The top ten tips to avoid commercial disputes

Disputes in business are inevitable, but they don’t have to cost the earth or damage your reputation. Here are some tips to avoid commercial disputes from escalating.

Nine times out of ten, business relationships are uncomplicated, undemanding and straightforward from start to finish. Hiccups happen, but in most cases, they are but bumps in the road of an otherwise smooth transaction. However, even the most reasonable of business leaders is not immune to a conflict.

Anyone running a business will know that disputes can arise at almost any time. It may be a supplier failing to deliver an element of a project and acting defensively when questioned; you may become embroiled in a conflict with an employee regarding commission and expectations around targets; a customer may argue that the product or service received was not up to par and refuse to pay on that basis.

Any of these circumstances could trigger a dispute that, if not properly managed, could quickly escalate into a bitterly fought conflict that drags both parties in and drains the business of valuable time and costs from legal expenses. Litigation should always be the last resort, so if you’re currently teetering on the edge of an argument, read on – we’ve set out 10 of our top tips for avoiding commercial disputes.

  1. Carry out research and due diligence

When a new business opportunity arises, it’s easy to assume the best and jump into an agreement knowing very little about the people running the business and their reputation. Similarly, after a painfully long recruitment process, seeking out references doesn’t seem so important once you’ve found what looks to be a dream candidate who ticks all your boxes. Once again, suppliers who can quickly meet the demands of an upcoming project can be rushed in without prior research.

In all these cases, a lack of background research opens a business up to the risk of disputes. A variety of checks can be performed nowadays to vet a business or individual before agreeing to anything, such as Companies House Beta, Land Registry and even Google reviews. Professional non-payers don’t come with a warning, but there are ways to uncover information and identify red flags before a contract is signed.

  1. Create clear and understandable agreements

It’s not uncommon for incomprehensible contracts to be drawn up due to boilerplate text being thrown in by a senior person who doesn’t possess a legal background. This typically happens when a business wants to either save on legal costs or the presumed time involved in seeking advice.

It may seem like an obvious point, but the need for watertight agreements that are clear on the rights, responsibilities and liabilities of all parties is paramount to preventing disputes. The more room for subjective interpretation in your contracts, the higher the risk that the counterparty will take advantage of ambiguity for their own gain. If you aren’t certain on how a clause implicates you or the counterparty when signing, you can only blame yourself when things go wrong. 

  1. Carefully consider any limitations on liability when drawing up a contract

Every commercial transaction has a risk of liability attached to it. From breach of contract to infringement of intellectual property rights, regulatory offences and negligence, the possible risks involved in a transaction can be mitigated by limiting your liability through explicit terms in the contract. Limitations of liability can either refer to specific events and state that there will be no liability for them, exclude all warranties unless they are specified in the contract or exclude legal claims based on misrepresentation. This isn’t something you’ll want to copy and paste into a contract, but rather an area that you should seek specialist advice for to ensure that your interests are protected when entering into a new agreement. Similarly, if the contracting party has snuck in a limitation or exclusion of liability clause at the last minute, think carefully about the potential consequences for your business before agreeing to anything.

  1. Agree a process for dispute resolution

A simple measure but a critical one in the prevention of commercial and shareholder disputes is a clause in your commercial contracts and shareholders agreements that outlines the process for resolution should matters turn sour. This is another area that is easily glossed over when embarking on new business ventures, but one that arguably gives all parties involved in a contract the best chance of keeping the time and costs as low as possible in the event of a disagreement. The contents of a dispute resolution clause will vary between types of agreements, but the key considerations to address include:

  • Which country’s laws will govern the contract (in cases of cross-border transactions)
  • Who should apply the governing law and make a decision on any dispute,
  • What steps the parties must take to resolve the dispute.
  1. Keep all relevant documentation

If you suspect a dispute has the potential to escalate, it’s important to adopt a no-destruction policy on all relevant documentation, and to ensure everyone involved in the contract does the same. While litigation should always be avoided, it’s best to prepare for the worst should further action be taken against you. As such, if it is found that you have destroyed documentation that was relevant to the dispute, it won’t be a good look in court and can have serious consequences. As well as that, the better able you are to document your case – the better your chances of a successful outcome.

  1. Be prepared to negotiate and explore alternative dispute resolution

Litigation is expensive, time consuming and, depending on the outcome, can be highly damaging to your reputation. Before a case reaches court, the Judge expects that both parties have at least attempted to resolve the dispute outside of court. That means you should be prepared to compromise and find a settlement that suits you and the opposing party. This could be through a face-to-face meeting, formal mediation or arbitration. Alternative dispute resolution is quicker and cheaper and, in the best-case scenario, may even preserve the commercial relationship.

  1. Beware of unintentionally affirming the contract

If the opposing party has breached the contract, you may have the right to terminate the contract altogether. However, this right is lost if you fail to alert the opposing party of your intention to terminate or take further action. It is perfectly normal for you to take some time to decide the best course of action, but be careful not to take too long – there comes a point where inaction can be construed as a decision to ‘affirm’ the contract. While explicit termination leaves little doubt as to your intentions, inaction does tend to blur the lines in the eyes of judges. If you become aware of the breach, speak to a commercial dispute resolution lawyer about the best way to proceed as soon as you can.

  1. Consider training your staff on handling complaints

They may be an expert in their field, but without proper training, staff who aren’t typically customer-facing can find themselves struggling to deal with a frustrated customer due to their lack of training in complaints handling. Negative feedback is rarely well-received, but by developing a complaint handling process and providing the necessary training, you create a standardised procedure for which all your employees can operate from to improve customer satisfaction and minimise the risk of conflict. At the same time, it’s imperative to recognise when a customer is taking advantage of goodwill and to know when to step in to protect your employee and preserve peace between your business and the client.

  1.  Be proactive in the face of a potential dispute

Reducing the risk of conflict requires a proactive approach from business leaders. For example, if an angry customer isn’t backing down, don’t ignore the signs. Instead, acknowledge the problem and try to find ways to rectify the issue before the matter escalates any further.  In most cases, what someone puts in an email will be very different to how they act when speaking face to face or on a call. Misunderstandings happen, and they can usually be resolved if you get on top of them before they evolve into something bigger. Simply picking up the phone to the aggrieved party to empathise with their frustrations and find a way forward can make all the difference in avoiding a costly legal dispute.

  1. Seek specialist legal advice

Don’t leave it until the dispute has escalated to get a lawyer involved. The moment matters start to become complicated or a disagreement is showing no signs of resolution, seek advice from a commercial solicitor. They should be well-equipped to provide you with a bespoke roadmap for resolution, along with expert advice to minimise the risk of future disputes.