INTELLECTUAL PROPERTY ARTICLES

Commentary on shareholder disputes
Part 3: choosing a method of settlement for a shareholder dispute

Commentary on shareholder disputes - Part 3: choosing a method of settlement for a shareholder dispute
Commentary on shareholder disputes - Part 3: choosing a method of settlement for a shareholder dispute

Disputes between shareholders greatly affect companies in terms of both sustainable development and economic losses. The extent of the said damage will depend on the type of dispute, the scale of the company, its industry of operation as well as which dispute resolution method is used to handle the said conflict. For companies operating in the financial sector or “public ones”, the said effect may be (quite) big. Therefore, choosing the right method to quickly resolve it is something that any company is interested in.

1. Negotiations to resolve disputes

During the performance of commercial contracts, cooperation contracts, or any agreement, the parties always want to be able to negotiate in good faith to find a solution to solve a problem if there is any disagreement since it is the quickest resolve. Therefore, in the dispute settlement clause of the contract, the parties often agree on a period of time to sit together to find a common voice to solve the problem.

Negotiations help to quickly resolve disagreements without going through any legal procedures while maintaining the confidentiality of disputes, avoiding affecting the psychology of the other shareholders, and employees as well as not affecting investors or causing fluctuations in the capital market. However, please note that to conduct the negotiation the goodwill of the parties will be requested and the law does not have any impact and relevant guidance for it. Therefore, companies may consider choosing an independent individual or organization to mediate negotiations when a shareholder dispute arises. The said intermediary will receive opinions from both parties and offer solutions to balance the interests harmoniously. It will help reduce tensions when discussing problem-solving as well as avoid conflicts when the parties face each other directly.

Besides, it is necessary to note that the main key to solving a dispute by using negotiation is to find a solution that can be accepted by both parties, not something only focusing solely on determining right and wrong to pressure the other party.

2. Choose to mediate at Commercial Mediation Center

Currently, to reduce the workload of prosecuting agencies, the method of mediation at the Commercial Mediation Center whose results are recognized by the court under a specific process is recognized as a method of dispute resolution and will be carried out by mediators. This method is chosen by some shareholders and companies when the conflicts are not too complicated and the parties want to quickly solve the problem as well as control the issues of information security, save costs, etc.

However, this method contains some disadvantages which make the parties hesitate to choose it to solve the dispute, particularly the most concerning factor is the low compliance and enforcement when one party refuses to implement the agreed content (the result of mediation). In addition, whether the court will recognized the mediation process and the agreed content of both parties or not depends on its consideration and consideration. These “open” points of the commercial mediation method are the reason why this method is less chosen by the parties to resolve the dispute, instead, the parties will go straight to the court or arbitration method.

3. Select the Courts or Arbitrators to resolve disputes

After the negotiation process fails, and there is no agreement reached, one of the parties may forward to the Court or Arbitration to resolve the dispute. In which, depending on the agreement of the parties to determine whether the Arbitrator can be selected or not, particularly if there is any agreement between both parties on this matter before or at the time of the disputed incident. In case, the said agreement does not happen, the Court is the preferred authority for resolving the conflicts. Court or Arbitration is the most chosen method by shareholders due to the deterrence and enforcement of the rulings of these jurisdictions. However, please note that in practice the processing time of these methods to resolve the case may take a while, especially for a court agency compared to the time prescribed in the law. The reason for the above fact is the overwhelming workload of the Court. Besides, the complication of the dispute, for example, the number of participating parties, the nationality of shareholders, etc. may also be one of the reasons.

For some disputes, if it is resolved by the Court, there may be some effects on the company’s normal operation as well as the shareholders, especially companies operating on the stock exchange. In this case, the disputing parties usually choose Arbitration since it can use the closed mechanism (if requested) to resolve the dispute, besides its settlement time will be shorter than the court proceedings. However, its cost is usually more than the one of the Court which is also an element considered by parties carefully.

It can be seen that the method of dispute resolution is quite diverse, but which method to choose will depend on the content, the nature of the dispute and the needs of the parties. Each method will have certain pros and cons and the parties need to consider carefully before choosing to avoid complicating the situation.

The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.