Facilitated contract renegotiation - Ben Giaretta, Partner at Fox Williams

Facilitated contract renegotiation - Ben Giaretta, Partner at Fox Williams

 

The London Chamber of Arbitration and Mediation has recently launched a new ADR scheme called Facilitated Contract Renegotiation (FCR). In FCR, an independent facilitator helps commercial parties to adapt their contract to meet changed circumstances. It is a useful tool that will let many parties deal with issues before these develop into formal disputes. Its true importance, however, may be in encouraging a change in mindset towards dispute resolution.

 

Structures in the legal profession

 

The organisation of law firms has unwittingly created a problem. There is good sense in the packaging of services to clients as corporate, employment, dispute resolution and the rest, but this division separates: individuals in one practice area lose sight of the others. Transactions are transactions and disputes are disputes, and never the twain shall meet. The deal is finalised, and if problems arise, they are handed over to others to address.

But the deal remains the same. It does not become something else when it is transferred. And the aims of the parties remain the same. They may have lost some of the trust between them, and their relationship may have changed, but they still have much in common. They still want to achieve commercial success.

What FCR brings is an opportunity to reconnect: to reconnect the parties, but also reconnect the legal practice areas. Rather than being separate, dispute resolution becomes part of the transaction. The negotiators have the chance to continue negotiations. FCR extends the opportunity for commercial people to try to find a commercial solution, before handing the problem over to the dispute lawyers; or else it brings the dispute lawyers into the transaction. The facilitator helps the parties chase down every commercial avenue before triggering a formal dispute.

 

Structures in the law

 

Ironically, division is also created by the contract. An agreement is a point frozen in time. But after the contract is signed, the parties’ relationship continues to develop. They learn more about each other. Circumstances change too: the world continues to turn, business conditions are altered.  Courts and tribunals, however, do not look at that.  They focus on the point in time when the agreement was entered into. And if the contract does not cover everything clearly, the courts or tribunals have to figure out what the parties intended.

FCR keeps the process of finding a solution in the hands of the parties. They do not have to look for it in the courts or tribunals, instead they can revisit the original deal. It is possible no solution can be found there; it is possible a formal dispute may be unavoidable. But it is sensible to see first if the deal can be revised to provide that solution and to meet the new circumstances.

 

Structures in the mind

 

Most significant of all, there are divisions in people’s thinking. Some of this is cultural: it is sometimes said that in the West, a contract is viewed as the end of a negotiation, while in the East a contract is viewed as the start of a relationship. In the Western world, parties might resist any attempt to move beyond the written word. And people everywhere are quick to identify causes of problems, meaning that if an issue arises, parties readily ascribe blame, which can be a barrier to negotiation.  FCR might be particularly suitable in situations where the cause is an outside factor that no-one is responsible for, such as the pandemic.

Many parties, however, will see the value in maintaining a commercial relationship without descending into a dispute, and perhaps both sides might see an opportunity to change a part of the contract that they are not happy with. This might open the door to revisiting the deal whatever the reason for the changed circumstances.

A further obstacle may lie in the resistance to any outside help. Individuals involved in the deal may not see why they need a facilitator to aid them in their renegotiation. They may take this view as a result of a mixture of pride, a narrow focus or a lack of awareness. It may take a detached observer – perhaps the CEO or an independent director – to recognise the value in bringing in someone from the outside.

 

A holistic approach

 

Dispute resolution processes have come a long way since the early days of commercial law. Rather than go to the courts, parties can try arbitration, or adjudication, or expert determination. Rather than see the claim all the way through to the end, they can use mediation to reach a settlement. But all of this comes after the dispute notice has been served, and after the law has taken over. It also comes after the parties have fixed in their minds who in their view is in the right, and who is in the wrong.

FCR brings the opportunity to address the issue earlier in time. Parties move from deal, to contract implementation, to FCR, before trying other steps such as arbitration or litigation. They have the option to direct their efforts to renegotiating the contracts rather than gearing up for litigation. This is not new, of course: commercial parties have always considered what their commercial options are before turning to legal options, and often they include negotiation steps in their dispute clauses. But FCR channels the parties’ energies to finding a solution, and the facilitator brings their skills to bear in a concerted effort to address the problem.

In this way, every option is pursued; and the parties are encouraged to look at the issue from every angle. The issue is not just something for the parties to hand over to their disputes counsel, instead they make every effort to bring it to a conclusion before then.

Litigation and arbitration will still be needed for issues that cannot be resolved any other way; but many issues can be dealt with via FCR before they develop into disputes.

 

Further reading

 

Mistake in contract law - Practice Note

Conditions precedent in commercial contracts - Practice Note

Search all In-house > Contracts

 

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About the author:
Ben Giaretta, Partner at Fox Williams LLP, is an international arbitration lawyer with a wide range of experience across many different sectors.  He is a Chartered Arbitrator and Fellow of the Chartered Institute of Arbitrators, and is the current Chair of the London Branch of the Chartered Institute of Arbitrators. He is a member of the Consulting Editorial Board of Lexis PSL Arbitration.