BAHR Dispute Resolution Insight no. 01/24

Dispute Resolution Insight 01/24

Table of content Opening statement..........................................................................................................................05 Post-M&A disputes: How to adapt to a changing landscape? ................................................ 07 Introducing BAHR Dispute Avoidanc – a new product for establishing a proactive conflict avoidance and management strategy.............................................................................13 Mediation in commercial disputes – is it worth it?....................................................................19

Opening statement

6

Dear friends, Adversarial dispute resolution mechanisms such as arbitration and litigation remain a central pillar of the services BAHR offers, comprising the majority of our dispute resolution assignments. We continue to be a key player in the market and a leader in the Norwegian dispute resolution community.

In January this year, the Norwegian law journal “Lov og Rett” published an article co-written by BAHR and Wikborg Rein on the frequency of challenges to arbitral awards in Norwegian courts, and to what extent such challenges are successful.

The main finding was that few awards are challenged and that even fewer challenges are successful. The Norwegian findings were also compared with similar data from major arbitration hubs in Europe, with quite similar results.

The release of the article came just in time for Norwegian Arbitration Day, which is one of the highlights of this semester. Like last year, BAHR this year too arranged a pre-conference session in conjunction with the main conference, welcoming a highly qualified panel discussing court assistance in arbitration proceedings. We were truly happy to host so many international friends and colleagues this year.

While the principal forms of dispute resolution remain litigation and arbitration, the realm of dispute resolution extends far beyond these mechanisms. As disputes grow in complexity and become more intricately tied to facts, the demand for nuanced and bespoke dispute resolution mechanisms is palpable. This is particularly true in the context of post-M&A disputes, where the intricacies of complex transactions frequently lead to conflicts that are anything but black-and-white.

Our first article explores the latest trends in post-M&A disputes and how they should influence your dispute resolution strategy.

Against that backdrop, it is clear that even the most successful businesses and harmonious partnerships encounter conflicts. Conflicts escalating to become a full-fledged legal dispute may damage business relations, with parties often incurring significant costs that increase exponentially as a conflict evolves. Parties can avoid many disputes by proactively managing them from an early stage. Together with colleagues from other departments in BAHR, we have developed a new product: BAHR Dispute Avoidance.

BAHR Dispute Avoidance offers a strategically minded and structured approach to identifying, mitigating, and resolving potential conflicts before they escalate, thus avoiding spending unnecessary resources on conflicts that could otherwise effectively be resolved. You can read more about our new product in our second article.

However, when disputes are inevitable, taking your counterparty to court can have detrimental effects on your commercial relationships. Mediation offers an alternative path, granting parties greater control over the dispute’s outcome and often preserving, and even enhancing, business ties.

Although adding mediation to a dispute resolution process might seem like an extra expense, its potential to facilitate a settlement, or at least narrow the issues, is invaluable. Looking to judicial mediation statistics, the likelihood of reaching amicable settlements seems promising. Our third article delves deeper into mediation and its benefits.

I hope this Dispute Resolution Insight provides an interesting read and take the opportunity to wish all friends and colleagues a happy Easter.

Atle Skaldebø-Rød Partner / Head of Dispute Resolution E: atska@bahr.no, M: +47 922 87 727

7

Post-M&A disputes:

How to adapt to a changing landscape?

As the merger and acquisition (M&A) landscape continues to evolve, so does the complexity of post-M&A disputes. The latest statistics confirm that these disputes are on the rise, and reveal some recent developments as to where and why they typically arise.

How should parties adapt?

Post-M&A disputes can emerge from a variety

ements may arise over the accuracy of balance

of challenges encountered after closing the

sheet items.

deal, encompassing a broad spectrum of legal, commercial, and financial issues. The most common types of disputes we encounter can be categorised as follows:

Earn-out Arrangements: These mechanisms in M&A agreements, where part of the purchase price is tied to the performance of the target company post-closing, lead to many disputes.

Warranties and indemnities: These disputes arise

Typical disagreements include how performance

when the purchaser claims that the seller and/or

should be measured and whether the purchaser

the target business has not met certain agreed-upon warranties or indemnities, often pertaining to

has done enough to realise the potential of the

inaccuracies in financial statements, tax issues,

business.

compliance failures or other disagreements.

For the first category – alleged breaches of

Purchase Price Adjustment: Disagreements often

reliable statistics from claims made under warranty

surface regarding the adjustment of the purchase

and indemnity (W&I) insurances. This is a product

price post-closure, typically based on an agreed

where insurers agree to indemnify the purchaser

closing balance sheet mechanism, where disagre-

for breach of the warranties and indemnities given

8

warranties and indemnities – we have access to

by the seller. W&I insurance is used in an increasing

• Compliance with laws was the second most

number of M&A deals. Typically, the purchaser

frequent type of claim in the region in 2022 (13

waives the right to bring most such claims directly

percent), with no movement since last year. It is

against the seller. Therefore, W&I insurance is an

hardly surprising that compliance claims continue

important tool for the parties to offload the risk

to be prevalent, given the complex regulatory

of disputes arising form M&A deals.

landscape many businesses must adapt to.

What do the statistics tell us?

• Claims based on financial statements continue

Statistics from W&I insurance claims give valuable

to be an important type of claims, but declined

insight into trends in post-M&A disputes, more

significantly from the previous year (from 24 to

specifically about disputes arising from alleged

11 percent). As the purchase price is often negotiated

breach of warranties and indemnities. In coope-

based on the target business’ financial perfor-

ration with the leading insurance broker Marsh,

mance as reported in its financial statements, an

we have analysed the latest statistics from claims

alleged deviation from applicable accounting

submitted to insurers under these policies in the

standards and practices could have a significant

last few years.1

financial effect incentivising purchasers to make such claims. This is confirmed by the fact that this

These numbers confirm that post-M&A disputes

type of claim represented 46 percent of amounts

are on the rise, with a 25 percent increase in the

paid by W&I insurers in 2022, despite the relative

number of claims from 2021 to 2022. The statistics also give interesting insight into where and why

decline in number of claims. A possible explanation

post-M&A disputes arise:

file these claims, which is natural given that the

for the decline is that purchasers take longer to claims are often complex and may be difficult to

• American parties appear to be more litigious

uncover.

than their European peers: Insured North American deals were twice as likely to result in a claim

The other main categories of post-M&A disputes

compared to insured deals in Europe, the Middle East and Africa (EMEA). That said, the latter

– purchase price adjustment and earn-out claims

region has also seen an increase in claims.

we lack reliable statistics, but our experience from

• In EMEA, tax matters are the clearly most frequent area for claims (39 percent of all claims), which has seen a steep increase from the previous year (21 percent) and is much higher than the global share (25 percent).

• Tax warranties have always represented a significant share of W&I claims, which is natural given the potential pecuniary effect of tax warranty breaches. The recent increase in tax claims in EMEA deals is nevertheless interesting.

- are (typically) not covered by insurance. Here resolving a number of such disputes confirms that these disputes are also evolving and becoming more complex.

Below we discuss how parties to M&A transactions should adapt to changing and more complex post-M&A dispute landscape.

The critical role of documentation Our experience shows that few post-M&A disputes are resolved based on legal arguments alone. On the contrary, it is usually the facts of the matter and the evidence presented to the arbitral tribunal

1. The statistics are published by Marsh in Global transactional risk insurance claims report 2023 9

or court that ends up deciding the outcome of the

tions. But witness statements about what was

case. As disputes become more complex, it becomes

discussed orally are usually dismissed unless they

even more important to secure evidence and have

are backed up by contemporaneous documents.

a good “paper trail”. This is a key focus of our new

Here, a simple email during the negotiation setting

product BAHR Dispute Avoidance, which

out a party’s understanding can be decisive to the

emphasises the importance of documentation

interpretation, especially if the other side failed

practices as part of a proactive conflict avoidance

to protest in writing.

and management strategy, as further explained in our second article.

Not all cases have a “smoking gun”. But we have seen countless times that a single document, or

Arbitrators and judges place significant weight on

even a single statement in a contemporaneous

contemporaneous evidence (evidence from before

email, can end up being cited as the decisive factor

the dispute was a fact), and clearly prefer to rely

in the court’s or arbitral tribunal’s reasoning.

on such evidence over witness statements and

Sometimes a party can dig up such decisive evidence

documents created later. The idea is that whereas

in its own archives, but sometimes they are produced

witness statements and documents created later

through discovery or document requests to the

can easily be influenced by the parties’ position in

other party. The latter point highlights how

the dispute, contemporaneous documents are

important it is to understand what the paper trail

usually “untainted” by the dispute. While this is

on the other side looks like to make targeted

generally true, it is also true that parties often can

document requests.

improve their position in a subsequent dispute by formulate themselves in the documentation and

The importance of developing a settlement strategy

in communications.

A critical yet often neglected aspect of post-M&A

being conscious at an early stage about how they

disputes is the development of a nuanced settlement For instance, if a provision in the SPA becomes

strategy. Carrying out arbitration or court proce-

heavily negotiated, the parties should ensure that

edings in post-M&A proceedings is usually

their intentions and understanding of the agreed

expensive, given that such disputes are often

position is clearly set out not only in the provision,

complex, involve a large amount of evidence, require

but also in correspondence. Heavy negotiations

expert opinions and demand specialised legal

often lead to compromises where the parties agree

assistance. An often-overlooked cost element is

to land somewhere in-between two clearly defined

the internal resources the parties spend in following

positions, sometimes reaching a tailor-made solution

up on the case, which often requires significant

which is not matched by standard SPA provisions.

fact-finding exercises internally and continued

In such situations the wording is sometimes left

involvement of senior personnel. For the purchaser

vague or ambiguous, whether intentionally or not.

in particular it can cause friction if personnel

Combined with the fact that the parties had strong

in the newly acquired business are requested to

views on the term, this is often a recipe for dispute.

help substantiate that parts of the business were

When interpreting unclear wording, the parties’

managed less than ideally or even contrary to law

intentions and understanding during the negoti-

and regulation. On top of this the outcome

ations are relevant factors, especially if this was

of arbitration or court proceedings is never

made clear to the other side during the negotia-

guaranteed, and the stakes can be high.

10

“

Not all cases have a “smoking gun”.

But we have seen countless times that a single document, or even a single statement in a contemporaneous email, can end up being cited as the decisive factor in the court’s or arbitral tribunal’s reasoning.

11

It is in no way groundbreaking that these factors

environment of resolution and understanding.

speak in favour of trying to settle disputes, and parties usually explore possible amicable solutions.

Moreover, the possibility of full or partial settle-

However, our experience is that settlements are

ments should be carefully considered. Sometimes,

usually reached late, often only days before the

significant resources can be saved by a partial

arbitration or court hearing. At this point in time

settlement. For example, in a closing balance sheet

many of the costs and disadvantages have already

price adjustment dispute we handled a few years

materialised. Furthermore, some cases where

ago with more than a hundred disputed balance

parties have a common interest in settling are left

sheet items, the parties agreed to schematically

unsettled because both parties overestimate their

settle all items under a certain amount, allowing

legal position and therefore fail to find common

both sides to save costs and instead focus on the

ground.

more important items.

To avoid these pitfalls, it is essential to develop a

By adopting such a systematic approach to

settlement strategy early, aiming to arrive at a

settlement, the parties can enhance the efficiency

good result while avoiding most of the costs and

of the dispute resolution process. This strategy

drawbacks of arbitration or litigation. The other

not only saves time and resources but also lessens

articles in this issue, dealing with BAHR Dispute

the likelihood of a winner-takes-all scenario and

Avoidance and mediation respectively, explore

thus manages risk. At the same time, such

different tools and strategies for reaching

approaches must be balanced against potential

amicable solutions. This approach emphasises

tactics where the other side inflates the number

early identification and management of

of disputed points or claim amounts to improve

potential issues to minimise the need for costly

the outcome of a schematic settlement.

legal proceedings, aligning with the strategic development of early settlement initiatives.

With careful calibration of their settlement strategies, the parties are better equipped to

As part of the strategy, forms of alternative

work through the challenging and sometimes

dispute resolution, such as mediation, needs to

chaotic aftermath of post-M&A disputes to reach

be considered. Mediation in commercial disputes

a mutually acceptable resolution.

is further discussed in our third article.

Settlement negotiations can take on various forms, from casual bilateral discussions to more structured mediation processes, both in and out of court. When opting for mediation processes out of court, the parties have the option to engage specialised mediators. These individuals are typically selected for their extensive experience and deep understanding of the subject matter.

The expertise of such mediators can be instrumental in guiding parties toward a mutually agreeable settlement and encouraging an 12

About the authors

Atle Skaldebø-Rød

Partner

E: atska@bahr.no M: +47 92 28 77 27 Atle is admitted to the Supreme Court and has extensive experience across a broad range of complex commercial disputes. His practice includes post-M&A, directors’ liability, shareholder disputes, company law, financial reporting and marine insurance as well as special forms of judicial proceedings, such as enforcement proceedings, preliminary injunctions and securing of evidence.

Daniel Sipos

Managing Associate E: dasip@bahr.no M: +47 928 55 425 Daniel is an experienced disputes resolution counsel, representing clients in a range of complex commercial disputes in both litigation and arbitration proceedings. His areas of expertise include post-M&A disputes, where he represents clients in disputes involving inter alia purchase price adjustment, warranty breaches, earn-out provisions, termination and W&I insurance claims. His recent cases include an international arbitration relating to a NOK 1.4 billion earn-out claim

Linnea Cecilia Gule Senior Associate

E: ligul@bahr.no M: +47 41 29 95 17 Linnea has broad experience from a range of complex commercial disputes and litigates cases in arbitration as well as before the ordinary courts. She focuses on post-M&A matters, corporate and shareholders’ disputes and general contractual disputes. Linnea’s recent cases include a comprehensive shareholder dispute, as well as a complex dispute concerning purchase price and price adjustment following an acquisition.

She also has significant experience assisting clients in mediation, both in and out of court. Linnea has previous experience from BAHR’s finance group.

13

Introducing BAHR Dispute Avoidance

– a new product for establishing a proactive conflict avoidance and management strategy Companies navigate a complex web of commercial relationships and contracts. In the dynamic landscape of modern business, the spectre of disputes looms large, threatening to drain focus from the core objectives of the company by diverting substantial resources more fruitfully invested elsewhere. Even the most successful businesses and harmonious partnerships encounter conflicts that may escalate to damaging and costly full-fledged legal disputes.

Our new product, BAHR Dispute Avoidance, aims to limit this potential waste of resources through a strategic approach to avoiding and managing potential issues before they escalate.

14

War and Peace Many disputes could have been avoided or resolved if the parties had consciously implemented a proactive dispute management strategy at an early stage. As referenced in detail in the third article of this publication, statistics from Norwegian courts for 2021 (the most recent survey) support this view. For the District Courts, settlements were reached in around 70% of approximately 2,000 cases that the court mediated prior to judicial treatment2, meaning many of those cases presumably could have been settled earlier than the filing of legal proceedings. It should also be noted that the courts recommended mediation in approximately one-third of cases (i.e., in roughly 2,000 out of 6,000 cases).3 Even for the Courts of Appeal, almost 70% of the cases that were mediated resulted in settlement between the parties. This statistic does not cover settlements outside court proceedings.4 BAHR Dispute Avoidance implements proactive dispute management solutions to mitigate the risk of conflicts escalating, standing in contrast to the passive (and common) approach that simply allows disputes to arise with parties behaving in an uncoordinated and reactive fashion.

A structured approach to dispute avoidance and management Although most commercial parties try to avoid messy disputes, in practice, the actual management of conflicts can often feel like a haphazard and rudderless process. Here, structure and consistency when approaching conflict management are critical.

A cohesive and holistic dispute management strategy will contain solutions ranging from easy fixes to more sophisticated exercises of balancing business goals against business interests. Underpinning every successful conflict management strategy, however, is a focus on early prevention and intervention. This is because, although single, standalone issues do not often result in drawn-out and complex disputes, an accumulation of such issues may have that outcome if left unchecked.

BAHR Dispute Resolution addresses this problem through five core pillars that are integrated as part of an overarching corporate risk management strategy: 2 Prop. 34 L (2022–2023) - regjeringen.no 3 Ibid.

4 Ibid.

i.

Identification, minimisation, and monitoring of risk of dispute arising.

ii.

Ensuring existence of effective dispute resolution mechanism.

iii.

Evaluating business objectives against business relations.

Devising solutions to safeguard parties’ common and respective interests.

iv. v.

Utilising effective procedures and protocols when dispute becomes unavoidable.

We take a closer look at each of these below.

Ensure rights and obligations are effective and appropriately enforceable and be prepared to enforce them The extent and value of rights and obligations only go as far as a party’s ability to effectively and timely enforce those rights and obligations. Thus, two of the pillars of BAHR’s dispute avoidance and management approach relate to ensuring sensible dispute resolution mechanism exist that parties are ready to utilise if necessary. When a party knows that its breach of contract will lead to swift and effective remedies against it, it has greater incentive to avoid breach to begin with.

Ensuring existence of effective dispute resolution mechanism The first pillar entails simply providing for appropriate dispute resolution mechanisms in one’s agreements (e.g., arbitration clauses and jurisdiction clauses). While this step seems self-explanatory, it is often overlooked. Dubbed the “midnight clause” due to parties’ tendency to leave discussions about dispute resolution clauses to the very end of a contract negotiation,5 these clauses are frequently fraught with avoidable mistakes leading to unnecessary complications.

At worst, these complications render rights and obligations borderline illusory because the mechanisms for practically enforcing them become too

5 J. Parsons, Don’t be a Midnight Cowboy: avoiding common pitfalls when drafting and negotiating arbitration clauses, Thomson Reuters – Practical Law Arbitration Blog (1 November 2018).

15

unpredictable, complicated, and costly.

Adopting BAHR’s approach means coming in early and ensuring that the existing mechanisms are appropriate for the types of disputes that could arise from that contact. This lends certainty to the effectiveness of rights and obligations, leading to improved realisation of the economic value of projects and business relations.

Utilising effective procedures and protocols when dispute becomes unavoidable The second pillar flows from the first: having ensured that there are appropriate mechanisms in place, parties should be ready to proceed to formal dispute resolution if pressed and should have proper internal contingency protocols in place to prepare for that adversarial process. This means positioning oneself in the best possible manner to maximise chances in formal dispute resolution, including by securing evidence, ensuring appropriate communication and conduct, and making choices that withstand later legal scrutiny.

Formal dispute resolution represents the fall-back option should all other attempts to manage disputes fail. But without this step, all other attempts at managing and settling disputes lack credibility.

16

Know when and how conflicts might arise ahead of time The third pillar involves understanding the risk profile of a transaction, which includes identifying potential dispute triggers, how and when in a project they might arise, ensuring measures exist to monitor and handle those triggers (particularly at delicate times in the execution stage of a deal), and being ready to switch gears from project management to conflict management when needed.

A core tenet of this pillar involves understanding the parties’ core rights and obligations. Although seemingly obvious, it is not an aspect of commercial transactions that is often evaluated from the perspective of risk of litigation. Assessing a transaction according to the likelihood of a dispute arising allows parties to allocate the appropriate resources necessary to navigate and manage critical moments of a project while acknowledging that some conflict is often unavoidable. This might mean bringing in more experienced employees to oversee one’s own performance of key obligations during the execution phase of a project and to liaise with the counterparty to set mutual expectations on a rolling basis and ensure they are met.

1 Tore Sandvik, Voldgifts- og domstolsbehandling, TfR 1979 p. 456.

2 In 2013, Ola Nisja and others conducted the same survey as Sandvik conducted in 1979 3 NOU 2020: 11 p. 59-60.

High Low

Value of business objectives

Competing

Collaborating

Compromise

Ignoring Low

Accomodating Value of business relations

Despite parties’ best efforts to clarify and understand key rights and obligations, complex transactions invariably give rise to unavoidable scenarios bearing risk of litigation. Parties regularly have no choice but to use vague or unclear language to address unknown future circumstances related to a particular deal or they need to include mechanisms in their agreements to resolve future unknown states of affairs. An example of this might be a share purchase agreement, within which a portion of the purchase price is determined by a complex calculation methodology that relies on shifting financial figures in the period between contract signing and closing. Such situations are medium- to high-risk situations from a potential dispute perspective. It is crucial that parties be aware of these scenarios and plan for how to deal with them when they arise.

Be clear on your goals and know your counterparty We regularly see parties adopting a “one size fits all” approach to conflict management. A common process might involve some passive reaction to an

High

issue arising in the first place followed by uncoordinated attempts to resolve the issue between the parties. Should that fail, parties then often devote some amorphous amount of effort and resources to negotiating a resolution to the issue before finally and perhaps angrily proceeding to court or arbitration.

This unstructured approach to conflict management is unhelpful. BAHR’s fourth pillar addresses this by introducing an approach focused on a simple (yet thorough and sophisticated) evaluation of business goals against business relations, where the value of one’s relationship with a specific counterparty is measured against the value of a specific business deal or project.5 BAHR’s approach focuses on what we consider to be the three most effective approaches: competing, collaborating, and compromise. In short, competing involves a readiness to proceed to formal dispute resolution where you have a strong position and value business objectives highly. Collaborating entails devising creative solutions (sometimes

5 BAHR’s model is an adaptation of the widely known Thomas-Kilmann Conflict Model, which observes patterns of ways in which individuals resolve conflict at the workplace.

17

outside the parameters of the contract) to safeguard common and respective interests where both parties value the business relationship and project highly.

Compromise is a middle ground where it is harder to precisely balance the value of the business relations against objectives, and often leads to settled resolutions to conflicts.

Think outside the box When collaborating becomes the recommended strategy, it is important that parties do not limit themselves in devising solutions to rectify a situation and facilitate harmonious cooperation going forward.

For instance, where two parties are intertwined in a long-term project spanning decades, it would be unrealistic to assume that economic and practical realities will remain unchanged. However, parties might fearfully complain that changing circumstances may lead to deviations from underlying contractual expectations, even when the parties have cooperated successfully for years. Instead of reassessing those expectations in acceptance of inevitable change and finding ways to reframe the situation to allow for continued cooperation, parties might become trigger-happy in an attempt to protect their rights under a contract. However, an insistence on contractual rights might destroy a lucrative business partnership and project — a wholly undesirable and uncommercial outcome.

In these sorts of situations, BAHR, under the fifth pillar of BAHR Dispute Resolution, assists clients with drawing up creative solutions that safeguard the core value of business projects and relations, sometimes by challenging the original frameworks underpinning a business project. Instead of insisting on contractual rights, parties should devote their focus on retaining the value of a project and to make any and all reasonable adjustments to that end.

18

About the authors

Simen Skjold Søgaard

Partner

E: sss@bahr.no M: +47 47 90 02 12 87 Simen is admitted to the Supreme Court and rejoined BAHR as partner after six years at the Office of the Attorney General (Civil Affairs) in April 2022. Simen represents clients in all forms of commercial disputes with a particular focus on tax and VAT litigation and matters involving public authorities.

Daniel Steel

Managing Associate E: daste@bahr.no M: +47 93 04 87 34 Daniel is part of BAHR’s Dispute Resolution team. His practice focuses on international arbitration, cross-border litigation, and investigations & compliance. Daniel has over ten years of experience advising clients in arbitration matters under the ICC, LCIA, AAA/ICDR, SIAC, HKIAC, CIETAC, and UNCITRAL rules. His experience in contentious matters comprises a wide range of industries and areas, including oil & gas, renewable energy, pharmaceuticals, telecommunications, intellectual property, real estate, arbitration-related litigation, and shareholder disputes. He has handled matters covering a broad geographical scope, including Africa, Asia, Europe, South America and the United States.

Sondre Nobel Skalleberg Senior Associate

E: sonsk@bahr.no M: +47 47 86 03 60 Sondre is part of BAHR’s dispute resolution team and represents clients in a wide range of commercial disputes, focusing primarily on post-M&A disputes, corporate law, and general contractual disputes. In addition, Sondre has significant experience with M&A from working several years in BAHR’s energy team. He litigates cases in arbitration as well as before the ordinary courts, often representing clients within the energy sector. Sondre’s recent cases include a comprehensive joint venture cost allocation dispute, as well as a complex post M&A dispute concerning an earn-out claim.

19

Mediation in commercial disputes – is it worth it?

Mediation protects against the risk of an adverse result in a judgment or arbitral award, while maintaining control of the outcome, saving time, and preserving commercial relationships. However, mediation can be an expensive addition to an already costly dispute resolution process, and there is no guarantee of a solution. So, is mediation worth it?

Mediation has increasingly gained traction as a dispute resolution mechanism in commercial disputes, with increased options for tailoring a mediation to a specific dispute. This is no surprise given the benefits, for both parties, of resolving disputes early and amicably. However, both the costs of mediation and several other factors should be considered before engaging in mediation.

Mediation in escalation clauses Most commercial contracts include dispute resolution clauses. Increasingly more often, these take the shape of escalation clauses. Such clauses will typically include varyingly strict obligations to attempt resolving a dispute amicably before submitting it to litigation or arbitration.

While this has traditionally meant that parties negotiate settlements, we now see a clear trend towards increased use of mediation proceedings in commercial disputes. This applies particularly 20

to high-value disputes between long-term business partners that give rise to complex factual issues, rather than questions of substantive law where the parties rely on precedent. In fact, these days we often see that escalation clauses include an obligation to mediate, subject to certain terms, in addition to or instead of negotiating a settlement.

So how does mediation in commercial cases work, and what are the benefits of attempting to mediate a complex commercial dispute?

The mediator Mediation in disputes subject to arbitration will normally be conducted ad hoc, or in accordance with the mediation rules of an arbitration institute.

In disputes before the courts, judicial mediation can be mandated by the court in accordance with the Dispute Act Section 83 (1) if the court finds that the case is well-suited for mediation.

What sets mediation apart from traditional settlement negotiations is the assistance of a neutral third party, namely, the mediator.

In judicial mediation, the mediator is normally a judge specially trained in mediation. While many judges already have such training, a more general educational program has recently been launched.

In disputes subject to arbitration, there are several experienced private practitioners, professors and judges who are commonly engaged as mediators.

Many of these also have training, and some are certified as mediators by e.g. the Norwegian Bar Association.

Judicial mediation Most mediations in Norway are conducted by way of judicial mediation. A survey conducted in 2022 as part of proposed changes to the Dispute Act shows that the first instance courts mediated some 2000 cases, which is approximately one third of the total civil cases filed with the courts. This implies that the number of mediations has more than doubled over the last ten years. In the appeals courts, some ten per cent of the cases were mediated.

The survey also revealed that 70 per cent of the cases that were mediated were settled.

Although there is room to tailor the judicial mediation process, the courts operate with a more standardised arrangement than in ad hoc mediations. Typically, the mediation begins with an introductory joint session where counsel outline the dispute’s key elements on a high-level basis, before proceeding to closed meetings. The mediator will work with the parties to understand what is most important for them to achieve and tries to “expand the pie” to obtain a solution that can satisfy both parties, which may extend beyond the scope of the underlying dispute. Skilled mediators provide input on the negotiation climate and challenge the parties on their positions by providing arguments that the parties should consider from a judge’s perspective. The latter’s value should not be underestimated.

If the mediation results in settlement, the court will offer the parties to conclude it as an in-court settlement, rendering it enforceable in the same way as a judgment.

Mediation in arbitration or pre-litigation If the contract contains an escalation clause and

the dispute is subject to arbitration, or subject to litigation but not yet submitted to the courts, ad hoc mediation is common. We have seen a clear increase in such mediations across the commercial disputes landscape. The Nordic arbitration institutes are following up on this trend, as evidenced by the release of NOMA’s Mediation Rules in April 2023. While many of the arbitration institutes offer such rules, NOMA’s rules are by far the most detailed, something we have covered in an earlier newsletter.

Ad hoc mediation typically offers the parties more flexibility regarding the process, timing, and choice of mediator(s) than judicial mediation. Being able to choose one or more mediator(s) with specific expertise in the relevant field of law or industry is often an advantage and may increase the chances of settlement. The possibility of tailoring the process is another advantage. It is not uncommon that pleadings on certain topics are submitted to the mediator(s) as part of preparations or that the mediation is bifurcated. We have seen successful mediations split up into selected topics spread over various dates over the span of a half-year period.

We have also seen co-mediators focusing on distinct topics, as well as intensive proceedings over several days with socialising being part of the arrangement.

As with judicial mediation settlements, settlements reached during ad hoc mediation can be made enforceable if the parties appoint the mediator(s) as arbitrator(s) and request them to confirm the settlement in a consent award. The settlement will then be enforceable under the New York Convention.

Why mediation?

Mediation gives the parties much greater control over the outcome of the dispute than submitting it to court or an arbitral tribunal. Going to trial leads to undeniably greater risk, even for the party with the stronger case on paper. This applies particularly to cases with complex factual questions such as valuations or loss calculations or technical disputes. Mediation can be a good way to mitigate this risk.

In many disputes, one may also obtain a solution extending beyond what could be subject to a judgment. This flexibility is a relevant consideration where the parties are cooperating on other projects, one party has a future need for the services 21

of the other, or there is a contractual option to be exercised. Such contracts include long-term service or supply agreements, where a solution could entail extending the scope of the services rendered or the term of the contract.

This brings us to another important consideration: Many disputes arise mid-project or in the middle of the contract term. Taking your vendor or customer to court or arbitration may be detrimental to the commercial relationship that is required to see the project through and may even disqualify a party from bidding on future projects or contracts. Mediation can provide an arena to find solutions that are viable for both parties and the necessary foundation for a continued relationship.

In disputes subject to litigation, timing could be a factor to consider. Resolving the dispute through mediation provides for quick closure of a case, as opposed to going through several rounds in the legal system. This applies particularly to complex cases where the length of the hearing and the court’s availability may result in an extended delay in obtaining a judgment.

Mediation also allows for a “trial run” of the arguments from both sides. Regardless of how the process is structured, an important part will always be the inputs and pushback from the mediator(s), which will give both parties a deeper understanding of the case and the risks associated with putting it in the hands of the judge or the arbitrator.

So, is it worth it?

Mediation can be an expensive addition to an already costly process, especially if it does not yield any solution to the dispute. Is, therefore, mediation still worth attempting?

22

We believe that the answer often is yes – but only if one is willing to do the work necessary to best position the party for a settlement and keep an open mind about alternative solutions.

The first step is to conduct a thorough analysis of the possible outcomes. This step is crucial, despite requiring significant resources related to e.g. discovery. After conducting the analysis, a nuanced settlement strategy reflecting the risk analysis must be developed. The process is resource demanding as well, with the addition of lawyers’ fees and, often, external experts’ fees. Nevertheless, getting this right is key, and a prerequisite for a mediation to be worth it.

With a strategy in place – and looking at the results of the survey on judicial mediation in Norwegian courts – the chances of finding an acceptable solution should typically be quite high.

Adding to that, the prospects of finding a solution that reflects the litigation risk and that can even provide added value to the parties’ relationship and businesses, speak in favour of pursuing mediation. And, even if the mediation does not result in concluding the case there and then, it often provides an opening for continued settlement discussions which may lead to an amicable solution at a later stage. As mediation also contributes to a better and deeper understanding of the case and arguments, the time spent mediating will rarely be a waste even if the dispute is not settled.

About the authors Jan B. Jansen

Partner

E: jbj@bahr.no M: +47 934 94 30 Jan is admitted to the Supreme Court with a practice focused on tax litigation (in particular matters under the Petroleum Tax Act), oil and gas disputes, insurance and professional liability matters. Jan has acted as legal counsel in numerous cases regarding directors’ liability and related insurance coverage

Mathilde Lund Meltvedt Managing Associate E: mamel@bahr.no M: +47 48 00 12 29 Mathilde is part of BAHR’s dispute resolution team and litigates cases in arbitration as well as before the ordinary courts. She has broad experience with disputes within commercial law and the energy sector and has liability and contract law as her areas of expertise. Previously, Mathilde worked as a deputy judge in Oslo District Court, where she, among other things, mediated and settled a large number of complex commercial disputes. She currently specialises in directors’ liability cases and has experience with this area of law both as legal counsel, lecturer and as a judge.

Andreas Busch

Managing Associate E: anbus@bahr.no M: +47 46 91 08 58 Andreas represents clients in a wide range of commercial disputes. His practice includes litigation and arbitration concerning corporate matters and complex contractual disputes e.g. within the energy sector, as well as directors’ and professional liability cases. Andreas also has extensive experience with special forms of judicial proceedings such as securing of evidence and injunction proceedings.

23

Contact us

Jan B. Jansen Partner

Atle Skaldebø-Rød Partner / Head of Dispute Resolution

E: jbj@bahr.no M: +47 934 94 306

E: atska@bahr.no M: +47 922 87 727

DISCLAIMER This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be relied upon as legal advice or be a substitute for detailed research or the exercise of professional judgement. Please refer to your advisors for specific advice.

BAHR will not accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication.

Advokatfirmaet BAHR AS bahr.no