10 Tips For Managing Commercial Disputes
Litigation is an inherently uncertain and risky process. It is easy to start but more difficult to bring to an end without going to trial. By following the steps set out below, disputes should be easier to avoid and to manage.
1. Read and understand your commercial contracts before signing
Parties tend to focus on the commercial terms such as price, quantity and delivery dates. However, careful note should be taken of the termination provisions, whether there is a process for resolving disputes and (if contracting with an overseas party), the governing law of the contract and which courts will have jurisdiction. In my experience, these provisions only come to light after a dispute has arisen, by which time the parties are bound by whatever is written in the contract.
2. Have a full set of Terms and Conditions and do all you can to ensure that they apply to your contracts
There is no point having a comprehensive set of Terms and Conditions if they do not form part of the contract. Take care to understand how the “Battle of Forms” works so that you can organise your paperwork to ensure that, as far as possible, your Terms and Conditions apply.
3. Understand the legal status of the other party
Your customers and suppliers may be private individuals working as sole traders, limited companies, limited liability partnerships or traditional partnerships. The options for pursuing a claim will, to some extent, be dependent on the legal status of your opponent and its asset position.
4. Take personal guarantees if possible
It can often come as an unpleasant shock when dealing with a limited company to find that the company is a shell with no material assets. Whilst commercial realities obviously apply, if you are concerned that the other party may not be able to meet its liabilities, you should at least consider asking for personal guarantees from the company’s directors or another third party. If the directors have a personal interest in the transaction, they are less likely simply to put the company into liquidation and walk away.
5. Manage communications with the other party
Once a dispute arises, it is sensible to challenge communications through a nominated individual within your organisation. This avoids the risk of adverse disclosure to the other side from, say another employee who does not have the full picture. It also ensures that you approach the dispute in a consistent and coherent manner.
6. Preserve all types of evidence
The facts and matters to which the dispute relates may have arisen many years before the claim is pursued. The longer the time period, the greater the risk that evidence will be lost. This can easily occur by the accidental deletion of backup data and the disposal of obsolete equipment such as laptops and servers. Employees may also leave the organisation and take with them electronic equipment containing evidence such as text and emails.
7. Check insurance and funding
Long running litigation is inevitably expensive. Your costs may however be covered by insurance policies which you hold either of a household or commercial nature. If so, it is important to make a claim on the policy as soon as possible after the dispute has arisen. Where funds are not available to finance a claim, funding from a third party may be an option, albeit the funder will take a share of the damages in return for their financial contribution. The risk of having to pay the other side’s legal costs can also be dealt with via what is known as After The Event (ATE) insurance.
8. Be clear as to your commercial objective
Pursuing a claim as a matter of principle is an expensive luxury. Before embarking on litigation, you should be clear not only as to the overall cost and risk involved but what you are aiming to achieve in terms of an acceptable financial settlement or other remedy. With the assistance of your legal team, you should cost out the worst and best case scenarios and always be as objective and realistic as possible.
9. Always keep in mind a commercial settlement
Claims settle at various stages. Efforts should always be made to settle a claim before legal proceedings are even issued. However, sometimes it is necessary to serve a Claim Form to demonstrate that you are serious about the claim. Courts now routinely stay legal proceedings at an early stage to give the parties an opportunity to negotiate. A review of the position should also be taken after disclosure of documents and exchange of witness statements to ascertain whether a window of opportunity for settlement is available. In considering what is an acceptable settlement, you should factor in not only the merits and value of the claim but also the fact that you will only recover about 70% of your legal costs even if you win and you will not recover the value of the management time which will need to be devoted to dealing with the case.
10. Understand and embrace the benefits of mediation
Mediation is an entirely without prejudice process where the parties share the cost of a meeting with a neutral mediator. This is now a widely accepted dispute resolution method and actively encouraged by the Courts. There is a significant benefit to having a neutral mediator present who can say things to each party which do not sit well when coming directly from the other side. The process also allows for a more flexible settlements as opposed to the all or nothing outcome of a trial. Around 75% of mediations result in a settlement on the day of mediation or shortly thereafter.
Many of the above points are simple common sense but it is surprising how often they can be overlooked in the heat of a dispute. If you would like any further information on our approach to dispute resolution please contact Tristan Benson.