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Managing the risks involved in a commercial dispute

While it may not be something you want to think about, the reality is that a company will face commercial disputes from time to time.

Our expert team is here to support and advise you to find a resolution as quickly as possible as we understand this can be a drain on company finances and resources.

There are some basic principles to follow, which come highly recommended by our solicitors, that you can take to minimise the risks involved if a commercial dispute does arise.

If you need advice on any of these points or for a specific dispute at your company, please contact Claire Haverfield.

1. Take legal advice

You should get legal advice as quickly as possible to find out the strength of the case, develop a strategy to resolve the dispute, find out what it is likely to cost and how long litigation will take.

If a dispute escalates it may become much more difficult and expensive to resolve and the company may inadvertently weaken or compromise its position by what is said or done in the early stages.

Choosing the right legal adviser is critical. Whether you already have a solicitor or not, it is important to check that they have the necessary resource to handle the case and expertise in:

  • the area of law relevant to the dispute

  • the subject matter of the dispute

  • dealing with cases of similar size and complexity

  • the range of alternative dispute resolution mechanisms

It is better to use an experienced lawyer who works quickly but may be more expensive than a cheaper lawyer who takes too long and does not maximise your prospects of winning.

2.  Collate your key evidence

The process of getting an accurate early evaluation will be much quicker and cheaper if all of the essential documents are collated into an organised format together with a detailed statement about the case.

3.  Preserve all documents and evidence relating to the dispute

As soon as you are aware that there may be a dispute, ensure that all documents (including electronic documents) relating to the issue (whether helpful or unhelpful to your case) are preserved. You will be required to disclose these documents during the litigation process.

In addition, if a piece of machinery or a sample product is going to be a key item of evidence in the litigation ensure that it is kept in a secure place where nobody can alter or remove it.

4.  Formulate a dispute strategy

It is important to be clear about what your business objective is and how it can best be achieved. You should also make sure you are fully aware of what the alternatives are.

You also need to consider questions such as:

  • Is there a continuing business relationship?

  • Could there be adverse publicity or damage to relationships with customers?

  • Is the dispute likely to damage the business?

  • On the other hand, is there a commercial advantage to pursuing or defending a claim, for example by recovering sums due to the company or protecting its intellectual property rights?

5.  Work with your legal adviser

It is important that you co-operate with your legal adviser throughout the life of the dispute.

If you tell your legal adviser about the weaknesses as well as the strengths in your case, they can give you a more accurate assessment of your prospects of success.

Equally, you should tell them if something changes which might affect your case. If they are kept fully informed they can work with you to adapt your strategy in the light of new developments.

6.  Establish the value of the claim

Only when you know the realistic value of a claim can you make a sensible cost benefit analysis.

Courts are now very focused on managing litigation so that the costs are proportionate to the value of what is in dispute.

7.  Carry out due diligence on your opponent’s financial position

There is no point litigating in order to get a judgment that you cannot enforce because your opponent has no money. You should find out as much information as you can about the state of your opponent’s business, and what assets they have.

8.  Consider settling the dispute

Given that most disputes settle, it is sensible to explore the possibility of settlement at an early stage.

Negotiations to settle a dispute can take place at any time, before or after proceedings are started. The convention of negotiating on a “without prejudice” basis enables the parties to make offers or concessions without them being used in evidence.

Lawyers can use the Civil Procedure Rules and pre-action protocols to help the parties engage and exchange information that might help them reach a settlement. Lawyers will also advise on making offers under “Part 36” or “without prejudice save as to costs” to encourage settlement at an early stage and protect against adverse costs orders.

If negotiations aren’t appropriate or successful, alternative dispute resolution (“ADR”) provides the opportunity for the parties to engage in a process that can lead to settlement. ADR methods include:

  • mediation

  • arbitration

  • expert determination

  • adjudication

Further guidance is available here.

9.  Record the terms of the settlement

No matter how a settlement is reached, it is important it is recorded in a document that is binding on all parties and clearly sets out the terms of the settlement. This means there can be no misunderstandings and the terms of the settlement can be enforced if necessary.

10. Consider how the litigation is to be funded

If negotiation or ADR does not result in settlement, litigation is the only alternative if the company wants to pursue or defend its interests.

If litigation becomes necessary, you need to be able to afford it. Your solicitors must advise you of the costs at the beginning, providing a reliable estimate and keep you updated throughout the litigation process.

It is not only your own legal costs you have to budget for; you also have to assess the risk of losing the litigation and make provision for having a costs order made against you.

If you cannot afford the cost of litigation, settlement may be the only option irrespective of the merits of your case.

There are ways in which a company may be able to fund the litigation and/or minimise the risk of an adverse costs order:

  • Insurance

  • Litigation funding

  • Sharing the risk with your legal advisers

Further guidance is available here.

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