UK: Start-Up Guide To Handling A Dispute

Last Updated: 18 December 2013
Article by Goodman Derrick LLP

Do you really want to be involved in legal proceedings?

Litigation is time consuming, expensive and often protracted. It is also an inherently uncertain process and the outcome will depend on a large number of factors many of which will be outside of your control. It is almost always better to find a commercial solution to a dispute. Consider:

  • The value of the claim, the costs involved and the commercial implications of success or failure. Even if the business wins, it will not recover all of the legal costs it has incurred.
  • What you are trying to achieve from the litigation process.
  • The time, cost and management commitment involved.
  • How litigation will affect on-going commercial relationships.
  • Whether the mere existence of a dispute will create difficulties in bidding for new business or otherwise adversely affect your business' reputation.
  • Whether there is a commercial advantage to the dispute. Being seen to take action against a competitor might illustrate, for example, that your business is serious about the protection of its intellectual property.
  • What the effect will be if the dispute is made public.
  • Whether the other party will be able to pay up if you win.

Can you negotiate a settlement?

  • It is not always a sign of weakness to approach the other side to explore the chances of a settlement. In fact, the Courts encourage parties to view litigation as a method of last resort. Settlement can be reached at any time, even after the litigation process has been instigated. There are several forms of dispute resolution you may wish to consider as an alternative to litigation. Settlement negotiation facilitated by a neutral third party (a process known as mediation) is one option that is becoming increasingly popular.
  • If you decide to negotiate with your opponent, seek legal advice to ensure the settlement discussions are conducted on a "without prejudice" basis. This protection only applies to statements made purely in an attempt to settle the case but will allow the parties (if applied correctly) to freely discuss their dispute. This will enable you to make any appropriate concessions without fear of this adversely affecting your prospects should, for any reason, a final settlement not be achieved.
  • Consider who should handle any negotiations.
  • If an offer is made, you should consider its present-day value, bearing in mind how long it will take to get to trial, the potential cost of litigation and the risk of adverse costs being awarded against you should you lose.

Practical steps to take when a dispute or potential claim arises

  • Take legal advice as soon as possible after an incident occurs or where you have reason to believe that a dispute might be brewing. This is important for risk management purposes as it is often the early stages of correspondence which set the scene for the dispute.
  • If you receive any formal documents requiring a response within a specified time, take legal advice immediately.
  • Do not leave everything to the last minute. There may be time limits which you will need to comply with.
  • Avoid talking to the other party without having a lawyer present, you do not want to say something which may be used against you at a later date.
  • Do not admit anything or agree to settle without taking legal advice about your position.
  • Limit internal discussions to those with a real "need to know". However, ensure that anyone within the business with day-to-day contact with the other party is aware that there is a potential dispute.
  • Do not communicate with any external party (for example, a trade association) without taking legal advice.

Preservation of evidence/documents

The quality and integrity of the evidence is a critical factor in the outcome of the majority of disputes.

  • A business should not destroy, delete or amend any documents or media containing information relevant to the case (for example, notes of conversations, diaries, e-mails, photographs or tapes).
  • You should suspend any routine destruction process that the business may have in place.
  • Ensure everyone with access to information relevant to the case is immediately notified not to destroy it and to be careful when creating new documents.
  • All electronic data/documentation should be backed up in hard copy form and preserved.

Be careful when discussing a potential dispute or preparing a report on an incident

You should take great care when creating any further documentation in relation to the dispute.

You may have to show embarrassing or damaging documents to the other party or the investigating body as part of legal proceedings. Therefore:

  • Always consider whether a written document needs to be created.
  • Think about what is being recorded and how it would appear if it was read out in court.
  • Never speculate, offer opinions or make critical remarks.
  • Remember that e-mails are documents, just like letters.
  • Only send the document or e-mail to those who really need to see it.

Each party to proceedings has an obligation to search for relevant documents and disclose them to their opponent. This obligation is ongoing throughout the litigation process.

Take legal advice to find the best way of dealing with this to ensure that the evidence is preserved.

Protected communications

  • Communications between a business and its legal advisers do not usually have to be shown to your opponent or the Court. They are protected by the legal concept of privilege.
  • However, there are many types of communication which are not protected. Marking a document "privileged" or "confidential" or copying it to a lawyer does not, in itself, make it privileged or confidential.
  • Privilege and confidentiality can be lost if the privileged or confidential information is distributed or copied too widely. Only circulate information on a real "need to know" basis and never copy it externally without taking legal advice beforehand.

Is the business insured?

Check the business' insurance policy to see if it is an insured claim. If it may be, notify the insurers immediately and follow their claims procedure, otherwise the insurance claim could be invalidated. You may need to get the insurance company's consent before taking any action.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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