Dealing with commercial disputes
By Stephen Sidkin
Posted 5 September 2012
It is important to remember that disputes between companies are unpredictable. It is also worth bearing in mind that everyone involved will suffer some cost and that most disputes end in compromise, not outright victories.
Therefore, even if you think you have a watertight case, when formulating your objectives it is better to think in terms of a range of possible outcomes rather than one fixed outcome.
Locking horns with a former business partner can be costly
Work out what your business can afford in terms of management time and money, which problems it can tolerate. If the demands of your business do not fall within the range of realistic outcomes then you should probably rethink your approach.
Develop a strategy
Take time to think about any aspects that you might be able to turn to your advantage against your adversary. For example, some opponents will be sensitive to costs, delays or reputational damage. Others will be dependent on preserving relationships with you or your allies.
Less organised suppliers or buyers may be poor at producing reliable evidence to back up their case, possibly because they do not keep proper records or because their witnesses are unreliable.
Think about what applies to your particular case and work it into an overall strategy. But don't forget to think about what can be used against you.
Remember the contract – and the legislation
Check what the contract between you and the other party actually says. The fact that there is no written document is usually irrelevant - contracts can be made orally or even by conduct.
Most contracts have clauses that govern duties, breaches, damages, termination, notice periods and the mechanism for resolving disputes.
Also bear in mind that some clauses will survive termination of the contract, such as restrictive covenants that prevents parties from competing or from soliciting employees.
If a particular piece of legislation might apply, be sure to check how they will impact on you and your opponent. Beware of the legislation's pitfalls, such as the unenforceability of certain clauses and the need to notify claims. Equally, beware the laws of another country.
Strengthen your position – initial reactions matter
The steps you take immediately after a dispute arises can influence or even determine the outcome. For example, where you and the other party simultaneously accuse each other of breaching the contract, how the parties respond and whether they continue to perform the contract can have dramatic legal consequences.
Where there is doubt about how or where a dispute should be fought, being the first to act; eg, by commencing proceedings in the courts of a preferred country can give a massive advantage over your opponent, and how documents are managed and created once a dispute has arisen can determine whether they will be admissible as evidence.
Be realistic about the cost
The decision to involve your business in a dispute should always be commercially driven. Calculate what the full cost to your business is likely to be. That's not always as easy as it sounds.
Apart from legal costs and the risk of having to pay your opponent if you lose, there are usually other, less visible costs to consider such as lost revenue - say, caused by employee downtime - or increased future costs, such as higher insurance premiums, and indirect losses, for example, damage to your reputation.
Don't miss a good settlement
Disputes are risky, expensive and unpredictable. They are also stressful and distract from your proper business. In many cases, the sooner you end the dispute the better it will be for you and your business - provided of course the terms are acceptable.
New possibilities for settlement tend to open up as a dispute develops. A commercially-savvy litigant will always have one eye on settlement and will favour a reasonable, timely settlement over a risky day in court.
Stephen Sidkin is a commercial law partner at Fox Williams
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