Practical Law

In this blog I outline how a dispute between Kettle Foods (K) and a distributor (D) in a European market was successfully resolved through mediation, together with some insight into how to make the most of the mediation process.

Background

K had been working with D for two years with limited success. When we first entered into the relationship, distribution of our product in the relevant market was poor and as it was not a key territory we did not dedicate much management resource to the relationship. Consequently, our market position drifted further from where we wanted to be and D was allowed to expend marketing funds, with little or no input from us.

By the beginning of 2017, K had more resources and we began to pay attention to what D was doing with our sales and distribution. We refused to pay the marketing funds that D sought for 2017 until we understood the strategy and activities planned; this resulted in the relationship deteriorating. D was unaccommodating when we requested meetings to discuss the 2017 marketing plan. It failed to provide evidence that marketing activities it had invoiced us had been carried out. It became clear that we could not find a resolution to this commercial impasse without some assistance. We agreed to try mediation, pursuant to the distribution agreement.

The mediation process

By agreement, D made the initial referral to the mediation body named in the contract in July 2017. D sent a summary of the dispute and copies of key documents, such as the distribution agreement and correspondence, and requested that a mediator be appointed.

We had 15 days to respond, setting out our version and giving any preferences we had regarding the choice of mediator. After some delay caused by the summer holiday period (evidently no one mediates during the summer!), our mediator was chosen in September 2017 and a date was set.

In October 2017, we met for a full day of mediation, which commenced with all parties in the room together. The mediator asked both sides in turn to summarise the points in issue. The mediator then gave her interpretation of what she had heard and asked for both sides to confirm that she had got to the heart of the problem.

The mediator correctly surmised that the main issue was the dispute over how we should work together; D maintained that K should not be allowed to interfere with its activities whereas we insisted that if we were spending several hundred thousand Euros each year on marketing, we should be able to discuss how that money should be spent.

Whilst both parties agreed that the mediator had understood the central issues correctly, when she suggested commencing discussions to find ways of working that would suit both parties, D’s representative gloomily indicated that he did not expect to be able to reach a solution. Nonetheless, we split into separate rooms and the mediator spent some time with D and then with us. She came to us with two proposals: we could either concentrate on trying to find better ways of working together, or we could spend the day working out how to end the relationship entirely. We quickly made the decision that our time would be better spent on agreeing the terms of an exit. The mediator confirmed that this was also D’s preferred choice.

The remainder of the day was therefore spent with the mediator going back and forth between our separate rooms trying to move to agree terms. At the end of the day, she brought us together again. At that point, we had the beginnings of an agreement as to how the termination of the relationship would work, with a general timescale for the exit, an agreement on the broad areas of assistance required from D for a handover to whoever our future partner would be, and a range for a payment to D to compensate it for the early termination of the distribution agreement.

We did not have enough time to reach final agreement during the day. In any case, it is often best to allow time for a breather before a settlement is finalised. We therefore agreed to continue discussions over the following days by telephone.

There followed a series of telephone conversations which assumed the same pattern as our face-to-face meetings: the mediator proposed each party’s stance to the other and then reported back the response. Within a few days, we had reached agreement on the remaining points, and the deal was turned over to the external lawyers to draft a settlement agreement. In November 2017, after some further adjustments, we signed an agreement which enshrined the deal we had reached.

Why choose mediation?

From our perspective, mediation provided a very successful outcome to a difficult and contentious dispute. I cannot see how we would have reached resolution without it as both parties had become so entrenched in their positions, to the benefit of neither. The mediator provided a buffer for the tension that had developed between the commercial parties over time. She very skilfully pointed out when an argument would work for litigation but was unhelpful in mediation. This kept everyone focused and prevented any needless point-scoring exercises.

Key for us was that the cost was controlled and the solution was reached quickly. The mediator’s fees were low compared to the expected litigation costs (and will be split equally between the two parties). We paid less than we had envisaged as our worst case scenario.

Given that K needed to be able to set up an alternative route to market quickly, it was crucial to agree a swift exit. From the point of referral to the signature of the settlement agreement, the whole process took 18 weeks. At the time, it felt like a painful and frustratingly long 18 weeks. However, it was very speedy compared to litigation, and it would have been even quicker had it not been for the summer holidays.

How did we get the most from the mediation process?

I believe that there were four key elements which led to us feeling that we had used the mediation well to reach a successful conclusion:

• We chose an effective team. Three of us ran the mediation, comprising a mix of commercial and legal expertise. We were all very familiar with the distribution agreement, the history of the relationship, the details of the day-to-day operations and the objectives for the market in the future. We could respond to all points without needing to refer back to anyone else.
• We were well prepared. In the run-up to the mediation, we went carefully over our objectives and plotted out best and worst case scenarios. We took the rest of our executive team through the likely outcomes and got agreement as to our goals. We entered the mediation knowing that we had authorisation to do whatever deal we thought necessary, without requiring further approval.
• We had in-house legal expertise. As our in-house lawyer, I combined legal understanding with in-depth commercial knowledge of our business operations, which assisted with decision-making.
• We supported each other. Our team all knew our areas of expertise well, and knew that we could rely on each other for support. When the negotiations felt like they had become tough and protracted, the three of us kept each other going (there were also certain aspects of our shared experiences that we were able to view through a humorous lens, which provided some much needed light relief!).

Conclusion

Similar principles to those we used to reach a successful conclusion in this mediation can be applied to any kind of negotiation, whether it is in relation to a dispute or a regular contract negotiation. The key things to bear in mind are:

• Any preparation done in advance will be time well spent.
• If you know what you want to achieve and ensure you keep sight of this, it will be difficult for the other side to distract you.
• Pick your team carefully, and make use of any internal resources you have available (for example, involve legal and finance colleagues where you can).

Finally, if there is a dispute and an option exists to involve a third party mediator, it is well worth considering because it may be a productive way to break the deadlock and move the situation on.