How to mitigate risk and avoid disputes in business

Anyone who runs a business knows only too well that it is a very demanding and often stressful exercise, even in the best of times. However, if the business owners find themselves locked in a commercial dispute, then that pressure can increase by several magnitudes.

Business disputes always exact a heavy cost, not just in terms of the money spent on lawyers but also in terms of the intellectual and emotional energy required to fight them. Added to that is the opportunity cost of disputes, i.e., the time and energy devoted to the dispute is time and energy which is not being devoted to running or growing the business. Therefore, mitigating the possibility of disputes is an essential part of mitigating risks in business.

7 Recommendations

1. Lawyers are, rightly, alarmed at the number of commercial arrangements that are concluded verbally or with a “gentleman's handshake”. While verbal agreements are just as enforceable as written ones, the problem comes as a result of trying to enforce the agreement when things go wrong, or the relationship breaks down because it is unclear what exactly has been agreed or what terms and conditions apply. Consequently, it is essential to ensure that all commercial agreements are committed to writing and signed by all parties.
2. Avoiding commercial disputes involves ensuring that all commercial agreements and documents are professionally drafted. A ‘home-made’ contract is far more likely to be shot through with ambiguities, contradictions or just amateurish or badly-drafted provisions. Such ambiguities and errors greatly increase the risk of disputes breaking out with all the damage that entails. A proper and professionally-drafted agreement which sets out clear and unequivocal terms in tight and unambiguous language will certainly cost some money but such sums are trivial when compared to the cost of a dispute that can arise from not having this.
3. Business owners should take steps to avoid conflicts by spending some time to familiarise themselves with the terms and conditions of their business contracts and make sure that they understand the nature of the obligations to which they have committed themselves. Many disputes have been caused by simple misunderstandings. Furthermore, ensure that all your business contracts are safely stored and categorised for easy access whenever needed. The world’s best contract is useless if you cannot find it because nobody thought to take the time to archive it properly.
4. All contracts contain standard clauses, otherwise known as ‘boilerplate’. It is tempting to assume that they are always suitable and usable but this may not be true, particularly when dealing with several different customers or clients. The business world is constantly evolving as is the regulatory landscape. So, business owners must familiarise themselves with the boilerplate clauses and amend and update them on a case-by-case basis as and when required.
5. Ensure that all contracts contain mechanisms for addressing and potentially resolving disputes. At the very least, all contracts should include a clause which clearly sets out the jurisdiction and the governing law that will be applied in a dispute and used to interpret the provisions of the contract. It is also advisable to include provisions that require the parties to seek to settle disputes by means of alternative resolution, for example, mediation or an expert determination. Only a few business disputes end up in court.

READ MORE: Pursuing a commercial dispute: what are my options?

6. Be aware of timeframes, dates and deadlines. Most commercial agreements contain time-sensitive provisions; missing or forgetting them can lead to huge and expensive consequences. Similarly, it is essential to understand when and how a contract can be terminated and any related notice periods required. There are few business owners who want to be locked into any single agreement for an unfeasibly long time. So, not only should the owners be aware of time limits, commercial time periods and deadlines but, ideally, these should be diarised and checked on a regular basis.
7. It is quite common for parties to an agreement to take proper legal advice when entering into a contract only to make various ad hoc amendments and variations to it afterwards and, often, in a rather careless manner. This often gives rise to inconsistencies which, again, open the door for disputes to arise. For sure, agreements can always be amended and updated provided both parties agree, but any such amendments or side agreements should always be carefully noted and, ideally, checked again by the business owner’s lawyers before the business commits to them.

No guarantees

Even assuming all these steps are followed, there is no surefire guarantee that a commercial dispute will never arise. However, by implementing these straightforward recommendations, the risk of a dispute arising is greatly reduced. Furthermore, even if a dispute does arise, implementing these measures may well help to settle them more quickly and at a much lower cost.

If you are a business owner facing a commercial dispute, either as claimant or defendant, then the best thing you can do is to seek professional legal advice and sooner rather than later.

For further information and trusted legal advice regarding commercial disputes, get in touch with us at Carlsons Solicitors.