Benjamin Franklin once said: “By failing to prepare, you are preparing to fail.” These are wise words and one of the many scenarios they’re true in is in dispute resolution. While business dealings are often about negotiation and compromise, sometimes things do go wrong and relationship breakdowns happen. By planning ahead you can help guard against problems, but if they do occur, litigation does not have to be the only solution.
From little acorns, big disputes grow
You and a friend have come up with a great business idea and are about to become entrepreneurs. You’ve been friends for 20 years, you don’t need to get all formal and put everything in writing. Should any disagreements arise, as 50/50 shareholders, you’ll be able to sit down and talk about them to come to a mutually agreeable solution. Or you’ll do it once you have more time. Right? In what seems like the blink of an eye, it’s five years down the track, one shareholder wants to sell their shares and the other doesn’t agree with the timing or process. There’s a stalemate.
It started with a… contract
While contracts aren’t one of the most exciting things about running a business, and are often an expense that parties want to avoid at the outset of their fledgling business, they are hugely important. Done properly, they can save a lot of headaches down the line and be a key factor in resolving disputes – or even stopping problems before they become formal disputes.
In the earlier example, a well written shareholders’ agreement would give clear guidance on what would happen next. It can encompass a range of issues, such as who gets the deciding vote if there’s a stalemate, who you can and can’t sell shares to, and much more.
The Brexit factor
Contracts are equally important with suppliers when it comes to avoiding disputes, especially with the unknown quantity of Brexit on the horizon. Ensure that your terms and conditions are up to date, relevant and incorporated into your business dealings with third parties. For example, if there is a cross-border element in your supply chain contracts, make sure that there are appropriate law and jurisdiction clauses which specify how or where any disputes will be resolved. Without this, even before you turn to trying to find a solution to the dispute, there could be time-consuming and protracted discussions about where and with what process you’re going to solve the problem.
The options for resolving disputes
There are two major ways to address serious contract disagreements: alternative dispute resolution (ADR) and litigation. Litigation in the courts can be expensive and time consuming - taking you away from running your business and being emotionally draining. It is therefore no surprise that the Courts and the Court Rules are increasingly encouraging people to explore ADR before resorting to the courts.
ADR covers options such as conciliation, mediation, adjudication and arbitration. While the first two are voluntary, flexible and non-binding (unless an agreement is reached), adjudication is final and binding unless the decision is challenged by subsequent arbitration and/or litigation. Arbitration can be binding or non-binding, depending upon the agreement between the parties at the outset. All four of these options are confidential, unlike most court cases.
Mediation is becoming a more and more popular way to resolve disputes as the parties can agree to take into account a broad range of issues, especially concerning commercial and business interests. While in a court case a judge can simply make an award of, say, £100,000, in mediation, for example, parties can be more creative and structure settlement terms on a much wider basis that may help maintain the relationship between the parties.
For example, rather than a lump sum payment of £100,000, settlement terms could be agreed that one party must give the other a minimum number of orders per month, on which the purchaser will pay 10% above market rates, until the sum of £100,000 is paid in full. The solutions that can be made through ADR, where people get to air their grievances and get the chance to be heard, should not be underestimated. It’s easy in a dispute for viewpoints to become entrenched and for people to start fighting their corner and lose sight of the bigger picture. ADR can give people the chance to focus on the wider commercial considerations involved in a dispute, and come to an agreement without ‘losing face’. Should ADR fail, there is then the option of litigation in the courts.
Be prepared
Disputes in business will occur no matter what, but if you plan for them before they happen, you will be in a much stronger position to resolve them in your favour. You can then focus more of your time on building your business, rather than fighting fires.
DMH Stallard lawyers manage and resolve all types of commercial and corporate disputes. We are firm but proportionate and understand that avoiding rather than encouraging legal conflict usually delivers a better outcome for our clients. We are able to draw on the expertise of colleagues in other
parts of the firm as required in areas such as banking, real estate, employment, corporate/commercial and intellectual property. For further information, please contact james.colvin@dmhstallard.com or +44 (0)1293 605169.
