Different departments in an organisation tend to unanimously agree on one principle. It is that they must avoid resorting to courts to resolve disputes.
All departments see disputes as a distraction as they inhibit focus on more important business needs.
You would be spared for thinking that the Legal department would be one exception!
However, they are likely to be the most opposed to resolving disputes exercising litigation. Usually, their fears are borne out of costs and certainty considerations.
In this post, we explore 6 reasons why disputes go unresolved and end up in courts or arbitration.
6 reasons why disputes go unresolved
In my experience, there are six good reasons why disputes go unresolved.
1) The back seat drivers in disputes
A big problem with commercial disputes is the number of back seat drivers in any organisation. Essentially these are high impact individuals who supervise the dispute but aren’t directly engaged in the cross fire. Typically these will be senior executives.
One problem at this level is that you rarely get told the truth. Thus, despite the empowered status, the back seat drivers lack full understanding of the dispute. The lack of awareness then results in counter-productive advice given to the team.
Disputes usually get bigger rather than evaporate as they simmer. Failure to deal with disputes with bold and sensible decisions early on leads to disputes turning into prolonged battles.
2) Imbalanced contract
Sometimes, the level of competition in the sourcing prior to contract award is very fierce. In such cases, a very desperate supplier is contracted on very onerous terms. Conversely, customers may be in that position. They may have signed up to very onerous standard terms with a software vendor, for instance. Problems start occurring in the project because both sides haven’t done what they needed to do, to make the project a success.
However, the imbalance of the contract is such that, despite these collective failures, one party is clearly on the hook. At this point, for the party that feels contractually strong, pursuit of a claim becomes commercially more attractive. The alternative is to share the pain fairly with the other party. How likely is the latter to happen?
3) Difficulties of announcing a loss
Often, the parties to a dispute will have a view on whether they are at fault and to what extent. However, psychological factors kick in and a defensive posture could potentially be adopted. Lawyers, if appointed, are very capable & duty bound, to point out what those defences might be. More often than not, the factors are not just psychological but also organisational.
People lower the down in the organisation usually only have authority to meet positive targets. Announcing a potential liability internally in their area of work is regarded as a career limiting exercise. The natural cover up is to portray the other party as unreasonable. Quite naturally, the other party will such a stance in very poor light and a pursuit to legal remedy may follow.
4) A recalcitrant party
Sometimes there isn’t a clear explanation for why a party is behaving in the way it is. It may just appear that one party is not wanting to cooperate in resolving the dispute. The reasons could be many. For one, it may be a perception that there is a low probability of a legal claim being made by the other party.
For another, it could be a perception that the other party is highly reliant on the performance of the contract. And there could be more. When the frustration of the aggrieved party tips over its tolerance levels, this could result in a prolonged legal battle.
5) Emotions run high in disputes
Emotions are a central reason why individuals seek legal resolution. Organisations can sometimes fall in the same trap. They seek to fully correct the wrong by the other party. Only a formal judgment is considered to make this possible. Usually though, group decisions can be devoid of emotion.
This is probably one reason why organisations usually do not act emotionally. However, things can be different if the final decision maker in the organisation gets emotional about the dispute. That may well drive his organisation to a negotiation failure and a subsequent recourse to the courts.
6) Genuine misinterpretation of agreement
One would think this is the only category for which the field of “dispute resolution” and commercial courts exists. However, in my experience it is usually the least likely to be real reason for the dispute reaching the courts. Sensible parties often understand why the other party contends what it does. Also, they recognise that a compromise is probably a reasonable solution.
However, compromise can be difficult in at least two conditions. One where the impact of the unclear interpretation is wide reaching, extending to other contracts. Second where a point of principle is required to be established in law to provide that much needed clarity.
Where do you go from here?
We have dispute resolution expertise and it is a service we offer as part of our Managed Commercial Services offering.
We work closely with your service management function, providing them with a commercial and contract touch point. Furthermore, we give proactive and reactive advice on supplier or contract issues that emerge or could emerge.
Please contact us to find out how we can help you today.