Different departments in an organisation tend to unanimously agree on one principle: that they must avoid resorting to courts to resolve commercial disputes!
All departments view disputes as a distraction as they shift focus away from more important business needs.
You would, however, be spared for thinking that the legal department would be one exception. Nevertheless, they are likely to be the MOST opposed to resolving disputes exercising litigation.
Usually, their fears are borne out of cost and certainty considerations. For one, no skilled advocate would ever give even the strongest case anything over a 75% chance of success. Litigation can always end in surprises!
Secondly, with a typical London solicitor charging around £450 an hour, the cost of running even a simple commercial litigation can be north of £100,000.
It’s also worth remembering that costs follow the event, so a losing party is very likely to be ordered by the court to pay the lion’s share of the winner’s legal costs.
So, if everyone in the organisation is in agreement that they must avoid resorting to courts to resolve commercial disputes, why is it that commercial disputes end up in courts or arbitration?
Well, in our experience there are 6 key reasons why commercial disputes go unresolved and end up in courts or arbitration – and we will explore all of them in this blog post.
6 reasons why commercial disputes go unresolved
Here are six reasons why disputes go unresolved and end up in courts or arbitration.
1) The back seat drivers in commercial 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.
Commercial 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 and 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.
Check out our blog post: The Commercial Matters Podcast – Demystifying IT Disputes to learn about our podcast series on IT disputes.
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 commercial dispute resolution. 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.
We have dispute resolution expertise and it is a service we offer as part of our Commercial Consultancy.
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.
Do you want commercial dispute resolution expertise?
A lengthy court battle will cost your organisation tens, potentially hundreds, of thousands of pounds. Therefore, it is best to avoid resorting to courts to resolve commercial disputes!
Helpfully, here at Mindful Contract Solutions, we have dispute resolution expertise and it is a service we offer as part of our Commercial Consultancy.
Not only do we work closely with your service management function, providing them with a commercial and contract touch point, we also give proactive and reactive advice on supplier or contract issues that emerge or could emerge.