Chapter 13

Making peace early

From the perspective of the victim of the breach of contract, there are various options you can take. The line you pursue depends on who the dispute is with, the subject of the dispute, the strength of your position, the general commercial circumstances and the result you want.

Generally test the waters

Depending on the strength of your claim for breach of contract you may wish to wait to see what the response is from your contractual counterparty after your first complaint. Bear in mind there is nothing at law that requires them to make a response to a letter of demand. It is merely a claim you have asserted. It can be gloriously ignored by your counterparty. If that is the case then you need to make a decision as to whether you should:

• terminate the contract for breach
• affirm the contract but assert a right to damages or some other form of relief
• waive the claim either because of its lack of strength or your inability to prove it. On the other hand you might wish to ‘fight another day’ and in all the circumstances the nature of the breach is not serious enough to give rise to as grave a consequence as you originally thought.

Each of these strategic choices will need to be based on an analysis of the strength of the case. The stronger the case, the more decisive your action should be.

If you believe the case is strong you may wish to immediately commence court, tribunal or arbitration proceedings. This is the boldest and most aggressive move. The upsides of this step are:

• you make an irresistible statement to your opponent that you take this breach seriously and that you are looking to recover compensation or any other form of relief as is required so as to make good your loss
• you immediately commit them to a prospective risk of court orders against them and therefore focus them deliberately and precisely on the dispute
• you expedite the process of the determination of the dispute so as to ensure that you obtain a result at the earliest possible time.

The disadvantages to this response are:

• you generally commit yourself to a high level of cost and involvement in the determination of the dispute in a reasonably short time frame
• by suing, you bloody the nose of your opponent in such a way that they may seek to consolidate their position and act obstinately (and without commercial rationality) even if the case against them is strong
• you commit yourself to a course of action that is not without penalty if you seek to change it dramatically by stopping the court proceedings.

Generally speaking a court, tribunal or arbitrator will award the costs of the case to the other side if you seek to end it before it is heard and determined. The rationale here is that you pick the fight. You cannot elect when to stop it without penalty. The other side has generally incurred legal costs in the process of defending. They should not have to bear these costs if you as the party commencing the proceedings are not willing to see them to their natural conclusion.

The alternative course is to commence settlement negotiations.

These negotiations may take any form. There are generally three ways in which settlement negotiations at an early stage of a dispute are progressed:

The benefits of an early negotiation strategy are:

• you open a dialogue with the other side at the outset that may cause them to think of you as a reasonable person and therefore they are more receptive to an amicable resolution of the dispute
• you take the opportunity up-front to try to resolve the matters in question without committing significant resources to a course of action in court, tribunal or arbitration proceedings
• if successful, you have resolved the dispute generally on far more advantageous terms and with a great deal more amity in the relationship between you and your counterparty. This is particularly important if the contract is an ongoing one in that neither party has sought to terminate for breach as a result of the conduct of the alleged breaching party.

The potential disadvantages of an early settlement negotiation strategy are:

• the settlement is unsuccessful and you have ‘wasted’ time delaying in the commencement of court, tribunal or arbitration proceedings to have the matter finally determined
• you may feel you have compromised your position by disclosing your hand to the other side in the negotiations
• the other side may form a view that you have no honest belief in your case given that you are eager to try to settle it rather than drive it forward with gusto and advance your position asserting the case in a strong, decisive and powerful manner.

If I talk to them I can fix it — straightforward negotiation

There is nothing stopping you opening a dialogue with your counterparty in order to resolve the matters in dispute.

It would be unwise to do this without a strong sense of the strength of your position.

Given the information gathering system just outlined, it may not be possible for you as the negotiator to understand all the relevant facts and matters in issue. You may not have a detailed knowledge of all of your people’s stories.

Generally speaking this will not be so important in a settlement negotiation.

Settlement negotiations should avoid dispute on fine matters of fact. Whether party A said something to party B is a matter in contest. Rarely will there be agreement on what was said and done. The negotiation will be bogged down. It is likely to be counterproductive to have fights about the honesty, credibility and competence of various people in the organisations. There will always be two versions of facts. Don’t try to find ‘the truth’ or insist upon the other side accepting what you say or think.

In my view you should set aside any dispute on the facts at the outset by saying something like, ‘We both have different views of the world. Let’s not talk about who is right and who is wrong, let’s try to work out a way of fixing the problem we both have’.

This is a sound and effective premise to start negotiations. That is because you are expressly telling your opponent you are not willing to talk about the matters that may cause you to lock horns. Rarely in the negotiation will presenting a solution to a problem be inflammatory unless the solution is to ‘do nothing’ or it is a ‘winner-takes-all’ type of situation.

An attempt to work out who is right and who is wrong legally and morally will usually be counterproductive and possibly cause the parties to be further away from settling the dispute during the negotiations than they were when they first sat down around the table.

It cannot be emphasised enough that any negotiation, with or without lawyers, must be on a without prejudice basis.

I have set out above the broad principles of without prejudice negotiations above. This is a critical component.

It is a regular feature of negotiations that parties make concessions on the facts, on their claims or respective positions. This is what a negotiation is all about. If both parties stick to their stated best case scenarios, the discussions will be short and the negotiation is destined to be unproductive.

That is a case of the unstoppable force moving the immovable object.

One party is saying ‘this is what I want’; the other says ‘I’m not willing to give it to you’. It is probably better described as not a negotiation at all. It is more a statement of position.

You need to be protected from the court, tribunal or arbitrator coming into knowledge of any concessions you have made. Concessions can be expressly or openly made without any admission that they constitute your real claim or are what you are entitled to (your actual or formal position being much grander than that you are willing to accept on a commercial basis). There is nevertheless a benefit in having all settlement negotiations as being without prejudice.

In fact the law broadly says that if your negotiations are in settlement of a dispute then they are not admissible to the court as evidence. However, this may not apply for tribunals or arbitrations.

On this basis, it is extremely important it is understood that the meeting is without prejudice before anything is said by one party to the other. It is also useful prior to the meeting to send an email, letter or fax to your counterparty telling them that the only basis on which you are willing to meet is that it is without prejudice and, unless you are advised to the contrary, you assume the meeting will be on this basis. Alternatively, ask them to confirm in reply that the meeting is agreed to be without prejudice. If you can, getting an express statement from them to an agreement in these terms is far more beneficial than a unilaterally imposed term or negotiating on the basis of an assumption. There will be no dispute as to terms.

Don’t just expect that the Queensberry rules will apply and that the parties will honour the spirit of the negotiation.

Just as there are oversellers and dubious negotiators on contracts, the same character traits apply in settlement negotiations. Your counterparty may present a face of reasonableness and openness that later changes if they become unhappy at the manner in which the negotiation is progressing. You protect your position best by having a without-prejudice negotiation and no other.