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Business disputes: can they ever be avoided?

When a dispute arises in the context of a business it will usually stem from a known risk, such as a customer not paying, an employee setting up in competition or a supplier breaching the terms of their contract.  Identifying and effectively managing the risks posed to your business can seriously reduce the likelihood of disputes arising and can ensure that, where problems do occur, the damage caused is minimal.

We explain the four steps business owners can take to protect themselves.

1. Know where risks to your business exist

All businesses are exposed to risks, some of which are general in nature and apply to anyone running a commercial enterprise and some of which are specific to certain types of business or industry.  For example, any business that employs people will be at risk of an employment tribunal claim if they fail to comply with their legal obligations towards employees.  However, only businesses who own intellectual property rights are likely to be at risk from infringement of those rights.

Understanding where the risks to your business lie is the first step in reducing the possibility of those risks materialising into a claim.  It is important to appreciate, however, that risks change over time and therefore your 'risk list' should be seen as a living document, which needs to be regularly reviewed and updated.

Your solicitor can help you to manage the review process.

2. Put in place effective risk management strategies

Some risks can be extinguished with careful planning, others can be reduced to an acceptable level.  It will be for you and your advisors to determine what, realistically, can be achieved.

Policies and procedures which all staff are expected to adhere to, together with regular training and the provision of any necessary equipment and support, can help to limit the possibility of an employment tribunal claim.  In the same way, carrying out financial checks on a prospective customer and ensuring adherence to a strict credit control procedure can help to reduce the possibility of unpaid invoices and disruption to your cash flow.

Insurance can be taken out to cover the risk of a key member of staff leaving and a restraint of trade clause inserted into their service contract to prevent them immediately setting up in competition.

In some circumstances, provision can also be made for disputes to be resolved outside of court by insisting that people who do business with you agree to submit to some form of alternative dispute resolution procedure.

3. Get your documentation in order

Written contracts should be provided for all employees, consultants, contractors and suppliers, which clearly set out:

  • what you expect of them;
  • what they can expect of you; and
  • the process that should be followed where a problem arises.

Contracts with suppliers and other business partners should also include:

  • the terms on which you will do business;
  • confirmation of who will bear responsibility for any commercial risks that arise in the context of your dealings, such as the possibility of a TUPE transfer being implied in an outsourcing arrangement or a breach of data protection legislation occurring where personal data will need to be exchanged;
  • rights of redress if the contract is breached;
  • consequences where the contract is terminated;
  • the extent of any liability, where this can be excluded or limited by contractual agreement; and
  • insurance arrangements.

In addition, you may also need service level agreements and financial documentation.  Appropriate policies and procedures will also be required, which everyone who works for you must be obliged to follow.

The extent to which your position can be protected by the documentation you have in place will depend on the circumstances, and in particular on any legal requirements that must be observed.  Working collaboratively with a commercial lawyer and commercial dispute resolution expert will ensure that the right balance is struck.

4. Seek advice early

If, despite taking steps to identify and effectively manage the risks posed to your business, a dispute still arises, then it is important to seek legal advice as soon as possible.  Contractual or statutory provisions that work in your favour to defend or significantly reduce the impact of a claim against you can be enforced, as can any entitlements you have to restrain harmful action or to insist on obligations owed to you being honoured.  This could include reliance on legal provisions which prevent claims being made by an employee until they have a certain amount of service under their belt, enforcing the terms of a contractual provision that excludes or limits your liability, insisting on compliance with a restraint of trade clause or preventing a customer from withholding payment under the terms of a 'no set-off' provision.

Where court proceedings have been issued against you in breach of a contractual agreement that disputes should be resolved outside of the court arena, steps can be taken to have those proceedings stopped.  Court orders can also be obtained in certain circumstances to compel the person you are in dispute with to take a specific action, like handing over a confidential client list, or to refrain from doing something that may be causing you harm, like making false and potentially libellous allegations.

Where you, yourself, are contemplating making a claim at court, there are rules which need to be followed before the claim can be made.  These rules are designed to try to resolve the matter amicably or to at least narrow down the points in dispute so that it can be resolved as quickly and economically as possible.  There may be financial consequences if these rules are not followed.

Speaking to your solicitor as soon as a dispute arises will ensure that all necessary steps are taken and that your exposure to potential claims is restricted to the fullest extent permissible.

For further advice on any of the issues raised in this article, or for commercial law advice more generally, please contact JPP Law on 020 3468 3064 or email info@jpplaw.co.uk

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