How to handle a commercial dispute

Since the worldwide economic downturn commercial disputes, quite understandably, seem to have increased in number. Such disputes - especially those concerning debt recovery - can badly affect a business's cash flow and may even put the company at risk of insolvency. This being the case it is sensible to consider some actions that you might take to reduce the associated costs and duration of the dispute when it arises and to minimise the overall consequences:

1. 1. Your first step should be to take legal advice not least because a strongly worded solicitor's letter may be enough to resolve the dispute immediately. In the meantime do not talk to the other party, admit anything or agree to settle; you may regret having said something if this is used against you at a later date.
2. 2. Consider your options. Your solicitor will be able to assist you with assessing the value of the claim and the costs involved in order to establish whether making a claim is cost effective. They should also be able to guide you through the commercial implications of success or failure in terms of whether legal proceedings may affect your business reputation and/or ongoing commercial relationships or create difficulties in engaging new business relationships.
3. 3. Make sure that the other party has the means to settle. In a claim for debt your debt would be probably be irrecoverable if the customer is bankrupt or in liquidation. You may also be able to identify any other party who is liable or should be involved in the case and any of their assets which you might rely on if you succeed in court.
4. 3. Assuming that they do appear solvent, establish the key issues of the case at the outset. Gather your evidence; locate and safeguard any relevant material (emails, correspondence, orders, etc.) containing information relevant to the case. Ensure that any routine destruction process is suspended in order to avoid destroying or deleting any significant material.
5. 4. Identify anyone who may be relevant to the case and ascertain whether they are willing to give evidence in court if legal proceedings do take place. Within the company limit discussion about the dispute to those employees with a real "need to know".
6. 5. Charge interest on the debt. Under English law you have a statutory right to charge interest on a late payment. This may be at 8 per cent over the current Bank of England base rate or you may set out a contractual interest rate that is higher or lower than the statutory rate. Before charging interest it would be advisable to issue a letter stating that the payment is late and if it is not paid within a stipulated time such interest rate will be charged on the outstanding gross amount.
7. 6. Be prepared to resolve the dispute by way of settlement. If necessary this may be facilitated through a neutral third party such as a mediator. Remember it is almost always better to find a solution to a dispute and any court action should be seen as the last resort; such an attitude should not be considered a sign of weakness. However, take legal advice to ensure that any discussion of settlement is conducted on a "without prejudice" basis which means that anything said or written during the negotiations cannot be used in court.
8. 7. If an offer is made to settle, you should consider whether this represents a cheaper alternative than facing litigation costs and wasting management's time and commitment. In a claim for debt, if only a relatively minor amount is involved or if it is likely that good relations can still be maintained and the customer will place a large order in the future, it is often better to let things lie.

Finally, take preventative measures and review your procedures to reduce the likelihood of such disputes recurring in future.

For further information please contact :

Jan Hoppe, Partner 

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Chris Bannister, Partner

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