Individuals and business entities are increasingly relying on litigation or arbitration, two widely implemented processes, to settle opposing views and interests (Stipanowich, 2010). The purpose of this paper is to demonstrate the significance of alternative means, i.e., an amicable settlement and its potential to beget a mutually advantageous resolution.
Dispute resolution "refers to a number of processes that can be used to resolve a conflict, dispute or claim, ... alternatives to having a court (state or federal judge or jury) decide the dispute in a trial or other institutions decide the resolution of the case or contract" (American Bar Association). For example, arbitration is an effective, legally binding means to settle complex disputes arising between opposing parties. However, relying on arbitration or more formal court procedures to determine which party bears the most responsibility and proportional restitution is not always the best solution. In fact, stakeholders involved in dispute resolution, even the judges and lawyers, agree that court procedures are expensive, time consuming, and often leave all parties disappointed with the final settlement (Barns, 2015).
We are presenting this case study as supporting evidence that amicable negotiation can drastically reduce the time and costs required to resolve a case. It is exemplary because both parties were predisposed to use successive rounds of arbitration to settle their dispute and counsel had to plead repeatedly for the opportunity to try for a negotiated settlement.
Research Method: A Case Study
An Asian investment company established a holding company (hereinafter referred to as the "Holding Company") in EU country 1 ("Nordica") for the express purpose of acquiring a commercial bank (the "Commercial Bank") in EU country 2 ("Baltica"). The Holding Company years later had to enter into a contingent liability agreement with another commercial bank (the "Bank") from EU country 3 ("Scandica") when the Holding Company sold said Bank all of its shares in the Commercial Bank.
This indemnification agreement was signed and funds set up in escrow as the result of an earlier dispute that had arisen between the Commercial Bank and one of its minor shareholders, a company "E" (based in EU country 4 "Celtica") prior to the share sale. Subsequent to this transaction, the Bank became the parent company of the Commercial Bank in "Baltica." The agreement stipulated that "the amounts from an escrow account (as defined in the agreement) drawn by the Bank after [a certain date] shall be returned to the Holding Company with interest if a final non-appealable verdict rejecting all or part of a certain claim for contractual penalty is obtained" in favor of the Commercial Bank. The Commercial Bank was awarded a ruling in its favor by an arbitration tribunal, which was final and non-appealable and duly affirmed by judicial stamp within the court of jurisdiction.
The Commercial Bank's proceedings with "E" for the enforcement of the arbitration award were still ongoing but had been stalled because "E" had subsequently been stripped of its corporate status in "Celtica" due to its negligence in filing annual tax returns. As a result, the Bank contended that the arbitration award had not been fully enforced as stipulated in the indemnification agreement and would not consent to release the amount in escrow to the Holding Company. The Bank was concerned that if "E" were able to secure a reinstated corporate status in "Celtica" that there was a chance that "E" would resume its case against the Commercial Bank. This was the root of the dispute which led the Holding Company to brief a local attorney to enforce the terms of the indemnification agreement through another round of arbitration. Negotiations continued for nearly two years with no resolution as cultural and contractual restraints hindered reconciliation.
Eventually, the Holding Company employed new counsel, a team of attorneys from the Korea-based firm DR&AJU. This new Arbitration Team, after pointing out that arbitration might drag on for two or three more years, received the Holding Company's consent to give direct negotiations a try, provided arbitration would resume no later than three months hence if success was not achieved. After first meeting intense reluctance from the Bank in "Scandica" and its counsel in "Baltica," the attorneys were able to sit down out of chambers, speak face-to-face and begin to understand specifically what the Bank expected. Upon deliberation with each party to determine the circumstances, the facts on hand and their respective positions, it became apparent that the Bank was willing to negotiate. In an attempt to settle the matter, the Bank requested that the Holding Company have its new team of attorneys submit certified proof to "Baltica"'s regional court that "E" was no longer a recognized legal corporate entity back in "Celtica." If this could be secured, the Bank would drop its claim that the terms of sale had not been fully met and would release the funds in escrow. In addition, the Bank requested a memorandum explaining the legal consequences of E's loss of its corporate status as it applied to the arbitration award and its finality.
While the Bank expressed its intention to resolve the issue promptly and amicably, the legal counsel representing the Holding Company and its Asia-based parent company retained the right to proceed anew with arbitration as allowed in the indemnification agreement, provided the negotiated resolution and release of the escrow funds failed to fall within the stipulated three-month period granted for negotiations.
Since the Bank's sole demand was a substantive and updated opinion from an attorney regarding the finality of the arbitration award, DR&AJU approached a law firm in "Celtica," the home jurisdiction of "E" to address the lost corporate status issue and obtain memoranda stating the inability of "E" to secure corporate status, as well as the potential legal repercussions for "E" should it ever attempt to do so. Also, DR & AJU, on behalf of the Holding Company, negotiated explicit terms that specified how provision of the stipulated memoranda to the Bank would expedite its agreement to release the Holding Company's long-locked escrow funds no later than the last day of the three-month period. In order to guarantee the Bank's satisfaction with the relevant material, DR & AJU advised and instructed three separate law firms in "Baltica" (jurisdiction of the purchased bank) to deliver independent opinions, in addition to the memoranda supplied by the law firm in "Celtica". On the very day marking the passage of three months, the dispute was settled and finalized in an amicable manner to the satisfaction of all parties involved when the Holding Company's parent company found a substantial amount of money had been deposited into the Asia-based parent company's designated account.
This case shows how "[t]he rapid spread of arbitration," as Ginsburg (2003) stated, "makes it more likely that parties will be familiar with it as a dispute resolution option." After arbitration commences, a win-lose mindset takes hold; there is no incentive to "understand and respect the culture and communication styles of the other party," what mediator Alessandra Sgubini called, "the single most important thing learned throughout [her] experience" (2006). An amicable win-win solution that is in both parties' best interests may be at hand if counsels make an effort to discover the needs and expectations of the other party.
This case of the Holding Company and the Bank clearly illustrates the importance of seeking amicable settlements, with demonstrated respect for the economic imperatives and cultural inclinations of all parties. By clearly understanding the Bank's requests and responding with active cooperation, DR&AJU was able to settle the case efficiently. Re-initiating arbitration or litigation would have drained all parties of more time and resources without a satisfactory resolution guaranteed to any of them. Industrial relations expert John T. Dunlop's observations "call attention to the growing importance of negotiations in resolving real or potential conflicting interest among groups in our society. ... The negotiations process deserves to be much better and more widely understood" (Dunlop, 1984). Dealing with a dispute with firm knowledge of the interests of the opposing party and engaging in cooperative negotiation can produce much more favorable results than those achievable through the more litigious forms of dispute resolution.
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Sgubini, A. (2006). Mediation and Culture: How Different
Cultural Backgrounds Can Affect the Way People Negotiate and
Resolve Disputes. Mediate.com.
Stipanowich, T. (2010). Arbitration: The 'New Litigation'. University of Illinois Law Review, 2010(1). Retrieved from http://ssrn.com/abstract=1297526
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