Avoiding Commercial Disputes

14 March, 2016

avoiding risk keysA commercial dispute is an unwelcome risk for every business, diverting valuable time and resources away from profitable activities.  The best way of managing disputes is to avoid them completely by reducing risk.  You should consider the following risk-factors :

Transaction risk

Major acquisitions or disposals, important supply contracts, complex financial transactions or construction projects have a clear dispute exposure.  You should be aware of the importance of:

  • Using properly drafted written contracts addressing: product specification, delivery time, payment terms, remedies for defective goods, exclusions or limitation of liability, governing law and a mechanism for dispute resolution.
  • Regularly reviewing and simplifying your contracts and standard terms and conditions.
  • Ensuring you have adequate insurance, that there are no gaps or overlaps in cover and that cover is not invalidated by contractual terms. Consider obtaining legal expense cover.
Counterparty risk

If you are doing business with a new counterparty you should check their credentials:

  • Are they well established?
  • Do they have a litigious reputation?
  • Do they have sufficient financial resources to cover their financial commitments?
  • Have their accounts been paid on time?
  • Where are their assets?

This information can be gleaned from free searches on Companies House (https://www.companieshouse.gov.uk/) and credit checks, and more in depth information can be obtained from inspection of accounts, due diligence and even enquiry agents.

Country risks

If you do business with countries outside the UK, you should consider the following issues sometimes found in other jurisdictions:

  • A litigious culture
  • Frequency of large damages awards
  • Inadequate procedural system
  • Seemingly biased or corrupt judiciary
  • Difficulties in enforcing any judgment or award that may be granted

Choosing appropriate choice of law and jurisdiction clauses can reduce uncertainty and ensure that you retain control of any unavoidable litigation.

Product risk

Any particular risk associated with your product can be reduced by the use of:

  • Quality management systems
  • Product recall
  • Crisis management plans
  • Clear product instructions
  • Warnings displayed on products
  • Contractual terms
  • Insurance

These measures should be considered together and regularly reviewed by appropriate personnel.

Process risk

Business processes should be regularly reviewed and adapted in line with the latest rules and regulations. Normal day-to-day business activities raise a number of disputes risks:

  • Environmental issues
  • Health & safety issues
  • Employer/employee issues
  • Intellectual property disputes
  • Regulatory investigations

When reviewing business processes, it is best practice to involve personnel from each area of your business, such as finance, sales and development.  This will ensure that each possible risk angle is considered.

Moving forward

When conducting business, it is easy to focus purely on the commercial terms of the transaction and getting the deal done.  It is a useful and potentially cost saving exercise, however, to step back from the transaction before the contract is concluded and analyse its particular risks. This could avoid the potential for a dispute to arise in the future.

We would be happy to discuss any risks that concern you as well as doing a health-check of your commercial contracts.  Please do get in touch to find out how we can help you.