What steps should I take in a commercial dispute? - Guidance for the uninitiated

Commercial disputes are an unfortunate reality of doing business. Issues can arise with suppliers, customers, shareholders, insurers, lenders, directors, trustees, debtors, creditors and employees. Disputes can quickly divert management time, disrupt operations and cause financial uncertainty. They can be time-consuming, costly and, if handled poorly, damaging to long-standing commercial relationships.

While nobody welcomes litigation, the way a dispute is handled in its early stages can have a decisive impact on cost, timing and outcomes. Those who act quickly and strategically are far more likely to protect their position and, in many cases, able to resolve matters before the dispute escalates into formal legal proceedings.

Below is some initial guidance from our specialist litigation team for if you find yourself in a commercial dispute and aren’t sure of your next move.

Why an early but considered response matters

The initial phase of a dispute often carries the risk of causing the most damage. The risk is that you rush decisions, act emotionally and draft your own correspondence without legal input. You need to act within any given deadlines, but it needs to be considered action.

Common mistakes include:

• making admissions before the facts are clear;
• failing to preserve key documents;
• making emotionally driven decisions;
• ignoring/misunderstanding contractual provisions; and
• escalating matters unnecessarily, further entrenching the other party’s position.

Taking a structured and informed approach from the outset helps ensure the dispute is managed appropriately, rather than reactively.

Step one: establish the facts quickly and accurately

As soon as a dispute becomes apparent, businesses should seek to understand exactly what has happened as clearly as possible.

This involves:

• speaking to relevant individuals and/or decision-makers who can provide further information;
• identifying what has gone wrong and when – ideally by reference to the documents;
• understanding the impact on the business and/or your finances; and
• creating a clear timeline of events.

At this stage, it is important to take a calm and fact-based approach, rather than allocating blame.

Step two: locate and preserve all relevant documents

Document preservation is critical. If a dispute develops into formal litigious proceedings, you would be under a strict obligation to disclose all relevant documents, including potentially adverse ones.

‘Documents’ include far more than formal paperwork. Emails, text messages, call logs, accounts, bank statements, electronic files and internal notes may all be disclosable.

You should:

• immediately preserve all documents relating to the dispute;
• suspend any routine deletion or destruction policies; and
• ensure all relevant individuals handling such documents are aware that records must not be altered or deleted.

Care should also be taken when creating new documents or emails about the dispute, as these may later be used against you by the other side or reviewed by the court.

Step three: review any contract/agreement and the key terms

Understanding the correct contractual position is central to assessing risk and leverage. Is there a contract or a shareholders’ agreement? What paper trail exists?

You should identify:

• which terms apply and whose terms govern the relationship;
• whether there has been a breach of contract;
• any dispute resolution clauses (for example, mediation or arbitration);
• notification requirements and time limits; and
• limitation of liability provisions.

Where no written contract exists, it is important to establish whether a contract was formed orally or through the conduct of the parties and what evidence exists to support that position. Even where no formal written terms exist, a chain of text messages which agree the scope of work can sometimes be legally binding.

Step four: check limitation periods and insurance cover

Some contracts impose strict deadlines for notifying claims or defects. Missing these deadlines can severely weaken, or even extinguish, a claim.

Step five: take legal advice early

One of the most common misconceptions is that involving solicitors early will automatically escalate a dispute. In reality, early legal advice often helps de-escalate matters by clarifying the legal position and identifying commercial options.

A commercial litigation solicitor can:

• assess the strengths and weaknesses of the case;
• advise on strategy before damaging steps are taken;
• protect the business through legally privileged advice; and
• manage communications with the other party carefully and effectively.

Early advice frequently reduces overall cost by preventing mistakes that are expensive or impossible to undo later.

Step six: manage correspondence with care

Communications sent in the heat of a dispute can significantly undermine your position.

Admissions, concessions or poorly worded demands may later be relied upon in court. Where settlement discussions are appropriate, they should usually be conducted on a ‘without prejudice save as to costs’ basis so they cannot be referred to in open court if settlement is not achieved.

You should think carefully before engaging in negotiations directly and consider whether communications should be handled by solicitors to avoid unintended consequences.

Resolution before litigation: a commercial priority

The courts actively encourage parties to explore settlement and alternative dispute resolution (ADR), such as mediation, before issuing proceedings. Failing to do so can result in cost penalties, even for a successful party.

Settlement can:

• reduce legal costs;
• preserve commercial relationships;
• provide certainty; and
• avoid public scrutiny.

That said, settlement should be entered into from a position of knowledge and strength, not pressure.

When litigation becomes unavoidable

If resolution cannot be achieved, formal legal proceedings may be necessary to protect your position.

While every case is different, litigation typically follows these stages:

• Pre-action correspondence and exchange of information
• Issuing a claim
• Defence and pleadings
• Disclosure of documents and witness evidence
• Trial and judgment

At every stage, strategic decisions must be made and opportunities to settle often remain available.

How we can help

Our Tier 1 litigation team represents and advises businesses and individuals on a broad variety of commercial disputes.

We regularly assist clients by:

• providing early advice to control risk from the outset;
• assessing prospects and advising on the most effective route forward;
• handling pre-action correspondence and negotiations;
• helping arrange mediation;
• issuing and defending court proceedings; and
• enforcing judgments and settlement agreements.

Commercial disputes rarely improve with time. The earlier advice is sought, the more options are likely to be available and the stronger your position is likely to be.

If you are facing a dispute or potential claim, our team of experienced solicitors can provide clear, practical guidance and help you move forward with confidence. Please contact us using the details below:

Adam Johnson (01384 340567 / ajohnson@georgegreen.co.uk)

Morgan Rees (0121 269 5855 / mrees@georgegreen.co.uk)

George Gwynn (0121 269 5851 / ggwynn@georgegreen.co.uk)