Avoiding Disputes, Litigation and Alternate Dispute Resolution
Bill Davell: We’ve heard about so many cases where things go wrong in a business or contractual relationship and issues end
up in court – where you can never be sure of the outcome – or one party simply ends up being shortchanged. How can we avoid ending up in litigation or just as bad, not getting what we’re expecting out of an arrangement?
Paul Lopez: You’re right to have these concerns. Even partners or contracting parties with the best of relationships and intentions can end up in misunderstandings, changes in circumstance or other failures to meet expectations that can lead to disputes – not to mention those who don’t know each other well.
Which brings us directly to the first step in avoiding problems: knowing exactly what you or your organization in fact are expecting and trying to achieve out of an arrangement. Expressing your desired outcome with the greatest possible specificity will help you and your opposite party draw up terms and details that will get you there. Write it out and walk the other party through it as you work toward an agreement.
Bill Davell: OK, we’ve determined what we want out of a deal or relationship. What’s next?
Paul Lopez: Let’s pick up on the concept of “previous relationships.” It’s always good to have worked with a partner before and have a strong mutual understanding and basis for trusted collaboration. But if you don’t have a prior relationship, some preliminary investigation is in order.
Research any potential partner organization’s – and principals’:
• time in business
• reputation and previous projects from trustworthy references
• previous partners or vendors
• history of litigation or judgments, if any
• even their vendors and reputation
Bill Davell: My investigation is done, and the partner or contractor has checked out. How do we go about crafting an agreement?
Paul Lopez: “Crafting an agreement” is the operative term. Never conduct business on a “handshake” – always enter into precise and concise contracts that avoid legal jargon and use simple language understandable to both sides.
Equally important, make sure the contract clearly sets forth all obligations and expectations by both sides, how parties will operate, and in what timeframe, including any deadlines.
Don’t depend on communications outside the contract: in one recent situation, a contractor suggested a design detail relating to cabinets. The contract, however, specified that cabinets would be installed “according to the rendering,” which the contractor intended to refer to its own design sketch, which didn’t even include the area in question. The homeowner interpreted that term to mean a more inclusive “rendering” he submitted to his HOA, with the contractor copied. The contractor claimed not to have seen the HOA submission nor to have remembered the conversation, and the homeowner, reluctant to press the dispute, ended up with extra costs.
Also, don’t depend on emails with loose language or perceived promises. Parties often assume or argue that such electronic exchanges create de facto agreements.
That’s when an ounce of prevention can make clear all parties’ intentions — and help avoid litigation and financial exposure. In addition to making sure any contract clearly expresses every detail you expect from the relationship or project, contracts should include
clauses stating that no amendments or terms, expressed orally or in writing, are enforceable unless signed by the parties, and emails and correspondence should include disclaimers that no terms are effective unless signed by both parties.
Bill Davell: So if we have a clear, very specific contract with protections, everything should be good, right?
Paul Lopez: Not always. Certain changes in behavior from those specified in contracts can be considered a change in terms. For example, in another recent case, two partners seeking to disentangle their business interests never signed the dissolution agreements they drafted. After three years of independent operation, one partner’s business took off, and the other demanded half the successful enterprise’s assets. Fortunately, a court ultimately denied the claim, ruling that the parties had been conducting business consistent with their intended separation.
Moreover, even with finely crafted agreements, circumstances change. Communication is key: if you sense that a relationship is souring, misunderstandings have arisen, or situations have changed in other ways that affect the performance of a contract or business relationships, don’t be afraid to speak up and express your concerns while there is hope of resolution.
At the same time, consulting with an attorney, either within your organization or outside it, may help in determining a course of action that de-escalates matters – and keeps you out of a bitter dispute or worse, landing in court or arbitration.
Bill Davell: What about alternatives to court litigation for Christians?
Paul Lopez: In drafting agreements between Christians, consideration should be given to the admonition not to take each other to civil court. Alternatives to civil court litigation can be drafted into agreements that include mandatory mediation before a Christian mediator and if this fails binding arbitration before a Christian arbitrator including provisions on how to select the mediator or arbitrator. Going beyond Christian mediation and arbitration, Peacemaker Ministries provides a pathway to not only resolution of the dispute but also Christian reconciliation of the parties.