The cost of legal arguments over payments and contracts can run into millions of pounds if businesses are not fully prepared for them. Mohammed Moeini DBS Law’s head of commercial department has some guidance to help BQ readers minimise the risk commercial disputes.
The purpose of this article is to highlight some of the key practical steps that businesses can take in order to minimise the risk of commercial disputes occurring.
Most commercial disputes arise over contractual issues. Needless to say, the aim should be to avoid commercial disputes altogether, as often they are costly (e.g. can cause business disruption, lead to legal / professional fees being incurred, may result in total breakdown of the commercial relationship with a client, supplier, etc), time-consuming (management time is diverted away from running the business) and can even threaten the survival of the business.
At times, disputes arise no matter how diligent a business is in avoiding them. Ultimately, avoiding disputes is a risk management exercise i.e. (i) minimising the risk of a dispute arising in the first place; and (ii) ensuring that (to the extent possible) if there is a dispute, you have put yourself in the strongest legal position possible to protect your business interests.
Here is a list of key steps which businesses can take in order to manage the risk of disputes arising:-
Before you enter into a contract, be clear about what you want.
If you have not dealt with the other party before check their: (i) reputation in the marketplace; and (ii) financial credentials e.g. to establish whether they can financially meet their contractual obligations. Relevant information on the other party may be obtained from various sources e.g. Companies House searches (inspection of Annual Accounts), credit checks, etc.
Whilst oral contracts are legally enforceable, it is prudent to have a contract in writing to record all the terms, which can then be used as evidence of what the parties agreed (if necessary). In addition, the law requires certain contracts to be in written form in order to fulfil some registration requirement.
The contract should clearly record all the agreed terms using plain and unambiguous language. It is critical that the agreed terms accurately reflect what was discussed and agreed by the parties. This is so that the contracting parties have a clear understanding of their respective obligations and the consequences if one or both of them do not fulfil their end of the bargain.
It is very important that all the terms are agreed by the contracting parties first before work is undertaken. If there are any changes to the terms then make sure this is evidenced in writing and the variation is agreed by the duly authorised personnel on behalf of each party respectively.
If your business seeks to rely on its own standard terms, then ensure that the standard terms are produced to the other part either before or at the time the contract is entered into.
Quite often both contracting parties want to impose their own standard terms into the contract. This can raise difficulties in determining which terms prevail. It is therefore important to put in place system(s) (e.g. training your contract managers, sales staff, etc) to ensure that your business’s terms prevail. If you have no alternative (for whatever reason) but to agree to the other party’s standard terms, then at the very least review those terms carefully (and if necessary take legal advice) so that you have a clear understanding of your rights, obligations, liabilities (particularly if the other party is seeking to limit or exclude its liability to you) , etc.