Crash Course in ... Settling commercial disputes

Your contract with a leading supplier has gone wrong and could cause you big losses. It's not just about money - there are serious principles at stake. The other side is not backing down and you've already threatened to see them in court. So what next?

by Alexander Garrett
Last Updated: 09 Oct 2013

Time for a quiet word? Disputes can sometimes be sorted out by face-to-face negotiation without getting anyone else involved, says Alex Bishop, head of disputes resolution at solicitors Shoosmiths. But beware taking the softly-softly approach. 'You risk that disputed assets may be dissipated, evidence may be destroyed or you could prejudice proceedings,' she says. 'It's often better to take legal advice straight away.'

How much do you stand to lose? You need the 'quantum' to decide your strategy, says Bishop. 'If it's only tens of thousands of pounds, litigation may cost much more than that. And if there have been breaches of contract but no actual loss involved, there's no case - you can't claim for damages.'

Consult internally. 'Look at the dispute in the wider context for your business,' says Rhys Clift, a qualified mediator and partner at lawyers Hill Dickinson. 'It's no use your legal department mounting a ferocious action over one product if the other party is a key supplier across all your product lines.'

Assemble your team. One person should be given authority to manage the dispute - say, the head of the legal department, the CEO or the financial director. If a more objective approach would help, bring the chairman or a non-exec into the frame.

Consider mediation first. It's quicker, less expensive and less risky than most alternatives, says Clift. 'You can put together a mediation in four weeks and decide it in a day. But because it's consensual, disputes have to be "ripe" - if the parties aren't ready, it won't happen.' Mediated agreements usually involve a compromise and make it easier to carry on working with the other party.

Is there an abritration clause? You may have agreed to arbitrate any disputes when you signed your contract; if so, litigation is not an option. Arbitration has the potential benefit of greater privacy and is often more enforceable in international disputes.

Know when to litigate. Using the courts may help you to set a precedent for other customers or suppliers, says Clift. 'If someone is attacking a clause in your standard contract, it might be in your interest to get a judgment that this clause holds.'

Hold your cards tightly. It's fine to tell your people that there is a dispute in train, says Bishop. 'But don't allow them to create reports and documents that could come back to bite you later, and don't record legal views in your board minutes - which are not protected by privilege.'

Do say: 'The quicker we sort out this dispute, the sooner we can get on with running our business.'

Don't say: 'There's only going to be one winner. They'll find out who's right and who's wrong, even if it takes 10 years and makes us bankrupt in the process.'

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