In today’s business environment, founding and running a start-up is a challenging task, apart from the challenges of staying afloat, getting funding, and scaling the start-up, another challenge that start-ups face is dispute and how to manage it, disputes that start-ups often face include breach of contract, intellectual property violations and disputes that arise therefrom, and labour and human resource disputes, statutory compliance defaults, and ancillary disputes.

Litigation is commonly viewed as the acceptable form of dispute resolution, it is seen as the most conclusive form of dispute resolution and a helpful tool often utilised to accomplish the goal of enforcing and maintaining legal rights.

However, as conclusive as litigation may appear in the resolution of disputes, it is often not the most effective form of dispute resolution for start-ups when enforcing their rights or seeking remedies to issues that affect them. Going to court is often time-consuming, public, costly, and formal and many start-ups do not have the luxury of time they need to grow their fledgling business and not be bogged down by legal disputes.

Litigation may also hurt the budding reputation of the start-up and discourage external investment and access to venture capital from third-party investors as they do not want to invest in start-ups with litigation hanging over their necks. Fortunately, alternative forms of dispute resolution can offer less expensive, faster, and more amicable means of resolving disputes.

•Alternative dispute resolution for start-ups
For new and emerging businesses with limited funds to spend on litigious disputes, Alternative Dispute Resolution (ADR) mechanisms serve as a viable alternative. They are not only cost-effective, faster, and provide a healthier resolution; they also centre primarily on a decisive resolution of the issues that led to the dispute rather than the victory or defeat of the parties.

This article provides a brief overview of Alternative Dispute Resolution mechanisms mirroring the popular methods and explaining how to decide on the method or course of action that is suitable, cost-effective, and financially convenient.

When faced with a dispute, it is important to weigh all options and alternatives and discuss them with legal counsel, this is very important because no two cases are similar as each case has different objectives and considerations. There are also steps startups can take at the onset when negotiating commercial transactions to mitigate legal costs and avoid disputes, including setting a clear agenda of the issues to address as regards the specific transaction, drafting a set of common goals which each party hopes to achieve from the commercial deal and approaching the ensuing negotiation with a fitting mind-set of what they jointly hope to achieve.

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Aside from negotiations between parties, the most prominent forms of alternative dispute resolution are Mediation and Arbitration.

•Mediation
Mediation is an alternative dispute resolution mechanism that involves a neutral third-party facilitator, who walks the parties through the unpleasant details of their conflict in search of common ground. Parties are encouraged to set the agenda and tell their respective stories, participating extensively in the entire resolution process. Solutions are proposed and thoroughly discussed, and the mediator attempts to resolve outstanding issues in the equitable as much as possible.

It is instructive to note that the mediation process does not give the mediator the authority to issue binding decisions, however, agreements reached through the mediation process are legally binding and are generally filed in court as consent judgement between the parties. In essence, mediation facilitates an agreement between the parties toward a resolution of the dispute that affects them.

In some instances, exploring mediation first may resolve the dispute without incurring significant costs and would provide a neutral setting without any serious formality.

•Advantages
a. It is affordable and economical

b. Its informal structure allows participants the ease of adequately stating their grievances and expressing their intended outcomes.

c. Mediators are trained to facilitate settlement through building and sustaining a consensus.

d. The voluntary nature of mediation and confidentiality obligations means that startups can elect to discontinue the process without the fear of third-party disclosure.

•Disadvantages
a) Some disputes get so drawn that they become irreconcilable alternative means and mediation therefore not the right fit.

b) The informality of the process may make parties fail to take the proceedings seriously and therefore reduce their respect for the process.

c) Some mediation proceedings fail and parties proceed to litigate.

d) The voluntary nature of the process gives parties the liberty to opt-out at any time consequently failing to fulfil the initial agreements reached.

Mediation offers a vital and viable route for dispute resolution cost-effectively and expediently with a minimum amount of public attention. However, where deep divisions persist, mediation may not be the best mode of resolution.

•Arbitration
Arbitration creates an attractive blend of mediation and litigation to create a hybrid process that combines the strengths of both. During the arbitration, parties conduct mini-trials in front of a neutral third-party arbitrator.

Arbitration provides a faster, cost-effective alternative to litigation while offering similar levels of legal analysis, representation, and enforceable decisions. For Startups looking to establish formal alternative dispute resolution mechanisms as a habitual recourse, arbitration is a great fit.

In arbitration, opening and closing statements are given, evidence is presented, and the arbitrator issues a binding decision enforceable in courts of law. Arbitration can be voluntary which means it is undertaken on the initiative of both parties or mandatory which means it is compelled by statute or contractual agreement.

•Advantages of arbitration
1. It saves time and is also relatively cost-effective, especially when compared to litigation.

2. Arbitral proceedings retain a strong semblance of legal propriety without the traditional time-consuming formalities that trail litigation proceedings.

3. It captures much of the consensus-seeking, conciliatory tone of mediation while offering in-depth analysis and enforceable decisions.

4. It is private and as such, sensitive disputes are addressed confidentially.

•Disadvantages
1. While Arbitration may not be as expensive as litigation, it is still not entirely affordable, especially for startups that are young companies with little to spend on dispute settlement.

2. Parties generally select the arbitrator, so complete objectivity may be difficult to achieve.

3. Decisions are binding and cannot be appealed, so a negative decision can have far-reaching implications.

•Dispute resolution clauses in agreements
Start-ups do not enter into commercial transactions expecting failure. They enter to further the objectives and commercial aims of their business. It is however important to remember that they are negotiating with another party and that each party comes to the negotiation table with different interests and positions. As such, start-ups should incorporate an Alternative Dispute Resolution clause in their agreements that are robust enough to cover most dispute eventualities.

When drafting agreements, start-ups should ensure the inclusion of clear and inclusive provisions that adequately provide alternative dispute-resolution mechanisms to aid dispute resolution. Such clauses should be clear as to the mode of Alternative dispute resolution, the choice of law to be applied, the venue for dispute resolution, the cost of the process, and the abidingness or otherwise of the chosen mode of dispute resolution or other alternatives in the event of a failure of the resolution.

•Attitude towards dispute resolution
Start-ups should understand that dispute resolution starts at the point of negotiation and not the occurrence of a dispute. It is therefore important to enter a business negotiation with an informed understanding of the fallouts, available options, and implications of these ADR mechanisms in the event of a dispute.

Also when disputes arise, the parties need to understand that there will always be issues within a dispute that will be more contentious than others and so focusing on issues where agreement can be reached easily will most likely help establish goodwill, create additional points of leverage and increase the likelihood of progressing the negotiation to achieve a resolution. It is possible to have a collaborative approach while remaining assertive in your position and this is something to keep in mind.

*Conclusion

The use of ADR, particularly mediation, may provide opportunities for parties to resolve disagreements without resorting to litigation or arbitration. Mediation provides an opportunity for information gathering and candid discussions of issues with a neutral third party. There may be some instances where a dispute is not progressing toward resolution because of a misunderstanding or misinformation, and exploring this in mediation may resolve such issues. Mediation provides a forum to resolve disputes in a potentially more amicable and private way through facilitated discussions.

Although other considerations exist, ultimately ADR is an effective tool to resolve business disputes productively and cost-effectively and to ensure commercial relationships are maintained; this is one of the most important considerations for start-ups.

Omoruyi Edoigiawerie Esq, Notary Public, Founder and Lead Partner at Edoigiawerie & Company LP, a full-service law firm offering bespoke legal services with a focus on start-ups, established businesses and upscale private clients in Nigeria. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. His firm can be reached by email at hello@uyilaw.com