Archive for June, 2014

Pre-Litigation Mediation and Settlements

Thursday, June 26th, 2014

It’s really simple.  The best form of litigation is litigation that is avoided.  If the parties to a dispute can resolve their differences without the use of lawyers then that is the ultimate.  This, however, is not as frequent as one might wish.  Why?  In part because someone who is good in business is not necessarily the best at getting his/her points across.  What makes someone a good sales person does not always translate into making that person good at expressing his/her point of view and persuading the other side.  (Conversely, many lawyers who are good at being persuasive are lousy sales people.)  In part, lawyers are required because the business people are afraid that either the other side is trying to take advantage of them in the resolution or else they want to ensure that resolving the dispute in the manner proposed won’t come back to “bite them in the rear end”.

So, if resolving a dispute without the use of lawyer is the ultimate means of resolution, the next best means would be to resolve the dispute through the use of lawyers but before any litigation ever starts.  Two of the most common ways in which a resolution is effected before litigation is through either a settlement meeting or a mediation.  In a settlement meeting, the parties and their lawyers get together on a confidential and without prejudice basis (that is, that anything which is said in the meeting stays in the meeting and cannot be used against whomever said it later on).  The hope is that the parties and their lawyers will look at the dispute objectively and try to find some middle ground to permit a resolution to be achieved.  Mediation, on the other hand, has the same players as the settlement conference plus the addition of a mediator.  The mediator is a neutral party who will try to help the parties reach a settlement.  For example, Party #1 may know about Fact X.  In a settlement meeting, Party #1 may for some tactical reason not want Party #2 to know that Party #1 knows Fact X.  It could turn out that the knowledge of Fact X might resolve the matter.  In a mediation, Party #1 can tell the mediator about Fact X and the mediator can appreciate that Fact X is something which could determine the dispute.  The mediator could then meet with Party #2 and ask questions to elicit Fact X and then the mediator could suggest to Party #2 that if Fact X became known to Party #1 that it might be problematic for Party #2′s position and that, if the dispute went to litigation, Party #1 could very well learn about Fact X so Party #2 might want to resolve the matter before Fact X becomes known.  In addition, sometimes the client sees his/her/its position in a dispute as more rosy than it really is.  The client’s lawyer tries to suggest that the position isn’t quite as promising as the client believes but the client thinks the lawyer is just being too conservative in his/her view.  OK, so if the client hears the same thing or something similar from the mediator, this may suggest to the client that perhaps the lawyer isn’t being too conservative after all – and this may be enough to make the client want to move on his/her/its position to resolve the dispute.

Mediations are quite common in litigation – and in many instances there is mandatory mediation.  If a mandatory mediation results in a settlement and that settlement is breached, the non-breaching party has the ability under Rule 24.1.15(5) of the Ontario Rules of Civil Procedure to obtain a judgment in accordance with the terms of the settlement.  But that is if there is litigation going on.  What about settlement meetings or mediations that occur before any litigation has started?  A similar result can occur.

In Ontario, the Commercial Mediation Act, 2010 was enacted a few years ago and provides that if the parties enter into a settlement agreement at any time, and if that settlement agreement is subsequently breached, a party can apply for judgment in accordance with the settlement agreement.  This is important for business owners to appreciate.  Many business owners take the view that (a) because there is no litigation yet and (b) because the mediation is confidential, therefore (c) the other party cannot enforce the deal and (d) if they cannot fulfill the terms of the settlement that’s OK, they’ll just get sued for whatever is left between the other party’s original claim and whatever has been performed under the settlement agreement and they can try and settle the matter again later on.  In many instances, this can be the result of a breach of a resolution made at a settlement meeting.  However, once you involve a mediator, if a settlement is achieved from the mediation, then the settlement agreement can become a judgment of the Court due to the legislation – without a lawsuit ever having to be started.  So, if you are a potential plaintiff and the possibility arises of resolving the matter before litigation starts, go for mediation so that you have the ability to obtain a judgment later on if the settlement is breached.  On the flip side, if you are a potential defendant, agree to a settlement meeting before litigation starts but try to avoid a full mediation.

Now, you may be asking why this really matters?  I’ll give you an example.  In many instances, disputes are resolved for the “wrong” reasons.  I say “wrong” because the reasons often have little to do with the actual merits to the dispute.  The main “wrong reason” is financial or economic factors.  For example, Party #1 sues Party #2 for $100,000 that is owed to Party #1.  Party #2 refuses to pay and says that they should only have to pay $50,000 because of whatever trumped up argument they can come up with.  If there is a resolution before a trial is held, one of the main realities is that Party #1 is going to agree to less than 100% of the amount owing to it and less than 100% of all accrued interest and legal fees that it would otherwise be entitled to be paid.  That this is so is because, for example, the amount that would have to be spent in legal fees does not justify the difference between what Party #1 could obtain and whatever Party #2 is offering.  Similarly, it could be because Party #1 would rather get less money today than possibly not get all of the money tomorrow (such as if there are fears that Party #2 might go into bankruptcy).  In these cases, Party #1 agrees to settle on the basis of something other than the merits of the case.  By the same token, Party #2 may be completely convinced of the merits of its position – and it could even be that it has the better position at law than Party #1 – but it is agreeing to pay something to Party #1 “to make the case go away”.  And if, for example, Party #2 is in financial trouble, it might be willing to settle to prevent the dispute turning into litigation or into a larger dispute and acting as a continual drain on Party #2′s resources to pay legal fees or to deal with the lawsuit.  Let’s suppose, however, that Party #2 does go into bankruptcy or files a proposal for creditor protection under the Bankruptcy & Insolvency Act.  Party #2 might have been willing to enter into a settlement in the hopes that the settlement would prevent it from going bankrupt or having to file a proposal – even though Party #1′s claim had no merit.  If the resolution comes about through a mediation before litigation commences, Party #1 can apply to have judgment on the terms of the settlement.  If this occurs and there is a judgment, Party #2′s trustee in the bankruptcy or the proposal  will have a difficult time trying to deny any claim in the bankruptcy / proposal from Party #1 on the judgment – even though Plaintiff #1 never really had a valid claim to begin with.  [And, yes, for all of you grammarians out there, I'm fully aware that I just left a dangling participle - it's about the only rules I can break without getting into trouble so cut me some slack ;-) ]  If, however, the settlement is reached without the use of mediation, then there is still a good chance for the trustee to disallow the claims of Party #1 under the dispute.  Let’s add another element – suppose that you have shareholder loans outstanding with the Party #2 which is a company.  If Party #1 gets a judgment and the trustee cannot deny the claim, then your claim for repayment of the shareholder loan will have to share rateably with Party #1′s claim (even though it was based on a bogus claim).  If the resolution comes from a settlement meeting without a mediation, the trustee could disallow which, if not challenged, would permit you to take payment without having to share with Party #1.

Something to think about.

CALC

 

Office Closed Week of June 16 and for June 23 and 24

Friday, June 13th, 2014

Emily starts her maternity leave and the office closes for a week.  Coincidence?  Well, as it turns out, yes.

The office will be closed from June 16 to June 24 inclusive.  We will not be checking e-mails or voice-mails except very sporadically during this time.

Thanks.

CALC

 

Á Bientôt Emily

Friday, June 13th, 2014

Emily Robichaud has been with me for 8 years and she is leaving me – but only temporarily.  Today is Emily’s last day before she starts her maternity leave for a year.  It’s a wonderful time for her, not a great time for me but a happy time nonetheless.

I wish Emily the fastest, easiest delivery possible and hope that all goes well and that her baby is healthy and well.  See you in a year!

CALC