Settlement Negotiation and Mediation as an Alternative to Litigation
A lawsuit over an unpaid claim can take a long time and cost more than the amount at stake. Settlement and mediation are often a faster route. Here is how to approach it, and how to make sure the agreement holds.
Why consider a settlement?
When a customer disputes a claim, the matter can end up in court. A lawsuit gives a final decision, but it takes time, requires resources, and even if you win you will not necessarily have all your costs covered. A settlement (forlig), an agreement where the parties find a solution themselves, can often give a better overall result, even if you have to give a little ground.
The advantages of a settlement include:
- A faster conclusion and the money in sooner
- Lower costs for lawyers and court fees
- Predictability: you decide the outcome yourselves
- A chance to preserve the customer relationship
Negotiating out of court
Many disputes can be resolved through direct negotiation. Prepare by:
- gathering the documentation: agreement, invoice, proof of delivery and correspondence
- assessing how strong your case is, and what the customer's best arguments are
- deciding in advance the minimum you will accept
- working out what a lawsuit would cost you in time and money
Expert tip: Know your alternative
The most important preparation for a negotiation is knowing what you will do if you cannot agree, for example filing a small claims case. The better your alternative, the stronger your position in the negotiation.
Court mediation
Once a lawsuit has been filed, the parties can ask the court for court mediation (retsmægling) under chapter 27 of the Danish Administration of Justice Act. The court appoints a mediator: a judge, an assistant judge or a lawyer approved by the Danish Courts Administration. The mediator helps the parties find a solution themselves, but makes no decision.
- Voluntary: either party can end the mediation at any time.
- Confidential: what comes out during the mediation is as a rule confidential.
- Costs: each party as a rule pays its own costs of the mediation, unless otherwise agreed.
- Outcome: when the parties agree, the agreement can be entered in the court record and the case can be closed.
In an ordinary lawsuit, too, the court will typically explore whether a settlement is possible.
Private mediation
You can also use a private mediator before a case is filed. This is most relevant for larger or more complex disputes, for example between businesses with a long-standing relationship. Agree in advance how the mediator's fee will be shared.
Make the settlement enforceable
A settlement is only worth something if it is honoured. So make sure you can have it enforced if the customer does not pay:
- Court settlement: a settlement made before the court and entered in the court record can serve as a basis for enforcement just like a judgment.
- IOU: if the settlement is made out of court, you can have the customer sign an IOU (gældsbrev) that expressly states it can serve as a basis for enforcement (section 478(1)(5) of the Administration of Justice Act). You can then go straight to the bailiff's court on default.
Expert tip: Write everything down
A good settlement states the exact amount, payment dates, what happens on default, and that the parties have thereby finally settled the dispute. Unclear settlements often lead to a new dispute.
Watch the limitation period
Negotiations do not interrupt the limitation period. Most claims become time-barred after 3 years. If no agreement is reached, make sure you take legal steps in time. When the customer enters into a settlement and acknowledges the debt, on the other hand, the limitation period is interrupted (section 15 of the Danish Limitation Act).
Getting started
A settlement is often the fastest and cheapest way out of a dispute, if it is well prepared and in writing. Through InkassoHurtig you can get no-obligation quotes from police-authorised debt collection agencies and lawyers who can negotiate on your behalf. This content is general information and not legal advice.