Disputes have a nasty habit of cropping up when you least expect them or have no time to deal with them. The way the parties conduct themselves at the start can have a huge impact on how easy the dispute is to resolve, and so those first steps can be critical.
It can be difficult if feelings are running high and time and cash are in short supply, but when it looks as if things are taking a turn for the worse, that is precisely the time you should be taking a cold, hard look at your contract. Acting rashly or taking extreme steps can seriously undermine you, putting you at odds with the contractual position and making your position far worse.
Of course, there isn’t always a contract in play (we will look at this scenario on another occasion) but if you do have some form of contract, the following should give you a good starting point.
Are you happy your contract includes all of your terms?
If there is an “Entire Agreement” clause there is a presumption that it does, but other communications/documents (conversations, emails, quotes etc) can potentially create other terms which bind the parties.
Are there competing terms?
Sometimes you will assume that your contract applies but, when a dispute breaks out, the other party argues that it was in fact their own terms which applied. One example might be when Party A’s terms are sent out at the outset, but Party B has their own standard terms printed on the back of their purchase orders. These cases can be tricky to navigate and you are likely to need advice to find the best way through.
Can you identify a breach of the terms?
Something like a failure to deliver the goods identified in a contract may well be relatively straightforward, but disputes are rarely clear cut. You need to work out what the breach is and how important it is.
Does it undermine the whole point of the contract, for instance? Also look at other factors, such as the reason for the failure, which might impact on the seriousness of any breach. Perhaps you didn’t do something you should have done when you ordered the goods, or perhaps the failure to deliver the goods is due to something outside of the control of one of the parties? There are endless possible scenarios here and each presents its own challenges. Some breaches are more difficult to pin-point, such as a failure to provide services in keeping with a general duty outlined in the contract.
So, now you have identified your terms and pin-pointed what has gone wrong. What can you do about it? There are a few key issues to consider here and again your contract is going to be your starting point.
Does your contract set out what your remedy is?
The remedy you have often depends on how serious the breach is. There are numerous possibilities, but your remedies might include a requirement to allow the party in the wrong a period of time to put things right or perhaps a right to reject goods which have been delivered. At the other end of the spectrum, one party might have a right to terminate the contract.
Is there a “Dispute Resolution” clause?
Threatening to sue isn’t always the answer. Your contract may set out a procedure which needs to be followed first. Usually that procedure would start with a meeting of party representatives followed, if necessary, by some form of escalation process.
If it exists, check whether that procedure is mandatory (“…the parties will/shall…”) or discretionary (“…the parties may…”). Also check whether any provision is made for mediation or arbitration (and again, whether that is mandatory) and whether the right to pursue formal legal proceedings is put on hold pending the outcome of the dispute resolution process. These factors all impact on the practical steps you have to put in place, and the purpose (and tone) of any exchanges you may have with the other party in these early stages.
Might there be a negotiated outcome?
In most cases this will be the best outcome for everyone, and it is certainly something you should consider at the outset, but do watch for pitfalls at this point:
- Make it clear in any discussions that you aren’t waiving any rights you have under the contract (assuming you have helpful rights in the first place!)
- On the point of waiving rights, there just may be a “non-waiver” clause in the contract. If so, there is a presumption that, even if commercial discussions take place, the party to which the clause relates (often both parties, in fact) can still look to enforce its rights under the contract at a future date. Any such right needs to be tied off in discussions,
- Consider whether you need to have “without prejudice” discussions or correspondence. That is often helpful where the parties are genuinely trying to resolve a dispute, and essentially means that the content of those discussions has to remain confidential between the parties (at least for now).
- If the negotiated outcome means a change in contractual terms as a one-off, that change needs to be recorded. In fact, if you have a “non-variation” clause in your contract it is vital that any change in terms is documented and signed by both parties. Otherwise it may not be binding.
- If the negotiated outcome leads to a permanent change in terms, consider whether you need a document which will record the changes (as above) or a whole new contract. Disputes where the nature of goods/services provided has changed very substantially over time, but the terms haven’t been updated can be very difficult to resolve at a later point.
If all else fails, early advice will help you sense-check your position and may help you to identify an argument or approach you’ve not tried. It will also often make the first steps towards resolution of the dispute smoother.