JAMS ADR Blog by Chris Poole
The old curse disguised as a blessing “may you live in interesting times” is showing its teeth in the form of pandemic in these early months of 2020. Among the inevitable casualties thereof will be disrupted business relationships. In this moment of crisis, the limitations of legal solutions to address business needs are being exposed. Businesses can preserve relationships by getting ahead of the problem through using creative solutions, such as neutral facilitation: a proactive incarnation of what typically is known as mediation.
Surely no one would disagree with the assertion that businesses enter into contracts in order to increase predictability in business relationships. The parties set forth the terms of the relationship—such as how goods will be delivered or how services will be provided—and the terms of payment. These contracts also typically indicate what will happen should a party fail to live up to those terms, with options including governing laws and rules for resolution, and they might specify liquidated damages.
Unfortunately, no contract can foresee the infinite array of situations that can interfere with a party’s ability or willingness to fulfill contract terms. Welcome to 2020 and the days of the coronavirus (COVID-19).
As world’s attention has shifted from the fragility of supply chains anchored in China to the COVID-19’s evolution into a pandemic—particularly in Iran, Italy and other parts of Europe, and now the U.S.—financial markets have plummeted and economic forecasts are dire. A significant economic downturn appears virtually inevitable. For individual businesses, this means a lack of clarity regarding the viability of supplies and the receptivity of markets for their goods and services.
I often remind parties in disputes before me that their reliance on legal mechanisms is, at best, like using a blunt instrument to perform a delicate operation: With great luck, there will be an appropriate apportionment of damages. Yet the apportionment of damages, however fair, unbiased and equitable, is a wholly inferior solution to avoiding the dispute altogether. An old adage rings true in these uncertain times: In business, as well as in health care, an ounce of prevention is worth a pound of cure.
Herein lies the eternal dilemma concerning the adequacy of legal mechanisms to assure business relations. An awareness of the legal consequences for breaching a contract can discourage businesses from straying from its terms. Yet that agreement becomes nothing more than a palliative tool when straying is inevitable. Yes, it is recognized that force majeure clauses may release a party from obligations in dire, uncontrolled situations. Yet being released from pre-specified obligations does not address the question of business necessity, particularly in perilous times.
Unlike the static application of the facts of a case to the law, commercial necessity is dynamic and forward-looking; it requires flexibility and creativity; and it begs for the creation of an enduring link between intended relationships and changing conditions.
The benefits of using mediation in commercial conflicts are well known. Through its forward-looking, practical focus, it saves time and money over traditional solutions (e.g., litigation and arbitration, which affix damages rather than prescribe remedies), as it offers clients the opportunity to reduce risk and resolve a problem. Utilization of a mediator whose mandate is to produce a consensual outcome transforms erstwhile positional bargaining into collaborative negotiation, assuring that the focus of the parties rests on a mutually acceptable outcome rather than the relative victory so often sought in non-facilitated bargaining. Quite simply, utilization of neutral facilitation increases the chances of reaching a negotiated agreement.
But now, in the days of COVID-19, in which we know that contract terms will be broken, utilization of mediation tools through neutral facilitation brings a wonderfully nuanced, practical solution to a problem crying out for a solution. Neutral facilitation can prophylactically avoid conflict by aligning parties’ interests through contract revision that responds to changing conditions, therefore maintaining productive commercial relations even in the most difficult of times.
Neutral facilitation offers the following benefits:
We know that we will face difficult times in the coming months. It is simply good business to prepare to weather the storm, rather than to pick up the pieces of broken relationships. Now more than ever, an ounce of prevention is worth a pound of cure.
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