Resolving business-related disputes in Belgium: time for a wake-up call
By Barney Jordaan; LL.D. Professor of Management Practice and partner at Vlerick Business School. He is academic head of the 2016-17 IMI Global Pound Conference Series, a project that aims to facilitate the development of 21st century commercial dispute resolution tools, at domestic, regional and international levels.
A number of surveys conducted over the past five years within the EU and the USA show that companies are experiencing an increase in litigation, particularly in cases involving con-tract compliance, product liability, regulatory matters and intellectual property. One 2013 survey found that the group of Fortune 500 companies spent in the region of US$210 bn on litigation, amounting to approximately one third of their after-tax profits. Note that these figures only refer to the cost of conducting litigation, not the amount of money spent on settlements before trial or payments for compensation after trial.
The true cost of litigation
Traditional accounting methods hide the true cost of litigation. What is mostly reflected is only the direct financial cost – the fees paid to external lawyers, experts and other providers of litigation support. However, because law department budgets do not take into account money spent to cover a company’s liability in a particular case, the company has no bench-mark to judge the department’s overall effectiveness. Neither outside counsel nor legal department compensation can be tied to results. No one is rewarded, for example, for recommending a reasonable early settlement.
What is spent on legal fees and other litigation expenses are profits that will never be delivered to shareholders or reinvested in growing the business. Likewise, accounting reserves that are established and held for long periods of time when there are probable and estimable losses arising from claims and litigation, and which are put into place to reflect the un-certain outcome of litigation, also have a direct impact on a company’s financial performance often for years before a final outcome is known. The potential destruction of share-holder value that this brings about also has implications for good corporate governance.
Also important is the adverse effect that litigation usually has on business relationships – relationships with customers, employees, suppliers, joint venture partners, and others. In any successful commercial enterprise, internal and external business relationships are critical, and they are as easy to lose as they are costly to develop and maintain.
Mediation is a flexible process conducted confidentially in which an impartial third person actively assists the disputing parties in working towards a negotiated settlement of a dispute, with the parties in ultimate control of the decision to settle and the terms of resolution. The mediator does not make any binding decision for the parties. However, if the par-ties request it and the mediator has the required expertise in the subject matter of the dispute, he or she might be willing to make a recommendation about how the matter could be resolved. In mediation the parties are encouraged to find a future-oriented business solution through their own negotiated settlement. They therefore remain in complete control of the solution, unlike the situation in litigation or arbitration where a solution is imposed on the parties. Parties can achieve creative business friendly solutions in mediation that simply cannot be obtained in litigation, while litigation can only produce a winner and loser, some-times two losers, based on a determination of past events.
The position in Belgium
Belgium was one of the first EU countries to adopt laws governing the use of mediation in commercial disputes. It also established a framework and institutions to support the training and certification of mediators. Yet, despite this foresight, despite the availability of many trained mediators, and despite mediation’s many advantages compared to litigation, the uptake from corporates and the legal profession up to now has been low and slow. In this respect the country lags behind a number of its peers within the EU, e.g., Germany, the UK, Italy and The Netherlands.
There could be many reasons for this, e.g., lack of awareness about the process among lawyers, company executives, corporate legal counsel and members of the public at large. Client attitude and appetite for conflict and confrontation probably also contribute to the lack of demand. To what extent lawyer attitudes about mediation impact on their clients’ knowledge of and interest in mediation is difficult to say, but it would be safe to predict that ignorance or negativity on the part of a company’s legal representative will surely affect an uninformed client’s attitude.
Poor management of conflicts and disputes are bad for business. Winning cases is not the same as winning in business. Prolonged and costly disputes that disrupt business relation-ships and create bad public relations detract directly from a company’s bottom line results, even if the litigation ultimately results in what the lawyers handling it would regard as a successful outcome. Like warfare, litigation should ideally be used as a last resort to resolve business-related disputes. It should be the alternative if amicable dispute resolution processes - such as mediation - fail to provide a mutually agreed solution to a dispute.
Mediation certainly is not a panacea for all disputes nor is it always appropriate. However, it offers business speed of resolution, cost containment (considering the time value of money); confidentiality; risk containment; control over the final outcome; less stress and formality, and limitation of damage to ongoing relationships. However, there is a “sea change” is happening in some parts of the EU and elsewhere towards more careful, intelligent, and strategic management of business conflicts and disputes, with mediation incorporated into a coherent dispute resolution policy framework as a preferred dispute resolution method.
Successful businesses want disputes resolved as quickly as possible, with reasonable out-comes, so the business can avoid wasting money on unproductive procedures, preserve and grow valuable business relationships, minimize corporate and reputational risk, and keep its employees and resources focused on innovation, its customers and winning in the market-place.