Contract and Commercial

So you spent a small fortune having a contract commercially drafted to ensure certainty.  Then why are you now in dispute?

Commonly, a clause that seemed straight forward enough when it was relatively unimportant now has numerous meanings when it is at the centre of a dispute. Equally as common, a situation has arisen that the contract, or more precisely its drafter, failed to anticipate and as a result, the contract is silent on the matter.

You could litigate to have the matter sorted but the only certainty in taking the matter to court is the enormous legal bill you'll be be facing at the end. Even if you win and are awarded costs, they are capped and usually a fraction of what you have actually spent--but it gets worse.  That same contract has been used with numerous other clients, all of whom will be awaiting the results of this very public process and if the ruling goes against you, you could be looking at a much larger problem than you are facing right now.  There is another option--mediation--and it works in a similar way to selling your house privately. 

Why is mediation like selling a house?

There is another revolution happening at the moment--in Real Estate.  Savvy vendors have realised that by cutting out the middle man you cut out their fee which for a house of $600,000 would usually be around $30,000.  Part of this fee can be used to reduce the price of the house making it more attractive to the purchaser and you still end up netting more than you would have if you had used an agent.  It's a win-win situation all round.  Unlike mediation, selling your house privately requires considerably more effort than using an agent which is why many are still in business, but neither comes close to the amount of effort you're looking at if you litigate.

So let's apply this same principle to dispute resolution. 

The best and the worst of it...

A dispute you're involved in is potentially worth $50,000...that is, of course, if you win.  It's too big for the Disputes Tribunal, too big to write off but too small to spend $20,000 in legal fees for a case you may or may not win.  In the worst litigation case scenario you get none of the $50,000, but now you have a $20,000 legal bill to boot so you're down $70,000.  In the best case scenario, after more than a year, the court finds in your favour and awards you the $50,000 with maybe $10,000 towards costs--that is if the company hasn't already gone into liquidation in the intervening months and years. You see they too have had to spend a considerable amount in legal fees defending the matter, money which could have been used to settle.  Net reward after a great deal of stress? $40,000 and that is the best case scenario.

There has to be a better way to resolve such disputes--and there is.

There is a solution

Now, if you mediate this same scenario, things start to look a little more promising. 

First, remove the people from the problem.  This is business not personal, and if you are savvy in business you'll know that spite and retribution are luxuries that come at high cost and are not tax deductible expenses.  By mediating, you are already looking at saving more than $19,000 on fees and part of this saving can be used to make an offer of settlement more attractive to the other side.  The other side is also saving themselves more than $19,000 in legal fees and the prospect of settlement, at a reduced amount, suddenly makes commercial survival a realistic prospect and therefore gives the other party something to lose.  When people have something worth losing, they are more willing to consider all options to save it.

If you don't reach agreement at mediation, what have you lost?  Half a day of your time and around $500.00.  If you do reach agreement, albeit at a reduced rate of say $40,000, a clear and legally binding contract is signed and should default on this occur further down the track, then it is a straight forward contractual breach rather than a complex legal issue and its attendant costs.

Finally...

Learn from experience. Have your contract redrafted--preferably with someone other than the original drafter.  Business is very much a live and learn experience and you can't afford to make the same mistake twice.