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15 July 2020

How to resolve a difficult contract issue

Although you can't dictate how or when a contract issue will be resolved, you can take steps that will positively influence the outcome. This article explains how disputes get resolved, and summarises the pros and cons of the different options.  


How contract issues get resolved

Where a contract issue emerges on a project, there are only 4 ways that it will be resolved. They are:

  1. You give up your position entirely.
  2. The other party gives up on their position entirely.
  3. You reach a compromise with the other party.
  4. A third party – like a judge, arbitrator or adjudicator – makes a decision for you.

This means that unless you’re willing to give up on your position entirely, you have no control over when or how the dispute will be resolved.

It also means that, to get the best possible outcome, you need to focus your efforts on persuading the person(s) who will make the decision, as well as the people who will influence the decision-maker(s).

If your issue involves a large amount of money, this will typically mean not just convincing your commercial counterpart. It will often also mean persuading a lawyer.

The avenues to resolution

Although there are number of different ways you can go about resolving your issue, they all fall into one of two 'streams'.

The first stream is direct persuasion.

Direct persuasion is all about trying to convince the other party to change their position. All attempts to resolve a contract issue start here, usually with a discussion, a meeting, a phone call or a letter.

The second stream involves third party adjudication. This type of strategy is about engaging a third party to determine the dispute – such as a court, an arbitrator or adjudicator. People tend not to look at these options unless there are significant sums of money involved and/or they aren’t confident they can achieve an acceptable outcome through direct persuasion alone.

The two streams are not mutually exclusive. That is, if you decide to commence third party adjudication (eg litigation), this does not mean that you cannot continue to pursue direct persuasion at the same time.

In fact, in virtually all disputes that are referred to third party adjudication, the parties will continue to try to resolve their differences through direct persuasion for as long as they can.  This is why many disputes that end up in court are ultimately resolved through commercial settlement.  

Pros and cons of persuasion strategies and adjudication strategies

There are pros and cons to the different strategies for resolving your issue. 

Direct persuasion is cheap, low risk, informal and flexible. However there is no guarantee that direct persuasion will resolve the issue, because there is no guarantee that the other side will ever change their position.

In contrast, third party adjudication (such a litigation or arbitration) will always produce a result.  This result could be better than what you could achieve through direct persuasion. However, third party adjudication is far more expensive than any persuasion strategy and a positive outcome is never guaranteed.

Various pros and cons of the different options are summarised in the table below.

 

Third Party Adjudication

Direct Persuasion

Examples

Litigation

Phone call

 

Arbitration

Meeting

 

Binding Expert Determination

Correspondence (email, letter, lawyer's letter)

 

 

Mediation

Pros

Guaranteed to produce a binding outcome

You can’t be bound by an outcome you’re not willing to accept

 

Can be used in conjunction with a persuasion strategy

Least expensive, informal, flexible

 

The other party can be required to pay most of your legal costs

You can’t be required to pay the other party’s legal costs

Cons

It's expensive, time-consuming and a positive result is not guaranteed

There is no guarantee that the issue will be resolved, either positively or at all

 

You can become bound by an outcome that you don’t agree with 

You can commit significant effort and time and still not resolve the issue

 

You may be required to pay most of the other party's legal costs if you are unsuccessful

In most situations you will not be able to recover any of your legal costs

 

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Effective persuasion strategies

If you are looking to resolve an issue through direct persuasion, there are two questions you need to answer upfront. They are:

  • Who do you need to persuade?
  • What is likely to persuade them?

There might be several people in the organisation that you need to persuade.

For small companies, your audience is typically the business owner. Where there is a lot at stake, it might also be the company’s external lawyers.

For larger organisations, you may need to persuade different people at different levels of management. You may also need to persuade an internal lawyer (or an external law firm where there are large amounts involved).

Once you have identified who you need to persuade, you need to remember that different people will be persuaded by different things.

For example, a commercial person might be influenced by the prospect of being given (or missing out on) future opportunities, discounts, altered payment terms and so on. None of these things will affect a lawyer’s thinking at all.

In contrast, a lawyer will only be interested in objectively provable facts, and how a court would likely apply the law to those facts. 

This has important implications for how you approach your strategy.

Where people go wrong

Our experience is that many people are often overly optimistic about their chances of resolving an issue through commercial persuasion, and consequently do not pay enough attention to the underlying legal position.

This means that contract issues can often take much longer to resolve than they really should, purely because one party has not made the effort to spell out the legal aspects of their case as well as they could have – with the consequence that the other party isn’t convinced that they have any case to answer.

Whereas some people will see lawyers as a hindrance, lawyers can often make a big difference in helping the parties get to an outcome so that they can move on.

Lawyers will do this by making sure:

  • you are aware of where you stand (in terms of the strengths and weaknesses of your argument),
  • your case is presented as well as it can be,
  • the other side clearly understands your position, and what they stand to lose if a commercial resolution cannot be achieved, and
  • you understand the different options that are available to you for the resolution of the dispute, so that you can make an informed decision as to how best to move forward. 

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About the Author

Andrew Hernandez | Lawyer

During his time with Turtons, Andrew has been involved in a range of contentious and non-contentious work (particularly in the construction space).


andrew.hernandez@turtons.com | (02) 9229 2918

About Turtons

Turtons is a commercial law firm in Sydney with specialist expertise in privately owned construction and technology businesses.

Andrew Hernandez | Lawyer

Author

Andrew Hernandez | Lawyer

andrew.hernandez@turtons.com

During his time with Turtons, Andrew has been involved in a range of contentious and non-contentious work (particularly in the construction space).


andrew.hernandez@turtons.com | (02) 9229 2918

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