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The Value Add of Legal Departments in Disputes: Making a Business Case Rather Than Providing Pure Legal Advise

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Liquid Legal

Part of the book series: Management for Professionals ((MANAGPROF))

Abstract

Legal Departments are usually involved when it comes to Business-to-Business (B2B) disputes. They provide legal opinions on the subject matter at hand, consult on the available dispute resolution mechanisms and are the interfaces to the external law firms. However, disputes are usually not the companies’ core business, and thus the commercial aspects of solving disputes are predominant for the company. The following article describes how disputes can be looked at commercially and how they can be run as a Business Case. The article also describes the role and responsibility of the Legal Department in such a Business Case, and several Tools that assist the Legal Department in increasing their contribution to efficient and effective dispute resolution.

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Notes

  1. 1.

    Desjardins (2016).

  2. 2.

    Conflict or Controversy: The Black’s Law Dictionary: What is a Dispute, retrieved from the internet on April 22nd, 2016 http://thelawdictionary.org/dispute/

  3. 3.

    E.g. between employees, employee and employer, between or within teams, employer and works council.

  4. 4.

    Hagel (2012), pp. 127 et seq.

  5. 5.

    Schreuer (2008), pp. 960 (978): “A dispute will be legal if the claim is based on treaties, legislation and other sources of law and if remedies such as restitution or damages are sought”.

  6. 6.

    The Circle of Conflicts: Moore (2014), pp. 106 et seq.

  7. 7.

    Legal departments can choose law firms either directly or from a pre-selected panel of law firms. For the selection of the external counsel, they can also invite several law firms for offers and presentations (beauty contest).

  8. 8.

    Dauer, Edward A., CPR 1982, S. xviii.

  9. 9.

    E.g. fees for arbitrators and arbitration institutes, mediators and mediation institutes, adjudicators and adjudication institutes, dispute boards.

  10. 10.

    In fact it is a reduction of A’s loss by 2,3 M€ as A incurred 5 M€ as a loss by rectifying the equipment.

  11. 11.

    For a detailed cost comparison of Court Litigation, Arbitration and Mediation, see: Hagel (2013), chapter 2.16.

  12. 12.

    Depending on case and organizational structure, this could be Project Management, Procurement, Finance, and/or Engineering.

  13. 13.

    PMBOK 5th edition (2013) defines risk as “an uncertain event or condition that, if it occurs, has a positive or negative effect on one or more project objectives”; for the different risk definitions see Hillson and Simon (2012), p. 3f; Maytonera (2013), p. 109.

  14. 14.

    An offensive claim is a claim against another party. A defensive claim is a claim received from another party.

  15. 15.

    Further consequences might include (without being exhaustive): stop of production, termination of business relationship, involvement of media.

  16. 16.

    Further losses can be incurred by losing own investment costs and compensating the investment costs of the opponent(s).

  17. 17.

    “Focus on interests, not positions” is the second principle of the Harvard concept on principled negotiations: Fisher/Ury/Patton Getting to Yes (1991).

  18. 18.

    More details on Deal-Mediation: Peppet (2004), pp. 283 et seq.; Berkel (2015), p. 4; Hagel (2014a), § 1 Rn 18; Hagel (2016), § 151 Rn 1.

  19. 19.

    Not all of the information that the sender intends to send is actually received on the other side. Losses occur at any transformation point of the transmission process. For oral communication, the first transformation takes place from the brain to the mouth of the sender. The sender only says a portion of what he intended to say. From what he said, only a portion is received by the ear of the receiver of which only a portion is used by the receiver’s brain in order to understand.

  20. 20.

    Contract clauses can be differentiated by active clauses (which describe the roles and responsibilities with respect to contract performance) and passive clauses (which describe the consequences of non-performance): see IACCM, Contract and Commercial Management—The operational Guide, p. 123, 366, 522; Haapio and Siedel (2013), pp. 84 et seq.

  21. 21.

    Mamula and Hagel (2015), p. 472; Haapio (2013), p. 2; Stark and Choplin (2012).

  22. 22.

    Passera (2012), p. 376.

  23. 23.

    According to the Arcadis Global Construction Disputes Report 2015 “Failure to understand and/or comply with its contractual obligations by the employer/contractor/subcontractor” is worldwide ranking no. 4 as cause of disputes and interestingly in Common Law countries it ranks even worse (US no. 3, UK no. 2).

  24. 24.

    In more detail: Mamula and Hagel (2015), p. 473.

  25. 25.

    More details on relational contract theories: Diathesopoulos, Relational contract theory and management contracts: A paradigm for the application of the Theory of the Norms, MPRA paper no. 24028, online at https://mpra.ub.uni-muenchen.de/24028/, retrieved on March 28, 2016.

  26. 26.

    Felstiner et al., p. 631.

  27. 27.

    More details on the Transition: Cummins et al. (2011), pp. 519 et seq.

  28. 28.

    This can e.g. be done in a Contractual Obligation Matrix, which lists all contractual clauses, assigns responsibilities, milestones and due dates. See also: Reid (2004), p. 40.

  29. 29.

    PWC (2014), p. 4.

  30. 30.

    E.g. Form Requirements, Notification Periods, Communication Channels.

  31. 31.

    Risse (2009), p. 461 (463).

  32. 32.

    Calihan et al. (2004), p. 7 (footnote 7).

  33. 33.

    Calihan et al. (2004), p. 7.

  34. 34.

    Calihan et al. (2004), p. 9.

  35. 35.

    Hagel (2011), p. 69; Bühring-Uhle et al. (2009), p. 100.

  36. 36.

    Victor (2014), pp. 736 and 738; Shenoy (1993), p. 323.

  37. 37.

    Actually the ICC cost calculator works with US $. For simplification, an exchange rate of 1:1 is assumed.

  38. 38.

    See cost-calculator of the ICC: http://www.iccwbo.org/Products-and-Services/Arbitration-and-ADR/Arbitration/Cost-and-payment/Cost-calculator/

  39. 39.

    The fee for external lawyers is based on the German Lawyers Compensation Act (RVG). In international arbitrations, the external lawyers are usually remunerated on an hourly basis, and increasingly on fixed fee arrangements.

  40. 40.

    Two rounds of written statements with 3 months each, further 3 months for preparing evidence (witnesses and experts) and 2 months for hearings and post hearing briefs.

  41. 41.

    See for further details: Hagel (2013), chapter 2.16, pp. 235 et seq.

  42. 42.

    Further relevant costs are not considered in the example (e.g. experts, reimbursable costs of the parties, such as in-house counsel costs).

  43. 43.

    Victor (1990), chapter 17, p. 13, available under http://www.litigationrisk.com/Litigation%20Risk%20Analysis(tm)%20and%20ADR.pdf, retrieved on March 28, 2016.

  44. 44.

    In case A incurs further costs prior to the settlement, those costs need to be taken into account.

  45. 45.

    By using the sensitivity analysis based on the decision tree; further details on the sensitivity analysis: Hagel (2011), p. 72.

  46. 46.

    More on WATNA and BATNA (Best Alternative to a Negotiated Agreement): Blake et al. (2014), pp. 186 et seq.

  47. 47.

    Article 3 EC-Directive 2008/52/EC on certain aspects of mediation in civil and commercial matters defines mediation as follows: “Mediation” means a structured process, however named or referred to, whereby two or more parties to a dispute attempt by themselves, on a voluntary basis, to reach an agreement on the settlement of their dispute with the assistance of a mediator. This process may be (1) initiated by the parties or (2) suggested or ordered by a court or (3) prescribed by the law of a Member State. It includes mediation conducted by a judge who is not responsible for any judicial proceedings concerning the dispute in question. It excludes attempts made by the court or the judge seized to settle a dispute in the course of judicial proceedings concerning the dispute in question.

    More detail on the definition of mediation: Hagel (2014a).

  48. 48.

    In case of Collaborative Law, external lawyers support the parties.

  49. 49.

    Weise, Representing the Corporation, 2000-2 Supplement, 8-Ex-74.

  50. 50.

    For various different sequential combinations of mediation and other ADR processes, see: Reeves Mediation plus: Don’t leave money on the table, Advocate 2015.

  51. 51.

    See in detail: Lembcke (2009), p. 122.

  52. 52.

    Non exhaustive listing; the working group “B2B Disputes” of the Round Table Mediation & Conflict Management of the German Economy (“RTMKM”) has identified 47 relevant differentiation criteria for the selection of the appropriate dispute resolution process; see also: CPR European Mediation and ADR Guide (2015), p. 6.

  53. 53.

    Sander and Goldberg (1994), pp. 49–68.

  54. 54.

    Freyer and Sayler (2000), Chapter 9, p. 171.

  55. 55.

    Reilly and MacKenzie (1999), p. 147.

  56. 56.

    Section 1 e: Reilly and MacKenzie, p. 151; which speaks for ADR instead of litigation.

  57. 57.

    Section 2 f. Reilly and MacKenzie, p. 152; which might speak against ADR.

  58. 58.

    CPR ADR SUITABILITY GUIDE (Featuring Mediation Analysis Screen) (2006) https://www.cpradr.org/Portals/0/Resources/ADR%20Tools/Tools/ADR%20Suitability%20Screen.pdf, retrieved on March 28, 2016.

  59. 59.

    See also the Overview of the CPR in: CPR European Mediation and ADR Guide (2015), p. 8.

  60. 60.

    Weise Representing the Company, 2000-2 Supplement, 8-Ex-46, Exhibit 3.

  61. 61.

    Detailed description of the tool: Hagel and Steinbrecher (2014), p. 53.

  62. 62.

    Example Germany: Even though mediation is defined to be a confidential process (Art 1 I MediationsG), only the mediator is obliged to keep confidentiality (Art 4 MediationsG), neither the parties nor any other third party (e.g. lawyers, experts). See also: Hagel (2014a) Ï 1 Rdn 6 et seq.

  63. 63.

    See also: Hagel (2014b), p. 108 (112).

  64. 64.

    DIS Conflict Management Rules (DIS-KMO).

  65. 65.

    For requirements to external (legal) advisors from a user’s perspective, see: Round Table Mediation & Conflict Management of the German Economy, SchiedsVZ 2012, pp. 254 et seq.

  66. 66.

    E.g. Mediator, Arbitrator, Adjudicator.

  67. 67.

    Claim specialists, Forensic Experts.

  68. 68.

    Best Alternative to a Negotiated Agreement.

  69. 69.

    Items might have different values for the parties and are thus a chance to escape the pure distributive bargaining towards an integrative consensual solution.

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  1. KonsensKanzlei Berlin, Linienstraße 106, 10115, Berlin, Germany

    Ulrich Hagel

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  1. Ulrich Hagel
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  1. SAP SE, Walldorf, Germany

    Kai Jacob

  2. NetApp B.V., Schiphol-Rijk, The Netherlands

    Dierk Schindler

  3. Dr. Strathausen Consultancy, Berlin, Germany

    Roger Strathausen

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Hagel, U. (2017). The Value Add of Legal Departments in Disputes: Making a Business Case Rather Than Providing Pure Legal Advise. In: Jacob, K., Schindler, D., Strathausen, R. (eds) Liquid Legal. Management for Professionals. Springer, Cham. https://doi.org/10.1007/978-3-319-45868-7_16

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