Benjamin Franklin once said “By failing to prepare, you are preparing to fail” and it is a maxim worth considering when it comes to commercial disputes. No person or organisation plans to enter into a dispute with a party that it engages with, but equally one should not classify disputes as something that ‘just happens’ or that it ‘goes with the territory’.
Dealing with a dispute can have a tremendously detrimental impact on any business. With that in mind, there are a number of golden rules to keep in mind should a litigious situation arise.
1 – When negotiating entering into a contract, also be minded about how you will be able to extricate yourself from it should things not turn out as you anticipated. Parties can often lose sight of this in their haste to ‘seal the deal’. Nothing is forever, and the exit route from a contract should be clearly set out.
2 – An organisation that is sloppy in its drafting and execution of legal documents (e.g. contracts, invoices, providing terms & conditions) and does not maintain a clear and organised filing system of critical documents is likely to cause itself significant problems in the event of a legal dispute. The small stuff becomes the important stuff when it comes to disputes, and being unable to produce or locate crucial evidence could make a significant difference to the chances of success for your case.
3 - Beware of false economy. Do it yourself contracts or ‘cut and paste’ mish-mashes from previous deals are rarely a success and a lawyer will spot them a mile off. A modest investment in a properly drafted contract by a suitably qualified lawyer at the outset when the parties are on good terms, can save many thousands of pounds trying to resolve a badly drafted contract when the parties no longer see eye-to-eye.
4 – Consider setting out in a contract at the outset the dispute resolution process. This could be a step process. For example, (i) line managers seek to resolve at the outset within a stipulated time frame, failing that (ii) senior management seek to resolve within a stipulated time frame, failing that (iii) parties consider alternative dispute resolution (ADR) procedures such as mediation within a stipulated time frame, failing that (iv) arbitration or court.
5 – It is rarely a good idea to commence a dispute upon a matter of principle. The merits of a case are predominantly based on the strength of the evidence (including witnesses) and that should be the basis of a claim. Principles are expensive, and many months down the line, having spent a fortune on lawyers and lost a significant amount of senior management time in the process assisting the lawyers and attending various court hearings, you may well wish that you had never started the litigation.
6 – Act promptly, but do not be hasty. Take independent legal advice as early as possible and be sure that you understand fully the extent of what you are taking on. A party can significantly damage its own case by taking unwittingly detrimental steps in the early stages of a dispute.
7 – If you are going to commence litigation you should be prepared to see it through right to the end, including a trial. Once court proceedings are commenced the only ways to resolve the proceedings are either with the agreement of the other side, or by order of the court. If you run out of means or motivation you can’t simply walk away without usually having to pay the other side’s costs.
8 – In a dispute maintain your focus about what it is you actually wish to achieve. Be commercially minded, don’t make it personal. Have clarity in respect of your target resolution, but also consider the reality of what outcome you would be prepared to accept.
9 – Avoid litigation if at all possible. It can be a very expensive past time and has additional unseen costs such as the amount of senior management time that it consumes. It is rare for a party to look back on litigation as a positive experience that achieved all that was sought. More often both parties look back on it as unsatisfactory. Who “won” may well be a moot point.
10 – Ask a lawyer to “stress test” your contracts. They are likely to see things in an agreement that the untrained eye does not. The better contracts are often the ones that, once signed are put in a drawer and never looked at again. Or if they are subsequently having to be revisited, the conclusion quickly drawn is to put them back again and shut the drawer because the contract has it all covered.
By James O’Flinn, commercial disputes lawyer at Keystone Law