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Top 10 tips to avoid litigation

View profile for Sarah Canning
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Have you ever asked yourself whether or not the dispute could have been avoided?  If so, the answer may have been that with the benefit of hindsight you would have done something differently. The following top 10 tips are to help reduce those times and protect your business.

1.    Risk Assess your business

Rather than being a tick box exercise for compliance purposes, a risk assessment can protect a business.  

Spending time understanding what risks your business faces provides a greater understanding of not only the commercial risks but also how these could lead to opportunities.  

For example, if 70% of your business is provided by one customer what would happen if that customer went out of business?  Could you survive and, if not, what would your action plan be if you had a dispute with them? Do you have one individual employee responsible for a key client account and has that individual built up loyalty and a relationship that could be transferred to another business were your employee to leave?  What are your credit terms and do you undertake credit checking when taking on a new customer?  Do you rely upon a production line where machines are ageing and difficult to replace?  Every business is different and it is possible to identify where the weak links may be and have steps in place to protect your investment.

2.    Know who you are dealing with

Whether it is your trade partners, customers or suppliers, it is important to know who you are dealing with and have as much information as possible, depending upon the relationship, to protect your business.  

If you therefore have sales staff going to meet customers in their own premises, it may be helpful at this stage to have a section on your customer information sheet collected by your sales staff to identify whether or not the customer owns their own premises, is renting and any other detail that could assist you enforce a debt should the need arise. It is much easier to obtain this information during a casual rapport building exercise when expressing an interest in a customer at the outset than it is after a problem has arisen and hostilities kick in.

3.    Keep records

Whilst it is possible to have a verbal contract, this is not advisable.  

Ensure that all your contracts are in writing and on terms of business that you have had reviewed and approved by a qualified Solicitor. We have dealt with some amazing contracts over the years that have been cut and pasted together from a variety of sources which “looked good” but actually created more of a problem. Any variation to a contract must also be put in writing so ensure you have a system in place that all staff keep records.

4.    Know your Standard Terms of Business

As well as actually having a contract, it is important to know what it says.  

Making sure that it covers all eventualities, which you have identified from your risk assessment as well will also help. It is important to understand how you exit the contract should you need to and always try to ensure that you enter into contracts upon your own terms. Knowing your contracts can enable you to quote your rights quickly and head off any potential problem. 

5.    Include a dispute resolution clause in your contract

Including a dispute resolution clause within your terms of business should mean that the first port of call is not the issue of Court proceedings should an issue arise. The courts are now in any event keen to encourage parties to seek alternative dispute resolution rather than litigate.  

6.    Be alert to any legislative change

There are often updates and changes to regulations and legislation in an industry or business that are overlooked but that impact upon the way we trade.  

Being aware of those changes provides an opportunity to update your own terms of business and also react proactively to any alterations ensuring you do not fall behind your competitors nor find yourself falling on the wrong side of a regulator.

7.    Train your employees

Having systems in place and risk assessing your business will not help unless your staff are also trained. 

Encourage the free flow of information between people and/or departments so that your employees work together.  Quite often we come across the sales team and the finance team working on very different protocols with then the operations teams often finding themselves caught in the middle.  Consistent treatment is important.

8.    Respond promptly

Mistakes happen and the emu approach of burying a head in the sand is never going to assist.  

Encouraging employees to come forward with a problem as soon as it arises will head off longer term issues and entrenched party positions in dispute.  Encouraging communication with customers and suppliers when an unfortunate event takes place is also important to finding a solution.  Talking to the right people within an organisation so it may be necessary to escalate the matter to someone of more seniority who can make decisions. 

9.    Know what you want to achieve

Pursuing a problem on a point of principle never makes good commercial business sense.  It is however important to understand quickly what the problem is worth to you which may be in terms of reputation or finance.  

Sometimes in order to preserve a relationship with the customer, it may be preferable to waive an issue in order to secure an ongoing opportunity.  However, this has to be balanced with caution as it is never healthy to have a reputation of a company that does not stand firm in its rights and can be open to abuse if your customer realises that they can push the boundaries of their contract. 

In addition it is also important to consider what you are prepared to invest in time and money to resolve the dispute. Being aware of this at the outset can assist your strategy to reach a solution quickly. 

10.    Finally, seek professional legal advice early.

This is often a step that is missed and deemed only to be relevant after a dispute has arisen.  

If you have become aware of a potential dispute, it can be beneficial to talk it through with your solicitor to understand the options and consequences of pursuing the matter or being pursued. 

This discussion can inform your decision and response which will hopefully negate a need for any later legal intervention. It can also put the company on a strong footing at an early stage.  We have found that some companies have attempted to try and resolve a situation themselves but not preserved the company's legal position and as a result the company’s position has been compromised.  

For further information about risk assessing your business or to discuss your strategy in resolving a dispute, please contact Sarah Canning on 01604 828282 or email