Disputes are an unwelcome reality for all businesses. How you handle them will determine how they impact on your P&L and your ability to build and keep long-term trading relationships.
Rebecca Tinham gives you her top tips to apply to the early handling of all disputes:
- As soon as you realise that there is a dispute or that a dispute is likely, appoint a senior individual to manage the resolution of the dispute. That individual should understand the nature and obligations of the commercial relationship but be sufficiently distanced from the day-to-day running of the contract to remain objective.
- Find and re-read the written contract or standard terms and conditions that apply to the relationship; this is the rule book for the relationship and will probably have been long since forgotten.
- Be alert to the very high probability that in any future litigation you will be compelled to disclose all relevant documents to your opponent and the court unless they are privileged. ‘Documents’ include internal emails, other electronic documents, and confidential documents. Disclosure is an obligation, not a choice. If the document falls within the definition of ‘relevant’, damaging and embarrassing internal emails, confidential documents and personal notes could all fall within the disclosure obligation. Be aware of existing potentially damaging documents when evaluating risk, and take steps to prevent any new damaging documents coming into existence.
- You will need to obtain a brutally honest appraisal of what has gone on from the people involved on your side in order to properly evaluate risk. Consider bringing in a commercial disputes lawyer at this early stage. Again, avoid bringing new documents into existence if you can, and talk to people privately rather than via email. If you need to carry out your fact-finding mission using email, label your email ‘Confidential’, begin any request for information with a statement that you are seeking the information for the purpose of any litigation that may arise out of the dispute, and state clearly that they should send their response only to you and should not circulate it more widely. Label interview notes in a similar fashion. Do not circulate any communications widely but keep circulation confidential to the same individual, or small team, that will be involved in liaising with lawyers as necessary and managing the resolution of the dispute. If the dominant purpose of a relevant document is litigation, litigation privilege will apply and the document will fall outside the disclosure obligation.
- When evaluating your position ahead of any litigation that may be in prospect, encourage your people to be entirely candid with you about what has gone wrong, and try to avoid a blame culture. An honest appraisal along with specialist advice will allow you to accurately evaluate your risk at the early stage of a dispute before legal costs are incurred on both sides.
- Instruct individuals involved in the contract that they must not destroy any documents, and suspend the implementation of any routine document destruction policy that may result in relevant documentation being inadvertently destroyed. If document destruction comes to light in the course of any future litigation, it can have grave consequences.
- It is always good to talk, but beware making open admissions or concessions that erode your position as you may come to regret this later. Communications that are generated with a view to compromising any dispute should be labelled with the words ‘without prejudice’. Any meetings that are arranged to discuss a possible resolution should be set up on the premise that the meeting will take place on a ‘without prejudice’ basis, and this should be documented. ‘Without prejudice’ privilege protects conciliatory communications which have as their objective sensible commercial compromise. If a document attracts ‘without prejudice’ privilege it cannot be referred to in open correspondence between solicitors or in the court proceedings generally. The privilege allows you to explore the basis on which you might move forward commercially, without prejudicing your case in any proceedings that might follow if you are unable to reach a compromise.
- Unrepresented parties often omit to label communications ‘without prejudice’ where it is in their best interests to do so, but just as frequently label every communication ‘without prejudice’. You may want to rely on some communications in future proceedings; for example, where you spell out clearly the strengths of your position and threaten to take further action in the absence of certain steps, you will want to refer to this correspondence and it should not be labelled ‘without prejudice’.
- Beware of unintentionally affirming the contract. In certain circumstances, an opposing party’s breach of contract may give the innocent party a right to bring the contract to an end. This right can be lost if the contract is affirmed by the innocent party. If you know of the breach, but still want to try and work it out, you must reserve your position in relation to the earlier breach. A commercial dispute resolution solicitor will be able to advise you of the consequences of your efforts to ‘work it out’ and will know how best to reserve your position.
- Finally, talk to a dispute resolution solicitor sooner rather than later. All confidential communications between you and your lawyer will be the subject of legal advice privilege and will not fall within the disclosure obligation. A frank discussion exploring the likely costs, risk and potential upside of any litigation, or other dispute resolution processes such as mediation, will always be advisable. A disputes lawyer will consider the facts objectively in light of the contract terms, evaluate the risk, and help you develop a cost-effective strategy for resolving the dispute. Where there is an identified risk, a properly pitched and drafted ‘without prejudice’ offer can secure an early strategic advantage. A dispute resolution lawyer will have an in-depth understanding of all of the concepts addressed in this article, as well as experience of resolving a large number of commercial disputes. Their experience is an invaluable tool for mitigating your commercial risk.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.