sampling of those attributes, both Donna and Ronald put forward: Confidentiality This is the cornerstone of mediation. The parties may negotiate freely and openly, without fear of disclosure. There is no jeopardizing of legal rights or positions. Privacy Mediation is private.

This helps insure confidentiality. The dispute is not public record and not subject to public scrutiny. This may be especially critical where company reputation is essential. Competitors needn't know your problems with vendors or customers. Privacy helps maintain and control public image. Privacy breeds security and comfort, the antithesis of intimidation and fear. Only the former promote resolution, not the latter. Cost Control Costs can be controlled. Traditional litigation often requires tremendous expense and risk just to exchange information deemed necessary to resolution. Mediation allows the parties to exchange necessary information privately, efficiently and at controlled expense.

A dispute over the quality of goods or services requiring extensive inspection or expert evaluation can be costly through the judicial process. These costs decrease dramatically when the need for formal depositions and inspections conducted pursuant to the rules of procedure under the auspices of the court are replaced by a simplified procedure designed by the parties themselves. Party Control In traditional litigation, the role of those whose money is at stake is relegated to the back seat. The parties discuss case strategy with their attorney, remain available to answer questions, provide information and write cheques. Mediation puts executives and managers back into familiar and comfortable ground, the driver's seat, in control. They can ventilate opinions, feelings, options and do what they do best - participate directly in the problem solving process which directly impacts their company's performance.

Procedure Flexibility Executives know best how to go about solving their own problems. All they need is the opportunity to contribute their ideas to the development of a process best suited to solve the particular problem at hand. Rather than have a procedure imposed upon them, they would rather design one to suit their needs. Voluntary Resolution is more likely to result from a voluntary process than an involuntary one. All successful organizations know that voluntary participation from employees nets greater results than involuntary or reluctant participation. This same principle applies to dispute resolution. When two businesses voluntarily agree to accomplish a goal, even if that goal is the resolution of a debt, there is a strong likelihood for a successful resolution. Win-Win Outcome Mediation allows the parties to be flexible and creative so that a resolution can be developed where both parties have "won," i.e., they each have benefited from the resolution. A common example is a dispute over the quality of goods that resulted from a miscommunication of design specifications. In the litigation forum, each side must prove they were right and blameless or lose.

In this forum, you are either right or wrong, there is no middle ground. In mediation, the parties can identify the area of miscommunication, rectify the error, maybe even create a new design and continue the relationship so both can profit as originally planned. This result is not possible in traditional litigation. What is the lawyer's role in mediation? He should help the client find the best resolution under the circumstance. He should be result oriented, a problem solver and protector of the client's legal rights. And he should assist and service the client's need to resolve the particular problem as efficiently as possible. The role of advisor is a role all attorneys accept in every case. This role becomes more prominent as trial approaches and parties either begin to realize they may lose or the cost to continue becomes prohibitive. This is usually the time when bona fide settlement discussions commence. Ultimately the client looks to their attorney for advice and counsel, not just advocacy of positions and theories. The attorney must then become the agent of reality, a difficult role at times as it may require the appearance of weakness or backpeddling.

The role of agent of reality is effectively borne by the mediator who is in the best position to explain the "facts of life" to the disputants who are not always able to clearly see the realities of potential outcomes in litigation. As an unaligned neutral without bias, the mediator is uniquely empowered with the credibility necessary to effectively communicate the sometimes-harsh realities of litigation. Settlement all too often waits for the proverbial courthouse steps. The challenge is to employ that same exercise early in the process before costs get out of hand. It makes good business sense to direct available resources to the development of a good resolution rather than a less than satisfactory conclusion borne out of desperation. Attorneys know quite well what the litigation road looks like. Experienced counsel can predict with a comfortable degree of certainty virtually the entire course of a business litigation case. Costs, time, types of motions and discovery disputes and likely outcomes can be fairly estimated.

The one major piece of the puzzle which is always unpredictable is the outcome, because it remains in the hands of another. That is where mediation gains its strength. Its outcome remains in the hands of the interested parties, not in the unpredictable hands of a trier of fact. Often, the most difficult hurdle to overcome in settling business disputes is starting the resolution process because neither side wants to be the first to "blink." Traditional wisdom states that he who asks to negotiate a settlement has exposed weakness. Traditional wisdom is outdated and shortsighted because the topic always arises in any event. The parties can engage a mediator at any stage of the process. A mediator can be the one to instigate negotiations, can facilitate existing negotiations if the parties have reached impasse, or can be a significant catalyst in the development of the entire dispute resolution process. Collection of delinquent accounts is a perfect opportunity to apply ADR techniques. Accounts are delinquent for a reason yet traditional dispute resolution processes do not address those underlying reasons. The approach is adversarial, not collaborative.

ADR moves the parties from an adversarial posture of underlying skepticism and distrust into a collaborative process of joint problem solving with the common goal of a mutually satisfactory resolution. The distinguishing characteristic of mediation and the fundamental philosophical underpinnings of ADR in general is that the parties engage in a collaborative rather than combative resolution process. That process may take the form of negotiation, facilitation or the more popular mediation. Regardless of what medium is utilised, it is the application of this philosophy which separates and distinguishes it from the traditional debt collection pattern of telephone calls, demand letters and lawsuits. Debt collection almost always has at its root non-economical issues that traditional processes are not designed to effectively address. In most cases, the inability to pay causes embarrassment. This embarrassment results in avoidance, delay, perhaps denial or even the manufacturing of a seemingly meritorious defense. No one wants to admit financial difficulty.

It is personally embarrassing. The debtor is fearful he will be widely perceived as a failure. Perhaps he has already labelled himself a failure, which motivates him to avoid his problems, not solve them. He may fear the loss of other business relationships since businesses are reluctant to deal with financially unstable organizations, hence outright denial or the manufacturing of a defense. These underlying, non-economic issues can be addressed in ADR processes such as mediation. Once at the table, alternatives can be developed. In fact, it is often the case that the creditor may have the knowledge or the referrals necessary to help the debtor raise funds, either directly or through other business. For example, a creditor referred a debtor to a credit union for a loan. The debtor had not known that the credit union offered such services to non-members. The debtor used the money to pay the creditor.

(The creditor may be asked to provide documentary support to the lender to prove that the loan is to be used to pay off the particular debt.) This type of collaborative problem solving is different than simply telling the debtor, "Go get a loan." Another example is referring the debtor to other sources of business income and then supporting that referral in exchange for direct payment from the new business source. Another advantage of utilizing ADR to collect debts is to take advantage of the basic human tendency that people would rather do what they want rather than what they have to. This is especially true of people who are under significant economic pressure. Use a carrot instead of a stick. This approach will no doubt surprise them and the element of surprise is always an ally. Very often, debtors must choose between several ..creditors. They have only limited funds to divide amongst many creditors. How do they choose? They exercise the little control they have left. They are more likely to choose those who are cooperative over those who are bullying them. There are a number of reasons why this is generally true. First, debtors are quite sophisticated.

They know their best ally in the delay game is the judicial system. Once a creditor plays that "trump card" of filing suit, the debtor knows that time is on his side. Second, when people are attacked, the natural reaction is to resist. No one wants to give in to the bully. Third, people tend to respond best to those who treat them with respect and dignity, especially if those people are far and few between. The creditor who acts respectful but firm, will not only disarm their debtor but will stand out among the other creditors, all of whom have their hands out.

If the debtor is willing to engage in this approach, the chances of resolution and collection are increased dramatically. Mediation provides a safe environment. It is flexible, patient, and exclusively voluntary. It is a "forward" looking process conducive to resolution. These intangible factors can be critical to debtors. The goal is to strike a firm but fair resolution in which the debtor has a vested interested in developing and therefore performing. A resolution arising from a voluntary, relatively congenial and fair process has a higher probability of successful performance than does a result imposed under duress, compulsion and antagonism. These intangible factors are critical to debtors. In the context of a business transaction, it is the opportunity to strike a deal; and everyone likes to make a deal. ADR is an effective tool to resolve business and account receivable disputes. It allows businesses to maintain control of their resources and resolutions. It provides an opportunity to either turn a bad situation into a promising opportunity or to salvage the best result possible under the circumstances.