Dispute Resolution: 5 Tips for Avoiding Litigation

As solicitors we know that disputes are sometimes unavoidable and litigation is the only way to resolve a disagreement, recover a debt or determine a party’s liability. The majority of commercial disputes never reach trial because the parties reach an agreement in order to avoid the time and expense of taking a matter through the courts.

Even so, parties will sometimes have spent thousands of pounds and spent a lot of their own time engaged in correspondence, looking for evidence, seeking supporting witnesses and arguing their point before a final settlement is reached. Following these simple, common-sense tips can help you to avoid problems becoming disputes, or if litigation does become necessary, will hopefully put you on a stronger footing in proving your case or limiting your liability.

1. Put it in writing
The majority of commercial disputes are contractual in nature and arise because a party has allegedly failed to do what they agreed. Parties may often differ in opinion on what exactly their obligation was, or when it would arise, or whether it was conditional on other things occurring first. If you agreed something orally, you will not have any tangible evidence except for your own word. Differences of opinion and interpretation can easily occur.

Therefore, it is important to have a written contract which clearly sets out the parties’ respective rights and obligations. You ideally need to deal with what goods/services are being provided, the cost and payment terms applicable, when/how performance will be rendered, what the parties are liable for if there is a delay or problem, and how any disputes should be addressed. If the transaction is particularly large or complex, it is advisable to have a solicitor draft a suitable contract. If you have standard terms and conditions, you should ensure that they are properly incorporated into the contract and have not been superseded by those of the other party.

If you agree any amendments to your contract, or enter into any side or ancillary arrangements, ensure they are also evidenced in writing.

If you are the supplier, keep a full paper trail of your activities, particularly if you are providing services which are charged on a time/materials basis.

2. Know who you’re dealing with
You can never guarantee the financial security and reliability of your trading partners but you can minimise the risk. If you are trading with another business for the first time, check their credentials. If they are a sole trader/individual, perhaps ask for references and/or details of their financial status. If they are a company, consider performing a credit check and enquiring as to whether they have any outstanding CCJs. Don’t be afraid to ask other businesses involved with them what they are like.

If in doubt, consider requiring a deposit or cash in advance, or limit the credit terms available.

If dealing with a supplier, consider their reputation and quality of work. Ensure that you are given sufficient protection if the goods or services are defective.

3. Have processes in place
By reviewing the way in which business is conducted and identifying risk areas, appropriate procedures could be put in place, for example, by creating a filing and reporting procedure and encouraging employees to report potential risks. This could ensure that disputes are identified at an early stage and timely steps can be taken to enhance your prospects of avoiding litigation. 

For example, credit control procedures can prevent the accumulation of large debts which may never be recovered. Suitable returns/complaints procedures will enable you to address customer’s concerns as quickly as possible and potentially avoid them taking any dissatisfaction to the court.

4. Keep in touch
Regardless of your best efforts, problems can arise. Production may be delayed, a delivery may go astray, the client may be unhappy with a piece of work or a payment may be late. The best thing to do in these circumstances is to maintain a regular, constructive dialogue with the other side. They are far less likely to complain or resort to terminating the contract and claiming damages if they are kept well informed.

5. Fix problems before they escalate
People make mistakes. If it happens, you might find that paying someone for something that they did not receive, covering the cost of repairing damage or re-doing a piece of work which was sub-standard, is the most practical approach.

Depending on the situation, it may be sensible to seek legal advice first and protect your position so that you do not expose yourself to any further liability. Doing so may save you a lot of time, stress and money in the long run.

Conclusion - The cheapest litigation is litigation which is avoided. Having a professionally written contract, paper trail, and suitable policies and procedures in place will minimise the risk of exposure to costly court proceedings. At the very least, if litigation is necessary or unavoidable, they will prepare you to substantiate your claim or make out your defence.