ADR, Mediation

Deft touch needed for mediating 'delicate' family business disputes

By Staff

A deft touch is required to solve family business disputes due to their inherent extra layers of complexity, Toronto mediator Marvin Huberman tells

“They are really delicate affairs,” says Huberman, the editor of A Practitioner’s Guide to Commercial Arbitration.

“The uniqueness of the challenge they present lies in the fact that family disputes are often marked by emotions and a history of baggage and miscommunication — in addition to the commercial side, which can be very complicated in its own right.

“To effectively and efficiently resolve this kind of fight, I would say the mediator should really have specialized knowledge and skills in the area because of the challenge it presents,” he adds.

The approach Huberman has developed involves breaking down the dispute into three key periods of time.

The Past:

“First of all, you need to know who did what to whom and ask whether the wrongs of those actions can be righted,” Huberman says.

He says the parties to a family business fallout typically have complaints about past management or questionable monetary transactions.

“Those types of claims are very hard to resolve and the best we can do is endeavour to strike a workable balance,” Huberman says. “The goal of looking at the past conduct is to allow them to get on with their lives and move on. Parties often find that difficult to do, but it’s what’s required.”

The Present:

“Here, we’re generally looking at how to divide the assets and liabilities of the business and determine what the partners’ real wants and needs are,” Huberman says.

As mediator, he attempts to strip away all the built-up resentment to get at the grievances that really matter.

“Let them rant and rave. You want to rehash all the settlement discussions that got them to this point and hear why they feel what was done before was unreasonable,” he says.

Once he has a full understanding of the background, Huberman says he likes to move the parties into private caucus in order to clear up any misunderstandings. Here, he presents them with four scenarios to consider in terms of the business:

  • Is it better to maintain the status quo?
  • Is the company a candidate for sale to a third party?
  • Can one of the existing partners buy out the others?
  • Should the company be split up?

“Each party needs to identify which of those options is their priority and then we can move toward a fair resolution of the dispute,” Huberman says.

The Future:

In many cases, Huberman says the parties will opt to split the business up in some way, forcing them to consider how to govern their future relationship.

“Now you’ve got two partners who may be competitors in the future,” he says. “They have to decide whether they want to compete or limit it in some way. Maybe they divide the business on geographic lines or maybe they split the company’s existing customers and clients between them.”

After deciding to split a business, Huberman says arguments are likely over certain assets whose potential may not be fully realized until some point in the future, as well as liabilities that must be accounted for.

“There may have to be some compensation paid by one partner to the other to reflect the value. You can also build in insurance to deal with contingent liabilities,” he says.

“This is a thorny area, but by following this approach and shuttling back and forward between the parties, it is possible to narrow the gap and negotiate an agreement in principle, before confirming it in minutes of settlement,” Huberman adds.

“The ultimate goal is to enter into a settlement that is durable and robust.”

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