Litigation and arbitration are conceived to be time consuming and costly, with an uncertain outcome. Not an attractive business case for investing the company’s working capital at the expense of your legal budget. Consequently, conflicts are often commercially settled, in order to avoid escalation into litigation or arbitration. Question is whether the terms of such a commercial settlement are always sensible from a corporate interest perspective, i.e. whether the company is compensated according to its legal entitlement. This article sets out how legal operations can provide a clear picture of the company’s legal position in such a conflict and the ensuing terms for a settlement that offers the firm appropriate value.

Settling in the shadow of the law
Before discussing the modus operandus referred to above, it must be appreciated that strategic settlement negotiations that result in appropriate value, and designing a winning legal strategy to that end, are processes “in the shadow of the law”. I.e. achieving such a settlement is a process of disputing in the vicinity of official tribunals on arguments that rely on the anticipated, or perceived, outcome of proceedings before such tribunal. This strategic pursuit of a settlement through mobilizing the court process has been referred to in legal writing as “litigotiation”. This concept of settling in the shadow of the law is emphasized, to distinct from settlements that do not do justice to the firm’s legal position, but are nonetheless struck in order to maintain commercial relations.

The judiciary decision model
The shadow of the law can be casted forward in settlement discussions, by appreciating the mechanisms of judicial decision making. All Dutch civil judgments have a standard structure: 1. a description of the proceedings; 2. a summary of the undisputed facts; 3. a synopsis of the claims set out in the writ of summons; 4. the assessment of these claims in light of the facts and circumstances of the case; and 5. the decision itself. Under this “standard form precedent” structure of judgments, and especially section 4 thereof, lies a standard model for the process of judging itself. Awarding a certain claim, requires a proper legal basis and the determination of facts that support said claim and legal ground.

For example: a claim for payment of damages will be awarded on the basis of non-performance if it is determined that the defendant did not meet a given contractual obligation towards the claimant, defendant is in default (“verzuim”), and claimant suffered a certain amount of damages as a consequence. The judiciary decision model, mirrors this claimant’s “claim – legal ground – factual basis” sequence, with the defences brought forward by the defendant. In this process it is considered whether the factual basis of the claim is contested by the defendant or not, in which case the facts are to be accepted as true. If contested, the question is whether the counter narrative has been sufficiently substantiated by the defendant. If not, the claimants factual basis is accepted. If so, the claimant will be allowed to provide evidence, if determination of the sufficiently contested facts is necessary for a judgment. The model in which the claimants “claim – legal ground – factual basis” sequence is mirrored against the defendant’s – actual or to be expected – counter arguments, provides a framework for balancing these positions and therewith assessing the legal position of the company and the possible outcome of legal proceedings.

De-framing and de-biasing information
The judiciary decision model requires to be fed with adequate information on claims, legal grounds, factual basis and defences. In order to be able to perform a proper assessment, the information needs to be de-framed en de-biased. This is due to the fact that a conflict always comes to knowledge by means of a medium. Be it a colleague from the business, an e-mail from the counter party, an M&A director, a writ of summons that lands on your desk, or a team member. Consequently, the conflict is brought in a certain frame and context by this other person, including his or her own experiences, beliefs, interests and biases. The way the story is told is partly deliberate, in order to influence your appreciation of the matter, and partly unconscious, due to the teller’s implicit view on the facts. So, in order to get an objective understanding of the matter, one needs to get the facts straight. Collect the contracts, invoices, correspondence and other apparent relevant information and process the relevant sections of these documents chronologically in a fact sheet. This exercise offers a chronological and objective fact based view of the matter, from beginning to end. Especially when the first encounter with the case was a demand letter or writ of summons drafted by the adversary party, collecting facts in this manner elevates the essence of the case from the story in which it was told, resulting in striking clarity.

Case assessment
Analysing these objectively processed legal arguments and known facts by applying the judiciary decision model approach, will indicate the company’s legal position in the matter, i.e. whether the claims will probably be awarded in proceedings or not. This modus operandus also indicates the strength and weaknesses in the legal argumentation of the case, and therewith in what area’s more research or file building is required to win.
Assessing a case in this matter, in the shadow of the law, provides a clear picture of the company’s legal position, enabling negotiations aimed at reaching a settlement that results in a compensation that matches the company’s entitlement. If such a settlement is not within reach, i.e. the respective views on the probable outcome of litigation differ too much, the company can resolve to formal dispute resolution in confidence that it will prevail.

About the author

Timo Jansen
Timo Jansen has extensive experience in the prevention and resolution of corporate and contractual disputes, particularly in the areas of pre-contractual liability, M&A, joint ventures, directors’/shareholders’ liability and franchises/distribution. He also acts in professional liability and fraud cases. His clients come mainly from the insurance, retail (food and non-food) and telecommunications sectors.

Timo was admitted to the Dutch Bar in 1998, has been leading the Lexence corporate litigation team since 2010 and is a deputy judge at the Arnhem-Leeuwarden court of appeals since 2019. He studied law at Universiteit Utrecht where he also completed the Law & Economics master’s program. Since then he has studied corporate litigation and advanced financial statement analysis in postgraduate specialization courses at, respectively, Grotius Academie and Amsterdam Institute of Finance.