Don’t be a schmuck – avoid unnecessary disputes

Dispute Resolution

Most people and businesses hope that they never end up being a party in legal proceedings – and for good reason. Therefore, it is useful to recall some basic guidance that can help prevent unnecessary legal proceedings. I would argue that this guidance is also helpful in situations when going to court is the best (or only) way to resolve the dispute and the objective is to win the trial.

Rule number 1: document events systematically

Agree on things in writing. The less the contract is subject to interpretation, the less likely it generates disagreements. Verbal agreements leave the most room for interpretation and rely on our incredibly unreliable human memory. While written agreements should be a given, verbal agreements are common, especially in small to medium-sized enterprises (SMEs). People often consider drafting a comprehensive written agreement or obtaining written approval from the other party too cumbersome and fail to appreciate the risks associated with verbal agreements.

It is, however, important to understand that a written agreement does not necessarily mean 100 pages of expensive legal jargon. It can just as well mean a post-it note with the key terms listed as bullet points. Even with its limitations, such a note is much better than a verbal agreement when the content of the agreement is explored years later in a conflict of interest situation.

It is often appropriate to make notes on verbally agreed matters, which are then sent to the counterparty. This is to ensure that the parties have a shared understanding of the outcome of the negotiations. It will also be difficult for the counterparty to refer to errors in the notes later if they did not react to them initially.

If your contracting party breaches the contract, make a written notice immediately and carefully document the breach and the possible damage caused.

You must document things continuously. A good agreement will turn bad if it is forgotten in a drawer for years, so that the parties’ real life practices no longer resemble what was agreed.

Of course, keeping clear records is only useful if the documents can be found later. So it is worthwhile to carefully archive your documents (preferably electronically).

Rule number 2: Don’t rush

If you are in a conflict situation (or recognise its risks), carefully and calmly consider the possible solutions (with your lawyer), especially if the other party demands a solution right away. Sleeping on it reduces the risk of making mistakes.

Rule number 3: Be continuously self-critical

As a disagreement escalates into a conflict, there is a risk that critical self-evaluation is forgotten. Alarm bells should ring at least when you decide to take the matter to court because you know you are right. There is a high risk that your ‘knowledge’ is not based on facts, but rather on your own emotional state and a lack of understanding of the counterparty’s perspective.

Recognise your own mistakes and things you are uncertain about (depending on the situation, it may or may not be beneficial to confess these to the counterparty).

Rule number 4: Continuously evaluate the potential and costs of the case with a lawyer

People have a tendency to overestimate the probability of winning and underestimate the probability of losing. Ask your lawyer to critically analyse the expected benefits and costs of the trial – despite the fact that evaluation is difficult for several reasons (risk of bankruptcy of the counterparty; the amount of costs; stress and loss of working time as the trial, along with possible appeals, may last 1-3 years; etc.)

Evaluation should be continuous, and you should be able to re-evaluate. This is demonstrated by, i.e. the fact that the majority of disputes in district court end up not being adjudicated by a judge. Instead, they are settled by the parties during the process.

Rule number 5:Don’t be a crude

Often, the reason for the dispute is a sincere feeling of injustice. Rough behaviour from either party will not facilitate the proceedings. It is best to carry out negotiations through a person who is able to deal with the matter calmly.

Lawyers are sometimes tempted to sneer at the opposite party during the trial, because it is an easy way to score points with their client. However, it is often not in the best interest of the client. Rough behaviour provokes and offends the counterparty, and thereby diminishes the possibility of settlement and its terms. It will also cause the judge (and the wider public) to view the boor more negatively.

The above guidance is a bit like advice for a healthy life: mostly clear and full of no-brainers (compare written agreements with “remember to exercise and eat vegetables”). However, following this advice in everyday business requires effort and self-discipline.