The Art of War for Commercial Disputes – Part III

Sun Tzu said:

Conquerors estimate in their temple before the war begins.  They consider everything. The defeated also estimate before the war but they do not consider everything. Estimating completely creates victory. Estimating incompletely causes failure. When we look at it from this point of view, it is obvious who will win the war.

Sun Tzu’s Art of War, a 2,500 year old military manual recording the strategies of a Chinese Warrior who lived around the time of Confucius, is a classic which influences five-star generals to this day. It has also become an essential tool for business executives around the world. Why is this ancient book so useful?

For over 20 years I have been interested in the work as a rich vein of ideas for fighting and winning modern day commercial conflicts.  I am writing regular blog posts scavenging the manual to illustrate the lessons I learned and applied fighting disputes for clients in my 30 year career as a commercial lawyer. 

As I noted last week, information is by far the most important of these.  Behind those, structure is important and leadership is key.  Character and Climate will be of limited relevance in most commercial disputes but in some could be key (say a dispute between a government and a multi-national).

In all disputes, the leader of the negotiating team is obviously crucial.  If it isn’t clear when you head into the room who amongst those present is representing your party, then the negotiation will not go smoothly.  I will always seek to agree this well in advance.  The leader may be the lawyer or the CEO or FO or other key player.  I usually look to lead as I will be leading and co-ordinating the strategy.  In this respect I become something of a control freak!

Structure is almost as important. If there is an unclear chain of command, and if different parts are duplicating or, worse, are unaware of what other parts are doing, this can be disastrous.  So in preparing for the negotiation, if the party is a large organisation , make sure that the information is collated as efficiently as possible with clearly delineated roles allocated between different individuals and individuals chosen as to who is best placed to provide the specific information sought.  The leader should make himself fully conversant with summaries of the information before the main negotiation meeting.

Information is the five-star General amongst these principles.

We carry out as full a SWOT analysis as possible – Strengths, Weaknesses, Opportunities, Threats.

Taken together, we build up a full picture of our position.  When we walk into the room we know as much as we possibly can.

The analysis goes way beyond the merits of our case.  Take a money claim for services where we are a supplier and the other party is a customer and the customer is refusing to pay.  The merits are whether the customer is justified in its claim to withhold payment.  It may be arguing that the services were not delivered to the requisite standard.    The validity or otherwise of this claim needs to be assessed as does the amount which ought reasonably to be allowed against the outstanding balance by way of compensation. 

However, there are lots of other factors which should be investigated.  For example:

• The respective bargaining positions of the parties.  If there is a disparity of power between the two parties this may be important.  If the customer is asset poor and the supplier has large resources and can afford to litigate, this can outweigh the merits in a negotiation;
• Are there any special factors? e.g. the customer is desperate to get the work finished and cannot afford to get another supplier in to finish the job; the ownership of the product which is the subject of the contract does not transfer to the customer until the supplier is paid; the supplier is desperate for cash and will take a discount for cash;
• Sometimes impecuniosity is a virtue: if the customer simply does not have the cash, it may be sensible for the supplier to settle cheap – you can’t “get blood out of a stone”;
• The respective resources of the parties – the supplier is a smallish operation and the customer a huge multinational; but if the customer is disorganised and one division does not know what the other is doing, this can be used to the other party’s advantage;
• And so on it goes.  As Sun Tzu says, the winner assesses everything and that way victory is guaranteed!

Next time we will look at a different aspect of commercial negotiations of Disputes but planning and the collection and assessment of information in preparing the perfect strategy is of inestimable importance.

David Middleburgh runs Maxwell Commercial Services. His a Solicitor Advocate and an Insolvency Practitioner. He gives strategic legal, commercial advice on complex and contentious commercial disputes and on business strategy generally.