Negotiation: The Skill Underneath Every Other Method

An example. A supplier demands Rs. 30 lakhs; the buyer offers Rs. 10 lakhs. Positions are irreconcilable. But the supplier's interest may be cash before its year end, and the buyer's may be continuity of supply. A settlement of Rs. 18 lakhs paid within a fortnight, with a two-year supply contract at agreed rates, may be worth more to both than their opening positions.

Do not present integrative negotiation as always superior. Where the only issue is how much money changes hands between parties who will never deal again, there is nothing to integrate.

Preparing, which is where negotiations are won

The single most useful idea in this topic, and it has a name a student should know.

The best alternative to a negotiated agreement. Before negotiating, work out what happens if there is no deal: how long the litigation takes, what it costs, what the realistic outcome is, and whether the other side can pay. That alternative is the floor. A party should not accept terms worse than its alternative, and should not reject terms better than it.

Two things follow, and both are practical.

It converts negotiation from instinct into analysis. "Is this a good offer?" is unanswerable; "is this better than what I get if we fight?" is answerable.

Improving the alternative improves the negotiation. A claimant who obtains an interim attachment under section 9, chapter 260, has improved its alternative and will negotiate from a stronger place without saying a word about it.

The rest of preparation, as a checklist:

• know the facts and the documents better than the other side does;
• know the law, including limitation and whether an arbitration clause or section 12A blocks a suit;
• identify your interests and, as far as you can, theirs;
• decide your opening, your target and your reservation point, the worst you will accept;
• think about what you can give that costs you little and is worth much to them, such as time to pay, a phased schedule, or a reference; and
• settle who has authority, which chapter 590 identifies as the commonest practical failure.

Conducting it

Separate the people from the problem. Attacking the other side's representative hardens positions and produces nothing.

Listen more than you speak. A party that talks throughout learns nothing about the other side's interests.

Ask open questions. "What would you need to see to make this work?" produces more than "will you take fifteen?".

Justify by a standard, not by assertion. An offer supported by a valuation, a market rate, or a comparable settlement is much harder to refuse than one supported by insistence.

Do not treat the first offer as the last. And do not bid against yourself by improving your own offer before the other side responds.

Keep a record, and confirm in writing what was agreed and what was not.

The two legal points that always attach

These are what make it a law topic rather than a management topic, and an answer that omits them is incomplete.

One: authority to settle

A settlement binds a party only if the person who agreed to it had authority to do so. Three practical rules follow.

An advocate's authority is not unlimited. Whether a lawyer can compromise a client's claim without express instructions is a real question, and the prudent course is always express written authority to settle within a stated range.

A company acts through those authorised to act for it. A settlement agreed by a manager without authority may not bind the company, and the other side should ask for a board resolution or a power of attorney where the sum is significant.

Confirm authority before you begin, not after terms are agreed. Chapter 590 makes the same point about mediation.

Two: recording it so that it binds

A negotiated settlement is a contract, so the Indian Contract Act 1872 governs it: offer, acceptance, consideration, capacity, free consent, lawful object. But a contract has to be sued upon if broken, which is exactly what the parties were trying to avoid.

So the practical question is always how to record the settlement so that it does more than create a fresh claim. The routes, all of them taught elsewhere in this book:

Order XXIII rule 3 is worth knowing precisely, because it is the commonest of these. Where a court is satisfied that a suit has been adjusted wholly or in part by any lawful agreement or compromise in writing signed by the parties, or where the defendant satisfies the plaintiff in respect of the whole or part of the subject matter, the court shall order such agreement, compromise or satisfaction to be recorded and shall pass a decree in accordance therewith so far as it relates to the parties to the suit. Note the requirements: lawful, in writing and signed by the parties.

Compare that with Haresh Dayaram Thakur, chapter 570, where an unsigned document produced by the conciliator was worth nothing. The principle is the same across every method in this book: write it down and get it signed before anybody leaves the room.

Negotiation compared with the assisted methods

A worked example

A logistics company owes Rs. 26 lakhs to a fuel supplier. The supplier's advocate is instructed to recover it. There is no arbitration clause and no suit has been filed.

What is the first step? Not a notice demanding the full sum by return. It is preparation: check the invoices and the ledger, check limitation, and work out the alternative to a negotiated agreement. Suppose a suit would take four years, cost perhaps two lakhs, and face a defence about short deliveries that might reduce the claim by five lakhs.

What does that tell the supplier? That a prompt settlement above roughly eighteen or nineteen lakhs is likely to be better than fighting. That number is analysis, not instinct, and it is what the client needs to hear.

What are the interests? The supplier's is cash now. The logistics company's may be survival of a working relationship and not paying in one lump.

A possible integrative outcome. Rs. 21 lakhs, five lakhs within a week and the balance in four monthly instalments, with continued supply on cash terms. Both interests are served.

Who must agree? Somebody with authority. The supplier's advocate should confirm his own instructions in writing and should ask who on the other side can bind the company.

How is it recorded? No suit is pending, so Order XXIII rule 3 is not available. The options are a plain contract, or, better, to conduct the settlement as a conciliation under Part III so that the signed agreement takes the section 74 status, or, if the claim qualifies, through section 12A. If a suit had been pending, a compromise in writing and signed could be recorded and a decree passed under Order XXIII rule 3.

Two instalments are paid and then payment stops. If it was a bare contract, the supplier must sue on it, and is back where it started. If it was recorded under any of the other routes, it executes.

What beginners get wrong

Negotiation has no statute, so there is no statutory confidentiality and no statutory enforceability.

A negotiated settlement is only a contract unless it is recorded through one of the routes above.

Order XXIII rule 3 needs writing and signatures, and applies where a suit is pending.

Preparation is not optional. Without the alternative to a negotiated agreement, a party cannot tell a good offer from a bad one.

Authority to settle must be checked before terms are agreed, not after.

Quick revision

• Negotiation: the parties settle directly, with no third person and no statute.
• Consequences: no statutory confidentiality (contrast sections 75 and 81), no statutory enforceability (contrast section 74), and nobody can be compelled.
• Distributive against integrative; positions against interests.
• The alternative to a negotiated agreement is the floor: accept nothing worse, reject nothing better, and improve the alternative to improve the negotiation.
• Preparation: facts, law and limitation, interests on both sides, opening, target and reservation point, low-cost concessions, and authority.
• Conduct: separate people from problem; listen; open questions; justify by standards; record.
• The two legal points: authority to settle, and recording it so it binds, through Order XXIII rule 3, section 30, sections 73 and 74, sections 19 to 21 of the Legal Services Authorities Act, or section 12A.

Test yourself

1. Why is there no statutory confidentiality in a negotiation? Because no statute governs negotiation. Sections 75 and 81 of the Arbitration and Conciliation Act 1996 protect conciliation, and there is no equivalent for an unassisted negotiation, so any protection has to be created by the parties' own agreement.

2. What is the alternative to a negotiated agreement, and why does it matter? It is what a party will get if no settlement is reached, ordinarily the realistic outcome of litigation or arbitration after time, cost and recovery risk. It matters because it sets the floor: a party should not accept terms worse than its alternative or reject terms better than it, and improving the alternative strengthens its position.

3. A suit is pending and the parties settle. How is the settlement made binding? Under Order XXIII rule 3 of the Code of Civil Procedure. Where the court is satisfied that the suit has been adjusted wholly or in part by a lawful agreement or compromise in writing signed by the parties, it shall order the agreement to be recorded and shall pass a decree in accordance with it so far as it relates to the parties to the suit.

4. Distinguish a position from an interest, and say why it matters. A position is what a party says it wants; an interest is why it wants it. It matters because parties with irreconcilable positions may have compatible interests, and identifying the interests is what makes an integrative settlement possible where a purely distributive one would fail.

5. Two managers agree a settlement over lunch and shake hands. Is the company bound? Only if the manager had authority to bind it, and only to the extent that an enforceable contract was formed. Even then it is a contract, so a breach founds a fresh claim rather than an execution, unless the settlement is recorded through Order XXIII rule 3, a conciliation under sections 73 and 74, a Lok Adalat award, an award on agreed terms under section 30, or section 12A.