Resolving commercial disputes during a global crisis

Covid-19 has morphed rapidly in the last three months from a distant rumble of thunder over China, to an all-engulfing deluge that is sweeping away large parts of the global real economy. Never before have the world’s workers been asked to stay at home. The appalling consequence is that, in many sectors, otherwise successful businesses are in peril of collapse.

The vast majority of companies in South Africa – and beyond – are in immediate survival mode, conserving cash, deferring payments and liabilities wherever possible, and reviewing terms with suppliers, customers, landlords, lenders, their own employees, and the government.

There are two striking features of these negotiations.

First, they do not arise from any dissatisfaction with the existing arrangement, but rather a temporary and unforeseen emergency. The fundamentals of the deal remain sound, but for “lockdown”. So, while businesses will be focused on protecting their immediate future, all but the most short-sighted recognise that they need those with whom they are negotiating to survive too, if the ecosystem is to bounce back once the crisis has abated.

The importance of maintaining relationships while settling one’s disagreements is therefore paramount.

Second, we do not have time on our side; waiting for litigation to run its winding course could be fatal to one or other party. Businesses now urgently need a creative and flexible resolution process that gets to the parties’ needs, can provide a quick outcome, and keep them on sound terms at the end of it. This is precisely what commercial mediation can offer.

Now is an opportune time for South African businesses to adopt a practice that has already proved highly successful elsewhere, and is easily transferable to the virtual world. In the US and UK, commercial disputes are routinely resolved through mediation. The same goes for Brazil and India, Singapore, Australia, Canada and many other countries. It is recognised as a far less expensive means of achieving an agreement, and a far quicker process.

Unlike the long slog of litigation, many commercial mediations can be settled in a day or two of dedicated effort. They are voluntary processes, and the parties can walk away at any time without prejudice to whatever other course of action they may wish to take. They are flexible; without a third-party adjudicator, the parties alone determine the terms of agreement, or whether they reach agreement at all.

To be clear, opting for mediation does not mean losing legal protection. Lawyers frequently play an important role alongside their clients in commercial mediation, to protect their clients’ legal interests, and to review the terms of any subsequent agreement. Indeed, many lawyers – like me – have become mediators too.

So, what does a commercial mediator do?

The real skill of a mediator is to help break down the walls that are built up when disagreements surface, preventing communication. As a dispute arises, people tend to withhold information, and trade positions (or, demands), which leads to polarisation.

Good mediators are adept at getting to the underlying and often unexpressed needs of either party, ascertaining the relative importance of their interests. They do this through shuttle diplomacy – moving between private sessions with the parties – formulating potential trade-offs. Doing this effectively gets parties out from behind rigid positions, in search of more creative answers to their respective needs – something our American colleagues refer to as “expanding the pie”.

Not only do the parties tend to come away with a more elegant outcome than simply “winner takes all”, but because the mediation process is geared towards addressing interests and needs, business relationships are preserved, and often fortified.

So, might this process now take off, as it has elsewhere?

Circumstances are certainly ripe for it. The key to behaviour change is removing the points of friction that make change effortful. In this case, as in so many others, Covid-19 has transferred the friction, so that carrying on as before is now effortful or, even, impossible. 

The times we are in call for changed approaches to solving our business disputes and, like so many of the practices we are adopting right now, we will soon wonder why on earth we never tried them before. BM/MC

James Gordon is an executive director of Concentric Alliance, a consultancy specialising in resolving high-intensity disputes and conflicts, and facilitating multi-party negotiations. He is an accredited commercial mediator, and a former practising barrister (advocate) in the United Kingdom.