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The Spacenook Saga

Alan Limbury

General Information

Akira Katsumi and Turhan Evrim were master’s students in technology at the Falango National University fifteen years ago when Akira claims to have suggested an idea to Turhan of an app which can create an area of peace and quiet in which no other electronic devices are able to operate within sight or earshot of its owner, saying this would be better than just turning off the app owner’s device because it would disable all other devices within the peaceful zone.¹

After leaving University and returning home to Malitania, Turhan produced the app, called “Spacenook”, and incorporated a company, “Spacenook Enterprises”, to exploit it. Some exceptions to the disabling function had to be developed to allow essential medical equipment, such as cardiac pacemakers, to continue to operate. Since there could be no advertisements, no uploads or downloads, no electronic communications at all while the app was switched on, the only way to generate revenue was through the price, which for the Spacenook app was relatively high. Sales were initially slow but by the third year of business the company had made total profits of 150,000 Frescoes (the currency used in both Malitania and Falango).

Under the law in both Falango and Malitania, although a mere idea is not patentable (since a patent requires disclosure of how the idea works), if the originator of the idea can prove: that it was not publicly known; that the originator disclosed it in circumstances imposing an obligation of confidentiality on the recipient; and that the recipient used or disclosed it without consent, the court will order the recipient to cease further use and disclosure and to pay to the originator all profits derived from such conduct.

Ten years ago, Akira sued Turhan and Spacenook Enterprises in Malitania, seeking orders to restrain further alleged misuse of Akira’s confidential idea and to pay to Akira, by way of compensation, all profits derived from sales of the app before ceasing use of the idea pursuant to the court’s order. Turhan denied all the allegations and claimed to have been the originator of the idea for the app. That litigation was settled four years later at mediation in Falango, Akira’s country. Akira accepted 1,000 shares in Spacenook Enterprises in full settlement and released Turhan and Spacenook Enterprises from any further claims over their use and exploitation of the idea. The settlement agreement contained no warranty as to the value of the shares and no admission of liability by Turhan or Spacenook Enterprises. It provided that the parties would keep the settlement agreement confidential but could tender it in evidence if necessary, for example, to enforce its provisions.

Following the settlement, thanks to massive publicity generated by Turhan’s promotional efforts and Turhan’s reputation as a technological wizard, the Spacenook app became enormously successful worldwide, especially where people gather in large numbers, as in cinemas, at sporting events and on public transport. When Turhan introduced another exception to the disabling function, at a much higher price, to allow employers to operate company-owned devices but to disable all others within the workplace, sales skyrocketed still further, as did workplace productivity.

Five years ago, shares in Spacenook Enterprises started trading on a leading stock exchange. Spacenook Enterprises is now a very valuable company, with each share now trading at 500 Frescoes.

Tragically, four years ago Turhan died in a highly publicized hang-gliding accident captured live on smartphone video and broadcast virally on the Internet. Turhan’s estate passed by will to Turhan’s spouse Rohan, including 55,000 shares in Spacenook Enterprises, being 55% of the issued capital. Rohan is now the majority shareholder and president of the company, the latter being a symbolic, “figurehead” role that Rohan enjoys, while leaving the day-to-day management to executives who report monthly to directors’ meetings, which Rohan occasionally attends.

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Two years ago, Akira commenced fresh court proceedings against Spacenook Enterprises in Malitania, where that company has its headquarters, for an order that the first mediation settlement agreement be rectified so as to provide that the number of shares Akira should receive is 10,000, alternatively for an order to set aside the first settlement agreement so that Akira’s original claim for misuse of Akira’s confidential idea can proceed against the company.

The new proceedings are based on Akira’s assertion that Turhan, on behalf of Spacenook Enterprises, misled Akira in the first mediation by representing that the shares were worth 100 Frescoes each, far more than what Turhan then knew from an independent financial consultant’s report was their true value at the time, namely 10 Frescoes each. Shortly before Akira commenced the new proceedings, the financial consultant had given to Akira a copy of that report, which had a note on it in ink in Turhan’s handwriting, dated a few days prior to the first mediation, acknowledging receipt. Hence Akira says that, as Turhan well knew at the time, the settlement should have been for 10,000 shares, and accordingly the settlement agreement should be rectified, in which case Akira should now receive a further 9,000 shares or their current value, namely 4.5 million Frescoes.

In Falango, where the mediation had been held before a local mediator, the Mediation Statute provides (as it did at the time of the first mediation) that evidence of oral and written communications in any mediation conducted in that country (whether ordered by a court or not) is inadmissible in any court or arbitral proceedings. There are no exceptions. This is said to be in furtherance of the public policy of encouraging mediation and deterring satellite litigation.

In Malitania, where Akira’s present court proceedings have been brought, the Mediation Ordinance provides that such evidence is inadmissible in any court or arbitral proceedings except with the permission of a judge, who must consider the interests of justice and the public interest when deciding whether or not to grant permission. This is also said to be in furtherance of the public policy of encouraging mediation and deterring satellite litigation. There have been no decided cases under this law, which came into force only recently and applies to all court proceedings in Malitania that have not yet come to trial, including proceedings commenced before the law came into force.

In seeking to have rectified or set aside the first settlement agreement, Akira’s lawyer has given notice of intention to tender that settlement agreement in evidence, as well as the copy of the financial consultant’s report with Turhan’s inked note on it, and to call both the mediator and Akira to give evidence of Turhan’s alleged misrepresentation. The financial consultant has been asked to attend court in case her evidence is also needed. To date there has been no indication as to whether the mediator has any recollection of what happened, but the mediator has foreshadowed making an application to the court, based on the agreement of all the parties and the mediator (signed at the commencement of the first mediation) that everything said and done in the mediation would be kept confidential, which the mediator says gives the mediator the right to refuse to give evidence.

Rohan and Akira have never met. At Rohan’s request, communicated by Spacenook Enterprises’ lawyer to Akira’s lawyer, Akira has reluctantly agreed to attempt another mediation under the auspices of the ICC. The trial of the Malitanian court proceedings is scheduled to commence in some months from now if no settlement is reached beforehand.

Rohan will attend the mediation with an eminent lawyer from Malitania. Akira will attend with an equally eminent lawyer from Falango. Both parties have full settlement authority.

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The Spacenook Saga

Alan Limbury

Confidential Information for Rohan

Requesting Party

Turhan’s untimely death has left Rohan, who previously had no experience running a company, in nominal, if not actual, charge of a valuable enterprise, selling one of the world’s most popular apps. The success of the Spacenook app has kept the company’s share price high until now, but Rohan fears this may not last unless the company can market another popular, premium-priced product fairly soon. A year ago the directors asked the company’s technical department to find a way for Internet users to be able to have unwanted information about them deleted from the Web, except for specifically identified information they wish to save. Such an app would fit in well with the zone of peace and quiet associated with the Spacenook app and would greatly enhance both the company’s image and its market value, especially in light of the current debate between the European approach of a “right to be forgotten” and the United States’ approach that the right to publish the truth overrides any right to privacy. However, to date no one has produced a workable app to address the unwanted information problem. To make matters worse, the head of the technical department resigned last month to join Spacenook’s arch-rival Gurgle, claiming that Gurgle would pay much more than his salary at Spacenook of 25,000 Frescoes per month.

Rohan’s lawyer has advised that there is a strong possibility that, since it is in the interests of justice that settlements induced by misrepresentation should be set aside and that settlements based on mutual mistake should be rectified to reflect the common intention of both parties, the Malitanian court will agree to receive evidence from Akira of the oral communications between Akira and Turhan in the mediation of five years ago, if not from the mediator, even though the law of Falango, where the mediation took place, would prevent it. And with Turhan unable to be present to challenge Akira’s version of events, Rohan risks having Turhan exposed as a cheat, not once but twice, something that would have an extremely adverse effect on Spacenook Enterprises’ reputation and would be likely to see the price of its shares plummet on the stock market because of the apparent taint of fraud.

Rohan’s lawyer thinks it is unlikely that the court would order that the first settlement agreement be rectified because it is clear from Akira’s misrepresentation allegation that both Akira and Turhan intended that Akira should receive 1,000 shares, although they may have had different views as to their value. Further, the present value of 10,000 shares is far greater than the 100,000 Frescoes that Akira alleges they were worth at the time of the first mediation. The 1,000 shares Akira did receive could by now have been sold for far more than 100,000 Frescoes, so it is hard to see how Akira has suffered any financial loss. The day before the upcoming mediation, it occurred to Rohan that Akira might have already sold some or all of the 1,000 shares for more than what Akira estimates 10,000 shares were worth five years ago. Rohan tried urgently to contact the company secretary to ask for the register of shareholders to be checked to see whether Akira is still a shareholder and, if so, of how many shares. Unfortunately the company secretary is away on holiday and nobody at the office knows where the share register is kept.

If, as Rohan’s lawyer thinks more likely, the first settlement were set aside and the original case were reopened, even though the events in question took place so long ago, there is a real prospect that the eventual trial judge would find: that Akira is a credible witness with a good memory; that the app was Akira’s idea; that it was disclosed to Turhan in confidence; and that Turhan breached that confidence and effectively stole it. Any court order to restrain the company from distributing the app would be catastrophic. Moreover, the company simply cannot afford to pay or even borrow anything like the many millions of Frescoes in profits made over the years and would have to go into liquidation.

Turhan never told Rohan what happened in the first mediation and died before Akira made the allegation of misrepresentation, so Rohan had no opportunity to find out Turhan’s version of those events. However, Rohan does recall that, long before there was any dispute between the parties, Turhan told Rohan that the idea for the app was Akira’s and that Akira whispered it to Turhan as they sat at the back of the class in a rather boring lecture about domain names.

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Turhan couldn’t remember whether or not Akira had said the disclosure was confidential. Rohan is reluctant to divulge this to Akira in this mediation without some assurance that to do so would not make things worse.

Rohan has been advised by the company’s accountant that the company cannot afford to pay more than 1 million Frescoes to settle this case and is not in a position to issue fresh shares in the next three years due to regulatory requirements. Although Rohan is not personally a defendant, to settle this case Rohan would be prepared to transfer some of Rohan’s own shares in the company to Akira, so long as Rohan retains control of the company.

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The Spacenook Saga

Alan Limbury

Confidential Information for Akira

Responding Party

Akira feels angry, hurt and resentful that Turhan never acknowledged that Spacenook was Akira’s idea, not even in the first mediation when Akira specifically asked Turhan to do so. Akira saw the success of Spacenook Enterprises as built on a lie, which is why Akira brought the first court case. Now it is clear to Akira that the settlement of that case was also built on a lie and Akira feels the need to expose this to the world, if only for the sake of revenge. Vindication by a judge would be a sweet victory, no matter how much the cost in money and time.

However, although Akira does not wish to acknowledge this, cost is a big problem. Just two months ago Akira had to sell 400 of the shares acquired as a result of the first mediated settlement at 480 Frescoes each, in order to pay the legal expenses to date of the present court proceedings. That money has almost run out and even if Akira sells the remaining 600 shares, Akira will have great difficulty paying lawyer’s fees and associated expenses if this case goes to trial.

Akira’s fortunes after leaving university could not have been more different from Turhan’s. Whereas everything Turhan touched “turned to gold”, Akira, who was first to have the idea of what has become the Spacenook app and whispered it to Turhan as they sat at the back of the class in a rather boring lecture about domain names, has failed ever to get a job in the technology industry, despite frequently having new ideas, because nobody has been willing to invest in them. Akira is presently working three days per week as a part-time shop assistant in a bakery for 5,000 Frescoes per month and has virtually abandoned the possibility of success as a technological mastermind.

Last year however, Akira had an idea for an app that would “wipe the Web clean” of anyone’s unwanted information. While debate rages between the European approach of a “right to be forgotten” and the United States’ approach that the right to publish the truth overrides any right to privacy, Akira’s idea would enable Internet users to have anything about them deleted from the Web, except for specifically identified information they wish to save. After obtaining legal advice that no laws would prevent use of such an app anywhere in the world, Akira spent the occasional spare moment working on and testing various aspects of the app until it became apparent that it works, but s/he cannot afford the estimated cost of 200,000 Frescoes to obtain patent protection in Falango and Malitania, let alone other countries. So Akira’s attention has turned to working in the bakery, instructing lawyers for the forthcoming court case and preparing for this mediation. Given Akira’s experience with Turhan, Akira is reluctant to mention the idea of the new app to Rohan without some assurance that it would not be stolen.

Akira’s lawyer has advised that there is a strong possibility that the Malitanian court will refuse to receive any evidence of Turhan’s misrepresentation in the first mediation because the law in Falango, where the mediation took place, prohibits it. Instead, the Malitanian court is likely to rule that, in agreeing to mediate in Falango, the parties accepted that they would never be allowed to give evidence of what happened and that accordingly, it would be in the public interest that they be required to abide by that agreement. As such, the lawyer has advised that Akira has very little hope of ever rectifying the settlement agreement or reopening the original case, whether the mediator is willing to give evidence in the present proceedings or not. And even if the original case were reopened, the events at university giving rise to the claim happened so long ago that proving disclosure of the idea and that Turhan should have appreciated that the disclosure took place in confidential circumstances may be extremely difficult, especially since Turhan is no longer alive either to give evidence disputing Akira’s version of events or to be cross-examined by Akira’s lawyer. Accordingly, the lawyer has advised that Akira has virtually no chance of obtaining the many millions of Frescoes in profits that Spacenook Enterprises has made over the years from sales of the Spacenook app.

Further, Akira’s lawyer anticipates that Rohan will argue that Akira has suffered no loss, because some or all of the 1,000 shares Akira received pursuant to the first settlement could by now

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have been sold for far more than the 100,000 Frescoes which Turhan represented those shares were worth at that time. Indeed that is exactly what has happened. The answer to this must be that the settlement was not for a sum of money but instead for shares falsely represented by Turhan to be worth 100,000 Frescoes. If Akira had received the correct number of shares to that value at that time, they would now be worth 5 million Frescoes.

Irrespective of the weak prospects of success, for Akira this dispute has become a matter of principle because Akira’s origination of the app has never been recognized. So if the litigation proceeds, Akira is determined to expose Turhan to the world as having been a cheat, not once but twice. Akira is adamant that unless Rohan admits that the idea was Akira’s and agrees to pay compensation of at least 4.5 million Frescoes or equivalent in value, Akira will pursue the case to the bitter end, ensuring maximum adverse publicity for the deceased Turhan and for Spacenook Enterprises, whether Akira wins or not.

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The Spacenook Saga

Colin J Wall

Case Analysis

This is a fascinating role-play which explores a number of issues central to mediation, including the question just how confidential a mediated settlement agreement is. The role-play was used in the preliminary rounds of the ICC International Commercial Mediation Competition in 2014 and unsurprisingly won the best preliminary round role-play award.

The background to this dispute is whether in the first mediated settlement agreement the now deceased Turhan misrepresented to Akira the value of shares in Spacenook Enterprises. Did Akira agree to a specific number of shares come what may or did Akira settle the mediation because s/he was informed of the actual value of those shares by Turhan? The mediator in the first case might well know the answer to this question, but as is common practice has very sensibly included a confidentiality provision in the mediation agreement, resulting in the right to refuse to give evidence in the second set of proceedings. Would the mediator even remember events of several years ago? Wise mediators would probably shred all their notes of what took place in the mediation once it was concluded and perhaps even protect themselves further, by requiring in the agreement to mediate that they be indemnified against any costs incurred in future legal proceedings.

Against this backdrop, the lawyers in the present mediation are unsure if the confidentiality of the former mediation process can be pierced. The law relating to the confidentiality of mediations is different in both Malitania and Falango and there is no case law on this matter. Indeed, this situation exists in reality around the world. To complicate matters still further, in some jurisdictions the protection afforded by mediator confidentiality varies depending on whether or not the mediation was ad hoc or ordered by a court. This is a minefield for international mediators, who must take care not only to ensure that mediation is conducted under a proper set of mediation rules but also that the seat of the mediation will respect mediator confidentiality.

There is also a marked difference in the attitudes of Akira and Rohan. Akira is very emotional and feels that s/he has been cheated twice by Turhan and Spacenook Enterprises and wants revenge and maximum publicity to expose these wrongdoings at almost any price. Rohan, on the other hand, is quite removed from the emotion and is treating this as a complex business dispute and trying to keep matters confidential. The mediator will therefore have to be careful to placate Akira but at the same time try to spend more or less equal time with Rohan. This is no easy task.

There is a great level of distrust on both sides and this might lead Akira to refuse to tell Rohan of the new app, although in this role-play the risk of Spacenook Enterprises stealing the idea is lower, as Spacenook Enterprises is actually trying to develop the same app but with limited success. If Rohan reveals this first, it should make it easier for Akira to disclose that s/he has developed a working app, which just needs financing for patent protection. Further, should Rohan reveal to Akira that Turhan admitted that Akira first came up with the idea of the Spacenook app, even if it is unclear whether this information was given in confidence?

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The Spacenook Saga

Greg Bond

Commentary for Training

Trying Co-Mediation

For Akira, this case is a “matter of principle”. Akira feels cheated not once but twice, and has almost reached a point where there is nothing to lose. Exposing Spacenook Enterprises as cheats and thieves is something that Akira would be willing to attempt. Perhaps this mediation is a last chance to resolve this another way. Akira is attending only reluctantly. For Rohan, the case is deeply worrying. First, Rohan upholds the good name of Turhan, who cannot be seen as a stealer of ideas. Secondly, the future of Spacenook Enterprises is on Rohan’s mind. Can a no-name baker’s assistant who has already been compensated once really endanger the company? It is not impossible.

In mediation training, students playing the parties often go heavy on the emotion. They are stubborn and deliberately awkward. They sulk and they pout. They shout and they scream. They get upset and cry. They make threats, including threatening to walk out. Above all, they stonewall, and give the students learning to mediate a hard time. This is the kind of role-play that will invite recriminations and accusations, and may well become personal. A mediation in which things get personal can be an opportunity for co-mediation, for several reasons.

If co-mediation works well and the two mediators are able to support each other, the benefits are manifold. If one of the mediators is stuck for what to say or do next, the other can step in. Attention to the needs, reactions, and emotions of the parties is more finely tuned with two mediators, as one will hopefully see what the other misses. The parties in dispute often find the balance that two mediators provide helpful. It can be both more supportive and seem more neutral than one mediator alone. The mediators can assign each other roles — one can be given more control of the process and the other more freedom to intervene spontaneously and seize an opportunity. In cases where the parties are men and women, a man-woman co-mediation team often makes sense, and is often preferred by the parties themselves. Two mediators can run separate caucuses simultaneously, compare notes, and then decide how to proceed. Two mediators can discuss the mediation with each other in breaks, or between sessions, and refine their approach to the specific situation. They can give each other feedback not only on the parties and their needs, but also on each other’s work as a mediator. When a conflict is highly personal, as this one between Akira and Rohan is likely to be, all of these benefits of comediation can work particularly well. Emotional conflict will set off emotional resonance and sometimes negative reaction in the mediator and this might get in the way of good process. With two mediators, there are two reactions to whatever the parties do or say. The backup that this provides can be very valuable.

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