Commercial dispute resolution mechanisms and strategies
Know all about commercial dispute resolution. Limit litigation, save costs and time. Benefits of alternative dispute resolution.
Disputes are common in commercial relationships. They are an inevitable part of doing business given there are so many opportunities for disagreements and disputes. Commercial disputes generally arise in the context of business transactions including the sale or purchase of property, business contracts, intellectual property rights, and fiduciary duties. These interactions create opportunities for breach of contract, misappropriation of intellectual rights, fraud, breach of fiduciary duty, amongst other commercial misconduct or misunderstanding.
Commercial disputes are often complex and challenging to contend with, requiring legal expertise familiar with the legal framework governing commercial disputes. In Australia, the legal framework for resolving commercial disputes involves state and federal legislation as well as alternative dispute resolution mechanisms, such as negotiated outcomes, mediation, expert determinations, and commissions of inquiry.
Serious disputes leading to litigation in court can be costly, time-consuming, and disruptive to business operations. Engaging an external law firm specialised in disputes and litigation can facilitate commercial dispute resolution, settling these conflicts expeditiously before they go to court and minimising their detrimental impact on an organisation's reputation, operations, and bottom line.
Strategies For Disputes + Litigation
1.Experienced Lawyers Don't Jump Into Litigation
The successful resolution of business litigation depends on a solid grasp of legal principles, deep experience of dispute resolution, and a keen understanding of the implications of the dispute for the broader objectives and relationships of the business.
Experienced legal counsel can assist with an in-depth analysis of the case and provide projected, or even fixed-costs (as in the case of Law Squared) to help clients weigh the costs against the likelihood of the successful resolution of the case.
2.Consider Alternative Dispute Resolution Methods
It has become common practice to first consider direct negotiations or alternative dispute resolution (ADR) methods, such as mediation or arbitration, before entering into litigation. ADR offers a strategic alternative to business litigation, resulting in timely and cost-effective resolutions.
Unlike the combative nature of litigation, ADR enables open communication. More often than not, ADR resolves the conflict, saving companies the expense of formal litigation.
An equally significant benefit of ADR is its ability to preserve the underlying strategic business relationships crucial to the continuation of commerce.
3.Pre-Empting Disputes
Astute legal professionals help their clients anticipate and prepare for possible disputes by being meticulous about contract drafting and by ensuring businesses comply with industry regulations and commercial legislation.
Experienced law firms will also assist businesses to implement risk management strategies to pre-empt disputes before they arise.
One pre-emptive dispute example involves intellectual property protection through the trademark process, which is notoriously complicated and fraught with risks. Lawyers specialising in intellectual property rights can protect clients against these risks, potentially saving them money and sparing them the emotional turmoil of litigation.
4.Keeping Abreast Of Trends In Industries Clients Operate In
Commercial lawyers must have intimate knowledge of industry-specific regulations applicable to their clients' businesses. This enables lawyers to:
Ensure clients adhere to regulations, circumventing legal pitfalls and limiting potential liabilities.
Provide tailored legal advice, taking into account current industry challenges and opportunities.
Offer strategic insights, aligning legal strategies with business goals.
Observe market trends and anticipate emerging legal issues stemming from, for instance, technological advancements or regulatory changes.
Assessing Legal Risks & Litigation Strategies
Legal risks for businesses and corporations can stem from a wide range of sources, including:
Poor corporate governance – failing to ensure transparency and fairness in all operations, ignoring industry standards and regulations.
Breach of business contracts – not meeting obligations of employment, partnership, and supplier contracts.
Intellectual property infringement - businesses may face legal challenges related to the unauthorised use or infringement of patents, trademarks, copyrights, or trade secrets.
Failure to adequately protect company and employee data. Data breaches and cyberattacks can have serious consequences.
Not following best practices to avoid environmental degradation caused by operations that contaminate the environment or release hazardous waste into the environment.
Companies can take steps to proactively prevent these potentially destructive events that can seriously harm workplace reputation. Proactive legal risk management should be ongoing as the business landscape continually evolves.
Strategies To Prevent The Risk Of Litigation
Make risk assessment part of strategic planning, taking into account potential legal risks associated with business operations, industry regulations, and market dynamics.
A SWOT analysis is a tried and tested strategy to evaluate a company's strengths and weaknesses, as well as its opportunities and weaknesses. A thorough SWOT analysis will highlight the risks that company leadership must navigate.
Engage a commercial law firm to interpret industry-specific regulations, tax requirements, environmental and other regulations. This ensures that business practices adhere to legal requirements and mitigates the risk of costly legal battles.
Engage a commercial law firm to draw up a suite of commonly used contracts. Contracts hold immense potential for disagreements. All contracts, whether employment agreements, supplier contracts, customer contracts or partnership agreements, must be clear and, as far as possible, not open to interpretation in order to avoid misunderstandings and potential disputes.
Companies can also allow third-party audits or self-audits from time to time to identify and mitigate legal risks by reassessing contracts, operational processes, and compliance practices. External legal services can assist by identifying potential legal risks. After conducting a risk assessment, corporate and commercial lawyers can create policies and procedures to minimise risks for the future.
Keep accurate records. A simple act like accurate record keeping can be invaluable should a dispute arise. Companies that keep accurate records for all transactions, compliance efforts, employee matters and so forth are equipped to defend themselves should any issues arise.
Keep all software and devices used for work updated and in good order. Outdated software and systems are vulnerable to hackers and cyberattacks. In this regard, it's also crucial to train employees so they are aware how their digital behaviours can endanger the business and expose them to litigation.
Take all reasonable steps to protect sensitive data and avoid data breaches, which can lead to litigation and loss of brand reputation.
Download Law Squared’s helpful 1-pager to help choose the best dispute resolution process for your business here.
Alternative Dispute Resolution Techniques
Alternative dispute resolution (ADR) can be preferable to traditional litigation where one of the above strategies has failed or been missed. Traditional litigation can be a lengthy process that is emotionally and financially draining and doesn't guarantee positive results.
ADR offers a more efficient and collaborative way to resolve disputes without having to resort to a trial in court. ADR proceedings happen away from the public eye and are generally less stressful than appearing in court. Common ADR methods include negotiation, mediation, arbitration, and neutral evaluation.
Law Squared Dispute Resolution Options
Law Squared’s commercial lawyers draft, review and negotiate dispute resolution clauses regularly. The goal when drafting a dispute resolution clause is to provide clarity and certainty for the parties on the mechanisms for resolutions, and how this process will be undertaken.
There are several different resolution mechanisms that clients can choose from, and each comes with different advantages and disadvantages, depending on the specific circumstances of your business.
Dispute resolution options include:
Negotiation
Negotiation is a voluntary process that requires both parties to work together to reach a resolution. There is no litigation cost involved and the parties control the outcome. Discussions can remain confidential, or a third party can become involved.
Mediation
In mediation, a neutral third party helps the parties to reach a mutually acceptable solution. The advantages of this method are that the parties can control the outcome, the process is confidential and the potential for maintaining the relationship is good.
Mediation is cost-effective, but there is no guarantee a resolution will be reached.
Neutral evaluation
Neutral evaluation involves a neutral third party (the evaluator) who provides an estimate of the likelihood of success should the case go to trial. The evaluator is usually an ADR practitioner who is legally qualified to judge what will happen should the dispute proceed to litigation.
Expert Determination
With expert determination, an independent expert appointed by the parties to the dispute to decide the issue between the parties. The parties agree beforehand, via the contract between them, whether the expert's decision will be binding.
Expert determination is not legally binding. The effectiveness of this method will depend on the careful drafting of the initial contract.
Binding Arbitration
Arbitration as a dispute resolution option is stipulated in a contract between the parties. It allows for a third party (the arbitrator) to hear the case and make a decision. In the case of binding arbitration, the decision by the arbitrator is final and enforceable. The parties can no longer sue each other and cannot appeal the decision.
Binding arbitration is only enforceable in countries that were party to the New York Convention.
Courts and Litigation
A court is able to make a binding decision on behalf of the parties. It provides for certainty in the outcome but can be administratively onerous and can create significant disruption and cost for one or both parties.
For more advice and support on commercial dispute resolution, please reach out to our experienced Corporate + Commercial and Disputes + Litigation lawyers via [email protected].
