In business, conflicts are not only likely, they are inevitable. No matter what precautions we take, sooner or later a situation will arise in which two parties disagree. Whether a dispute involves a missed deadline, or something more serious like the quality of work, resolving these issues amicably without resorting to a full blown legal battle is essential. 

In today's blog, SVT will examine the role of conflict management in avoiding litigation, and how to use mediation to prevent costly litigation.

What is Conflict Management?

The best way to avoid conflicts is by having a comprehensive contract that clearly dictates the terms, so that each party understands their rights, responsibilities, and expectations. 

Even then, there may come a time when a dispute arises that a contract does not cover. Conflict management serves as a way to address and resolve these disputes before they require legal dispute resolution. Conflict management is thus essential to avoiding litigation and keeping a healthy working relationship with partners.  

The Costs of Litigation

When conflict cannot be resolved amicably, it requires legal dispute resolution. In nearly every instance, it is preferable to use conflict management to avoid litigation. Only when every other option has been exhausted should you seek legal dispute resolution through litigation.

We all know that entering a legal battle is costly from a financial standpoint. But litigation can also take years to be resolved through the court system. This saps energy from your organization, and can lead to lost productivity as well as the breakdown of the professional relationship. 

Therefore, it is always in your best interest to seek to solve disputes through conflict management, and only enter into litigation as a last resort.

What Are Some Common Causes of Conflict?

Conflicts with the potential to require legal dispute resolution typically involve several key issues. Some of the most common are:

• Financial Disputes - This can include a broad range of issues such as disagreements over profit sharing, misuse or misappropriation of funds, or failure to contribute agreed upon shares of capital. Financial disputes can also involve disagreements over salaries, bonuses, or other forms of compensation. 

• Operational Disputes - Disagreements about the direction of a company or partnership are common. Conflicts of interest, where one partner engages in actions that could be considered detrimental to the partnership are another common occurrence.  

• Intellectual Property Disputes - Disputes over who actually owns the intellectual property created through a partnership often arise. Usage rights are also common sources of disputes. 

• Buy/Sell Disagreements - Partners commonly disagree about the valuation of assets, IPs, and the company itself when there is an offer to sell. 

While these are some of the most common causes of conflict, conflict can arise in many other forms. 

Steps to Manage Conflict Before It Becomes a Legal Situation

When these disputes do inevitably arise, there are some basic conflict management strategies that can be used to de-escalate an issue before it grows into a full blown legal situation. 

1. Practice Open Communication - Both parties in a working relationship should be able to express their concerts openly and honestly. By raising issues early, they can potentially be solved before they grow into larger concerns. 

2. Practice Active Listening - When a concern is brought up, each party should take the time to listen to the concerns of the other, and seek to understand their perspective. 

3. Seek common Ground - It's important to remember that business relationships should be mutually beneficial. Therefore, when seeking conflict resolution you should always remember your shared goals and look for common ground. 

4. Be Willing to Compromise -  In some cases, making small concessions to keep the peace is preferable over seeking legal dispute resolutions via the courts. Willingness to compromise can go a long way in avoiding litigation. 

How To Prevent Disputes From Escalating Into Litigation Through Conflict Management

While practicing good conflict management techniques can solve a large number of issues, it is not always enough. Sometimes conflict resolution requires the help of an unbiased third party. 

Alternative dispute resolution (ADR) is a form of conflict management that uses a specific set of tools to reach conflict resolution in lieu of going to litigation. Some of these strategies include:

Negotiation

Negotiation occurs when both parties agree to sit down together and directly work towards an agreement that satisfies both parties. In negotiation, a “win-win” agreement is typically sought, where a compromise is reached that satisfies the needs of both parties. 

Negotiations can also occur from a positional standpoint, where both parties start with a firm position, and make concessions to each other until both parties are satisfied. 

In both cases, the goal is litigation avoidance, while still getting a favorable outcome. 

Mediation

Mediation can be used to prevent costly litigation. With mediation, a neutral third party steps in to facilitate communication between the parties. The goal is to find an acceptable solution through an open dialogue. 

Mediation is an informal process, and the parties are not legally bound to the agreement. However, it can still be helpful in litigation avoidance.

Arbitration

Arbitration is similar to mediation, but is a more formal process. Rather than a judge or jury hearing the dispute in a legal setting, an independent third party known as an arbitrator hears both sides of the dispute between the parties. The arbitrator will then make a decision to resolve the dispute. 

Arbitration can be either binding or non-binding. In binding arbitration, the parties agree to accept the arbitrator's decision as final, whereas in non-binding arbitration either party can reject the arbitrator's decision.   

Conclusion

The best way to avoid disputes in business is by having a rock solid contract in place that governs the working relationship between the involved parties. While disagreements can still occur, conflict management provides many opportunities to solve disagreements without resorting to litigation. 

By practicing open communication and utilizing negotiation, mediation, and arbitration techniques, costly and time consuming litigation can be avoided. Remember, it is always advisable to seek conflict resolution amicably, before turning to litigation only as a last resort. 

At SVT Law Advisors, we have been helping organizations enter fruitful working relationships with their business partners by creating strong contracts and partnership agreements for over  25 years. We know the legal intricacies of Silicon Valley in and out, and SVT can draft comprehensive agreements that will minimize disputes and lead to successful long term relationships with your partners.

Need help drafting business agreements with your partners? Contact SVT today for a free consultation and let us show how we can help you enter business relationships from a position of strength.