By Allan D. J. Dick
Disputes affecting businesses in the hospitality industry commonly include employment issues, problems with commercial leases, disputes over supplies, customer complaints, social-media concerns, regulatory charges, shareholder/partnership/franchisee fights, insurance claims, purchase and sale matters, occupier’s liability, construction problems and myriad other categories of disagreements. This article will provide a number of useful considerations for how to prevent disputes and, if a dispute arises, how to get to resolution.
Before doing so, it is helpful to canvass the following four adages, which should be kept in mind if you find yourself facing a potential or existing dispute:
Problems cost money. These costs take the form of the human and financial capital that are normally earmarked for advancing a business’s commercial objectives, but which must be diverted towards managing the dispute. This consideration, which should always be factored into your dispute resolution strategy, necessitates a cost-benefit inquiry.
It takes two parties to settle, but only one to fight. The only way to resolve a dispute is for all parties to reach an agreement that is more favourable to them than the alternative.
When seeking to resolve a dispute, whose pocket are you looking into? In connection with the previous adage, many disputes are prolonged by one party believing that the other party is or should be more motivated to resolve the matter. By contrast, the principle of “BATNA” (best alternative to a negotiated agreement) re-directs the inquiry inwards, and involves an assessment of the value to you to get the problem resolved.
Five different adjudicators may come to five different results.
Litigation and arbitration are simply mechanisms whereby a dispute, which could not be resolved by the parties, is decided by an independent third party who will rule on who is legally right and who is legally wrong. Judging, however, is not an objective exercise, and the ultimate ruling may be contingent, in part, on who is conducting the hearing of the dispute and writing the decision.
With these concepts in mind, let’s start the journey.
Failing to prepare is preparing to fail
With every business decision, it is prudent to consider what would happen if your plan does not go as expected. Often framed as “risk analysis,” this consideration requires that business owners formulate a plan to deal with potential failed expectations and consider whether something can and should be done to militate against the risk of that occurring. From a dispute-resolution standpoint, this can be achieved in several ways. For example, a business owner can secure insurance products that may shield them financially against the consequences of an adverse finding on liability. Similarly, prudence may dictate that the concern be negotiated in advance, despite the prospect that negotiations over a “what if” concern might scuttle the deal. Conducting risk analyses and taking proactive, preventative and protective actions guided by those analyses are critical to preventing and mitigating the effects of disputes.
Purchase value from your lawyer
If you establish a relationship with a lawyer who values that relationship, you should always feel that you get value from the work and the advice you receive. With that in mind, you should never be afraid to ask your lawyer what you should do to avoid or resolve disputes because of the perceived legal cost of obtaining that advice. Strategic guidance and an estimation of the cost to implement that strategy are two key pieces of information that a trusted legal advisor should be willing to provide you for a fee that you feel is appropriate for the value of the advice received.
Know the deal “on both sides”
From a transactional perspective, it’s critical to have a mutual understanding with the other side about the parameters of your deal. Disputes between contracting parties frequently arise because of misaligned expectations. When those misunderstandings are identified
after the parties have a firm deal and performance has begun, one side may believe, rightly or wrongly, that the other side is trying to change the deal. If this misunderstanding crystallizes into a dispute, an adjudicator will look for the “best evidence” of the terms of the parties’ agreement. Knowing this, to mitigate potential disputes, parties should take steps to clarify contractual ambiguities, document their positions and confirm that their views are mutually held before the deal is acted upon.
First steps
Roughly 98 per cent of litigation settles prior to trial. Those cases can be broadly divided into two categories. The first is where one party, for strategic or financial reasons, seeks to delay a potentially negative result for as long as possible. Resolution happens, but typically after significant time and money has been spent. The other is where both sides have a genuine interest in resolution, but they do not agree on what that resolution should look like. The key is to figure out as quickly as possible which of these categories your dispute falls into.
Know your opponent
In practice, the nature and timing of a resolution will be dictated less by the issues than by the individual making the decisions. When dealing with a legally represented party, sometimes, but not always, that person is opposing counsel. No athlete starts competing without identifying and preparing for their competition. That should be no less true when handling a business dispute.
All About Timing
Every minute that a dispute remains unresolved is another opportunity to try to resolve the dispute. This axiom is built into Ontario’s litigation process, which is designed to promote settlement. For example, with respect to most types of disputes, litigants are required to attend a mandatory mediation session before they can proceed to trial. What is remarkable about mediation is that the parties will often go to great lengths to assemble a mediation “brief” for the mediator to try to persuade him or her of the merits of the party’s position.
However, mediation is a party-driven process and the mediator does little more than assist the parties to try to get to a resolution at a juncture in the proceeding when both sides should be aware of their respective litigation risks. A mediator will decide nothing. There’s little value in trying to persuade a mediator that you are right.
Ironically, mediation negotiations are often conducted at a time when parties have become entrenched in the rightfulness of their positions, and are often fuelled by considerations that have little to do with the merits of the case and the parties’ likelihood of success at trial. Given this, parties should appreciate that it is a fairly rare day that concerted efforts to achieve a resolution at the outset of a dispute could not have brought about a similar resolution months, if not years, earlier, and with huge costs savings to both sides. It therefore behooves any party to a dispute, with or without a lawyer present and with or without a mediator, to try to settle their dispute in earnest and as early as possible.
A Word about Costs
Ontario is what is known as a “loser-pays” jurisdiction. A successful party in litigation is usually awarded a portion of their costs to be paid by the losing party. The percentage is roughly 60 per cent. Plaintiffs can recover more through the strategic use of formal settlement offers. However, costs are rarely paid when matters settle, except in insurance and sometimes in employment disputes. It is therefore prudent to expect that, when embarking on litigation that you hope will conclude in a negotiated resolution, your costs will in all likelihood be borne by you.
Parallel processes
The goal of dispute resolution is to convince the other side, as early in the dispute as possible, of the lack of merits in their case and their comparatively higher likelihood of losing if the matter is adjudicated. In many cases, this requires you to invest in building your case early on. If you are successful in persuading the other side of the validity of your position, the other side will be inclined to settle on terms favourable to you without both parties having to incur all of the concomitant costs of litigation. If you cannot get the other side to see it that way, then the litigation process must be directed to trying to convince the ultimate adjudicator that your position is the meritorious one. Your efforts at building your case early on can be re-purposed to advance the proceeding. In this way, the negotiated dispute-resolution process and litigation are parallel processes. Parties, however, are leery of spending money in litigation when what they really want is a negotiated solution. The worst type of dispute to get into is one where litigation is commenced or defended, it isn’t resolving itself early on and one or the other party becomes unwilling to invest in the dispute to allow its interests to be advanced. The matter starts collecting dust and the entire investment in the dispute to that time becomes wasted.
Litigation or Arbitration?
This decision turns on many factors and whether the right choice was made can often only be determined in hindsight. The only point being made here is that parties to a dispute should at least consider whether arbitration is worth exploring, and whether a mandatory arbitration clause is worth including in its contracts at the front end.
A Final Word
It is inevitable that disputes of various kinds will arise in the course of operating a restaurant or restaurant chain. An obvious factor which will make an enormous difference to a restaurant’s success is how well its owners have prepared for and manage these disputes. At their core, the development and resolution of disputes are organic, and with the right preparation, sound decision-making and trusted guidance, you can maximize the likelihood of achieving a favourable and cost-effective outcome.
Allan D. J. Dick is a partner in the Toronto office of Sotos LLP. He has been helping clients in the hospitality industry avoid, resolve, litigate and arbitrate disputes for more than 40 years. He can be reached at [email protected].
