Effective Ways To Avoid Business Disputes
No-one likes surprises in business. This is because the vast majority of them are not pleasant. They usually take the form of something very unexpectedly failing. This could be:
- A supplier suddenly failing to deliver
- A client failing to pay you on time
- A key client unexpectedly leaving you mid-contract
- A contract between two businesses (or even business partners) failing
All of these unpleasant surprises could place even a thriving business in danger. In sorting out these situations, you might need to resort to a solicitor to help you with dispute resolution. But could some of them have been avoided in the first place?
These things regularly happen in the world of business and can have serious consequences for your company. Unfortunately, in the aftermath of the Brexit decision, they are even more likely to occur according to a business survey by the Institute of Directors:
- Nearly two-thirds (64%) of IoD members think the result is negative for their business, against 23% who think it is positive (only 9% say it makes no difference)
- 22% of IoD members are considering moving some of their operations outside of the UK; only 1% say they will bring operations back
We are in a period of high economic uncertainty and now is the time to protect your business from unexpected surprises and the need for legal dispute resolution services.
In this short article, you will discover easy ways to protect your business as far as possible from unexpected surprises and failures. We will cover:
- Five Takeaway Points
- Dispute Resolution: When a Distribution Deal Went Wrong
- How Did This Happen?
- Avoid Dispute Resolution with Airtight Commercial Agreements
- When to Review Your Commercial Agreements
- Why Else?
Reading time: 4 minutes
Five Takeaway Points
The key points in the case study discussed below are:
- Friendships and business relationships are an effective way to get a good win-win commercial deal for both parties.
- Any commercial deals (including ones with friends) should always have an airtight contract in place before they start.
- Things in business can change unexpectedly. You need to stay alert for indicators that show changes are occurring or have occurred with the other business or in areas that might affect them. In the below case study, our client would ideally have reviewed his contract after his supplier was taken over and sought legal advice immediately after the first breach.
- You must review your commercial contracts when things change as they may no longer be fit for purpose.
- Brexit has created considerable uncertainty in the economy and business community. Now might be a good time to review your longer term contracts.
Dispute Resolution: When a Distribution Deal Went Wrong
Andy Rudkin, Head of Else Solicitors Dispute Resolution department was recently called in by a client to help resolve a dispute with one of their long term suppliers.
Our client specialises in the provision of equipment to the leisure industry. They had enjoyed a business relationship over 15 years with an equipment supplier who guaranteed to offer them the best rates on their machinery in exchange for the promotion of their products. This was a simple distribution agreement in which our client marketed and sold the supplier’s equipment in exchange for preferential pricing.
This was a great deal for both companies and they both rapidly expanded. Unfortunately, earlier this year, our client lost a major Government contract due to the supplier breaching their agreement.
The Government used our client on the basis that they had the sole distribution deal with the equipment supplier and guaranteed the best price for equipment. In the middle of their 10-year contract, there was a requirement for the end user to obtain 3 quotes to demonstrate that our client remained the cheapest supplier of the specified equipment and thereby justifying their continued use. Our client provided a quote but the end user received a cheaper quote for exactly the same equipment from a different supplier.
Our client was shocked by this and as a result lost his biggest contract. The loss of this contract has shrunk his company back to where it was fifteen years ago.
How did this happen?
Fifteen years ago, the Directors of the two businesses had a good relationship and they agreed this lucrative distribution deal. While a contract was put in place, this was not as airtight as it should have been and it did allow some wriggle room.
Over the intervening 15 years:
- The supplier was taken over by a multi-national business.
- The relationship between the two directors was obscured by the move and new management
- The supplier decided that they no longer needed a distribution deal and wanted to sell directly themselves to increase their profits
- There was an earlier breach of the contract when they had sold equipment to our client at a higher rate. The supplier apologised for this.
The outcome of the case was:
- Our client calculated the profit they would have made on the remaining term of the ten-year contract they had lost
- Andy used his extensive legal expertise and negotiating power in the face of a large corporate legal team to recover 70% of our client’s lost profits (a significant sum).
- Andy would have recovered 95% of the lost profits if the original contract had covered all the necessary technicalities.
Avoid Dispute Resolution with Airtight Commercial Agreements
Business owners, MDs and CEOs know from a commercial viewpoint what has been agreed with a supplier, partner or customer. However, it can be difficult getting this agreement written so as to constitute an airtight commercial contract with no wriggle room for either side.
This is where an independent third party solicitor is vital. They can ensure that both parties are happy with the contract and that it is securely locked down with no wriggle room in the future. The contract should also cover what happens if the two parties fall out or if there is a significant change and a new deal needs to be negotiated. This allows both parties to relax knowing:
- They are far less likely to have unexpected surprises in the future and
- If there is a major change, how they can move forward.
It is also vital to have processes in place and stay in good communication with your clients, partners and suppliers. Some companies close their eyes and hope for the best rather than asking those difficult questions. However, in the long term, it is always better to defuse any potential situations before they threaten your commercial agreement.
When to Review Your Commercial Agreements
You should review your commercial agreements when:
- The other company makes management changes
- The other business is struggling (whether supplier, client or partner)
- You receive late payment from a client
- In a distribution deal, the seller is not hitting their minimum number of sales
- Your business is experiencing difficulties
- There is a significant change in size in the other company. Contracts that work for a small business, do not work with larger organisations.
- There are significant changes in the economy which are likely to impact your business or theirs. This prevents many unexpected surprises and can help guard you against the domino effect.
It is also worthwhile reviewing longer contracts (those lasting 10 years or longer) every five years. This reminds you of what you have agreed. Also, if things have changed, then you might want to consider if it is worth buying out of your existing contract and re-negotiating a new one.
Andy Rudkin, Head of Dispute Resolution at Else commented: “MDs and CEOs are aware of the need for an airtight contract before they start working with a partner, supplier or client. However, when things change, they often forget to review the contract to see if it is still fit for purpose. A contract which is airtight with a small business would not work if that company was taken over by a large corporation. Equally, if key people leave then the business relationship can be lost and the commercial contract should be reviewed.
There is also some business uncertainty following the recent Brexit vote and most companies are sensibly reviewing their long-term contracts.”
Is now a good time for you to review your longer term contracts or maybe you want some assistance in putting a new airtight one in place? If so, then we can help.
Else Solicitors is very experienced in commercial contracts and dispute resolution. By knowing what can go wrong later down the line, we fully understand what needs to be put in place so you can avoid such complications.
You will discover that we are different to other law firms. We will settle your dispute and look at other ways we can add value to your company. This could include introducing you to new customers or suppliers in our extensive network or offering you some new insight into your market or your business.
Else Solicitors has an enviable reputation for always going the extra mile and offering a personal, jargon free service. Your business is not only in trusted legal hands but will also benefit from our extensive business knowledge, experience and contacts.
If your company would like some legal help with contract disputes, disputes over the provision of goods and services, breach of contract, or withholding payment then we invite you to contact Andy Rudkin, Head of Dispute Resolution at Else Solicitors on 01283 526239 or at firstname.lastname@example.org.