Relational Contracts

A Relational Contract is my favourite type of contract, if actually having a favourite contract is a thing.

In any event, most mediators like me tend to see them a lot because they are uniquely suited to the process of mediation – many having a life of up to 10 or 15 years, maybe even longer. They might be joint ventures or other contracts that require a degree of collaboration, say in the tech space or mining sector – and they are certainly not confined to individuals and can be relational even if between companies.

The defining feature is not necessarily term but more that these types of contracts are underpinned by a relationship requiring more than simply what is written in the contact – and often it is that trust and confidence is vital for the business of the contract to work compared to an ordinary long term commercial lease or standard supply contract.

And it’s because of this special relationship that the courts have often been prepared to read in duties of good faith where none exist on a black-letter reading.

So, a common conversation I have with counsel in mediation is… “what difference, if any, does that relational underpinning make in law, will a judge be tempted to see some extra obligations where none exist within the four corners of the document?”

For instance in a dispute over the rights and wrongs of termination – if it is indeed a relational contract, an implied duty of good faith might have a real impact on the merit of that termination.

That conversation has been made easier by the recent English High Court case Bates v Post Office (a group litigation in which 550 sub-postmasters had claims relating to the introduction and operation of an IT system, known as Horizon ) identifying nine “specific characteristics” that are relevant when determining if a contract is relational – summarised well by White & Case here;

  1. no “specific express terms” in the contract preventing a duty of good faith being implied;
  2. a long-term contract, “with the mutual intention of the parties being that there will be a long-term relationship”
  3. an intention on the part of the parties “that their respective roles be performed with integrity, and with fidelity to their bargain”
  4. a commitment on the part of the parties “to collaborating with one another in the performance of the contract”
  5. the “spirits and objectives” of the parties’ venture being such that they are incapable “of being expressed exhaustively in a written contract”
  6. the parties “repose trust and confidence in one another, but of a different kind to that involved in fiduciary relationships”
  7. a contract which involves “a high degree of communication, co-operation and predictable performance based on mutual trust and confidence, and expectations of loyalty”
  8. a “degree of significant investment” or a “substantial financial commitment” by one party (or both) in the venture; and
  9. the exclusivity of the parties’ relationship.

Dispute Resolution Clauses In Commercial Contracts

I don’t mean to argue against the undeniable wisdom of inserting a dispute resolution clause in a commercial contract at the drafting stage.

What’s not to like… it makes absolute sense to agree a dispute resolution framework before a dispute arises.

But there is a BUT.

Most clauses, and there are hundreds of versions, are drafted on the premise that the dispute should get to mediation sooner rather than later. Definitely before any arbitration/court proceedings are started.

Some are multi layered; 1) first negotiate, 2) move on to mediate, 3) then arbitrate or litigate as a last resort – often with a carve out for injunctive relief.

Many have strict time frames, often measured in days, so a party to a dispute can force the selection of a mediator and convene the mediation within a relatively short time of the dispute occurring.

Because of this, these types of clauses risk pushing parties through the doors of the mediation room too soon… before the dispute is mature, before the raw edges have been knocked off and certainly before the parties have adequate information about their own or the opposite party’s position and interests.

They come to the table without adequately defining to themselves, and each other, what the dispute is all about – upon what it is they can agree and disagree, without adequate document exchange and to be honest without adequately spending time wallowing in the conflict and all that it brings with it.

The realities of the dispute, some that only come with age – the stress, the cost, the creeping doubt – are missing.

Like a ripe cheese, these things take time.

Representing Small Players in Multi Party Mediations

A good piece from Don Swanson, a lawyer out of Omaha, Nebraska, on representing bit players in large multi party mediations – we’ve all been there – other parties focused on the ‘big’ issues and it’s hard to get anyone, including the mediator, to focus on your supporting actor who has lower tier, but still crucial-to-them, issues.

Some extracts follow, but Don’s full article repays reading;

Many small players get run over—and their positions obliterated—in multi-party negotiations.

Small-parties are faced with limited choices on how to proceed;

1. Take an unbending position and hold out to the end—this is an all-or-nothing approach

2. Take an unbending position for as long as possible and then accept the best deal that’s offered

3. State an opening position and engage in active negotiations to achieve the best-possible result

Sometimes, the selection among choices is actually imposed upon a small-party by the dominant ones.

Otherwise, the answer on how-to-proceed is a judgment call in light of all known facts. In large part, the judgment call turns on the traction a party can create for its position. And traction turns on the answer to this question:

How significant is my position for the dominant parties?

Here are some traction-related questions to ponder:

>If I hold out to the end, can they move on without me—or do they need my consent?

>If they can move on without me, how valuable would my consent be to them—and what might I achieve that’s commensurate with that value?

>As a practical or legal matter, what do the dominant parties want or need from me? And what would they be willing to provide to get my consent?

Eat Toast In Bed – Go to Sleep With Crumbs

Sometimes in mediation, I ever so gently broach the subject of responsibility.

Take a construction defect case, and maybe also a joint venture dispute.

In private with the claimant party, I wonder out loud what measure of responsibility might be factored in for their part of the dispute they now found themselves consumed by.

I explain this may be important when evaluating any proposal on the table later in the day.

In the construction defect case I enquire what that measure might be – on the basis they accepted the cheapest tender by far from an outfit that turned out to have a sorry history – sure the builders are now cowboys – but could they not have found this out prior to contract?

In the JV case it was more along the lines – what would they factor in for their own decision to partner with someone who was perfectly honest and competent, but just ended up not being a good cultural fit for them?

The responses are often interesting.

Many resist the exercise. Legal merits trump all.

Some, it turns out, get angry at a rare lapse of judgement and are content to learn (and pay for) a lesson that stands them in good stead for the future.

As one party said recently, a little harshly I felt, ‘if you lie down with dogs – expect to get up with fleas’.

… crumbs or fleas. Hey, I get it.

A Baptism of Fire

Returning to London for a series of mediations this spring my cure for  jet-lag is a one-day Civil Justice Council workshop on the role of ADR in the civil justice system.

90 people packed into the ballroom of a central London hotel: High Court Judges, District Judges, Employment Judges, solicitors, barristers, arbitrators, mediators, the voluntary sector, civil servants from the Ministry of Justice and Her Majesty’s Court Service. As well – a sign of the times, various providers of dispute resolution software.

Chaired by Brick Court’s Bill Wood QC there were no speeches, no talking heads and no power points. Just fast moving discussion;

Why hasn’t the ADR message got through to the public? Are the existing prompts in the system working? If ADR can help parties without representation how is that to be funded and provided? Has ADR been treated as being limited to mediation for too long? Is some form of compulsion or automatic referral to ADR inescapable? If you have to provide at least some opt-outs does that inevitably bog the system down in satellite arguments? How big are the political obstacles in the path of radical reform? Will online access to the Court make all of these questions obsolete or raise new challenges? And what does the overseas experience tell us?

None of us envied the six members of the working group who now have to pick the bones out of it all and write a final report!

Read the CJC ADR Working Group’s Interim Report