Avoid Litigation at All Costs

I once had the privilege of watching one of the UK’s top mediators in action.

The issues were all about a sizeable but largely derelict ship sold by A to B, with a view to B stripping it down and converting it into a  luxury cruiser for a passing Asian billionaire. B duly paid A his deposit of $500,000 or so..

However, to B’s consternation the ship was even more derelict than B had believed, and would not sail to the refit yard. B and A started arguing. A then sold the ship to C, at a higher price than B had paid.

B sued A on various counts, including return of the deposit and loss of potential big profits.

The parties arrived for the mediation. The woman mediator did not take long (almost minutes) to conclude that they were not going to settle that day.

A was a large and obnoxious European, who went out of his way rudely to belittle the other side, to sneer at the whole process (“This is all bull***t!“), and to make brazenly sexist remarks at the mediator for good measure (“You’re good-looking and smart – come and work for me!“). By contrast the other side (B) seemed outgunned and demoralised.

After a day of futile wrangling where the gap between the parties scarcely moved, the mediator did something that is not recommended in the mediation handbooks. She told the parties that they had five days to settle the issue privately. If after three days they had not done so, she would propose to them a deal. They could take it, or go to court to sue each other into oblivion.

Off they went. Five days passed. Nothing happened to settle the dispute.

So she proposed her deal. Both sides promptly accepted it.

In essence she proposed that A returned B’s deposit, plus pay a bit to cover B’s legal costs. She had guessed correctly that for B the key thing was not ending up massively out-of-pocket. A had done well enough from the whole business, selling the ship at a higher price than B had paid.

Thus B got minimal downside – A got rather less upside. The deal played cleverly as between the parties’ respective Positions, Interests and Needs. Sorted.

The point of course is that any dispute that involves lawyers can soon become almost as much about the costs of the dispute as the substance of it. Every letter or memo or email or telephone-call made by the diligent lawyer on your behalf – another snappy kerchinnggg on the plump fee eventually coming your way!

Plus even if it goes to court AND YOU WIN hands-down, you don’t recover all your costs from the other side. Some 20% of them or more are left to you to bear.

Say X is suing Y for £1,000,000. X has many strong arguments but Y makes some solid counter-punches: X fears that the judge will not award this full amount even if X wins the case.

The case drags on for three years. Finally the judge awards X judgement for £500,000. From that X has to pay his lawyers a further £70,000 in costs.

X ends up with something over £400,000, but also has had to carry the cost of all the stress and disruption/distraction of battling out the problem for several years. X would have been far better off proposing a mediation well before the case started accelerating towards court, and quickly settling on somewhere around £400,000.

Moral? Parties in legal disputes focus on what they get from winning. They invariably underestimate the costs of losing – AND the costs of winning.

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