Stay out of court - advice for founders involved in litigation
Even though a dispute might not be of your making, you might have to accept that you need to pay money to resolve it. View it like any other expensive unexpected situation: a customer goes bust owing you money; a key staff member falls seriously ill; a product you rely on is discontinued. These are all situations which will cost you money to fix, but you wouldn't begrudge that money - it is just a cost of doing business. Stuff happens.
“It depresses me that solicitors cannot at the very first interview persuade their clients to put their faith in the hands of an experienced mediator, a dispassionate third party, to guide them to a fair and sensible compromise of an unseemly battle which will otherwise blight their lives for months and months to come.”
This is a real quote from a real judge (Lord Justice Ward). The unseemly battle he was dealing with involved an agricultural boundary dispute, but it could just as easily have involved a shareholder agreement, employment agreement or any other kind of contract your scale-up is involved in.
There are plenty more quotes in a similar vein.
One of my favourites comes from a young Abraham Lincoln, who was himself a courtroom lawyer:
“Discourage litigation. Persuade your neighbours to compromise whenever you can.
Point out to them how the nominal winner is often a real loser - in fees, expenses, and waste of time.”
The message is clear: unless you need to test a point of law, stay out of court.
This is especially true for founders of scale-ups whose time is best spent on one thing, and one thing only: growing their business.
But what about fairness? Justice? Why should you let that shareholder / employee / supplier get away with ripping you off?
Firstly, remember the adage of Ray Dalio, the hedge fund billionaire, to be ‘radically open-minded’. The other side will very likely think you are ripping them off. Your dispute is, probably, something about which reasonable people could disagree. Is it possible that the fairness scales are not tipped as far as you think?
I was at a mediation recently between a wealthy homeowner on one side and several tradespeople on the other. The amounts involved were not trivial, something in the order of £100k on each side, and racking up fast as the two sides prepared for trial.
The tradespeople were absolutely convinced that the homeowner had deliberately set out to rip them off. They actually accused her of fraud, of deliberately getting them to do work with no intention of paying for it.
And the homeowner thought it was 100% obvious that the tradespeople had not done what they had agreed to do, and she was merely asking them to pay for the costs she had incurred finishing and re-doing some of their work.
Both sides were advised by experienced litigation lawyers. Both sets of lawyers seemed quite convinced of the rightness of their side’s case. Both sides had racked up ~£50k each of legal fees. But they couldn’t both be right, and they couldn’t both win at trial. Once the litigation train is rumbling along the tracks, it takes enormous discipline to be sufficiently open-minded to see the dispute from the other side’s point of view.
Secondly, even though a dispute might not be of your making, you might have to accept that you need to pay money to resolve it. View it like any other expensive unexpected situation: a customer goes bust owing you money; a key staff member falls seriously ill; a product you rely on is discontinued. These are all situations which will cost you money to fix, but you wouldn't begrudge that money - it is just a cost of doing business. Stuff happens.
How do you get to a point where you can open your mind to see the other side’s reasonable point of view? How do you get to a point where you can view an emotionally-charged dispute as a simple commercial transaction?
Through a process called mediation.
Mediation helps both sides get to the point where they can view the dispute as a commercial transaction to be settled. Skilled mediators tease out what the key issues are and help both sides navigate to a settlement. Something like 80% of mediations settle on the day.
Mediators are often semi-retired lawyers, but they don’t have to be. I’m not a lawyer. Often the commercial experience of a non-lawyer can be more useful to settlement than the legal expertise that a lawyer brings.
It is a structured process, with the mediator shuttling between each side’s room (whether that’s a real conference room or a Zoom breakout room). Parties to the dispute will usually have their lawyers with them. It takes about a day. The mediator helps the process along with careful questioning and by bringing a neutral viewpoint into the room. But the mediator is not a judge, they can’t decide anything. They just help both sides understand where a settlement might be possible.
One final tip: if you are going to mediate, then mediate early. For many legal teams, mediation is seen as a final alternative to avoid trial. But by the time your case is ready for trial, you will already be waist-deep in legal fees. Mediate early: it’ll cost you a day of your life, plus a couple of grand of legal and mediation fees. Peanuts compared to going to trial. And if you don’t settle, then you will at least have had a whole day of scrutinising the other side’s position, ready for your day in court…
Civil Mediation Council: civilmediation.org
ADR Group: www.adrgroup.co.uk
Centre for Effective Dispute Resolution: www.cedr.com