When things go wrong it may be tempting to withdraw and call in the lawyers. But keeping the lines of communication open is often the key to finding an amicable solution. A serious dispute can arise from a simple misunderstanding.
If the client/contract managers dealing day-to-day with the situation have fallen out, consider escalation to the next level of management. If that fails to resolve things, more formal mediation may help – getting an independent third party involved can de-personalise a dispute and allow the parties to agree a resolution without losing face. If you do end up in court, the judge will expect you to have tried to resolve things beforehand.
Take legal advice early to understand your obligations under the contract in question, how disputes should be dealt with under the contract (service of notices for example) and to preserve your rights. This doesn’t necessarily have to be done in a confrontational way. Parties often assume they have rights they don’t have in contracts; for example, a right to terminate for non-payment even if this isn’t stipulated in the agreement, and so end up in breach of contract themselves for non-performance.
Having a clear and complete record of communication with your counterparty is invaluable should a dispute arise. We recently acted for a contract caterer who was very clear about what was agreed with their supplier, but their standard practice was to delete all communications after three months. This is an extreme example, but the point here is to have good systems in place to ensure you have an accurate record that can be relied upon if things go wrong.
Sometimes a dispute arises because circumstances change so one party simply does not have the ability to perform their contractual obligations. If this is you, take action as soon as you know there may be a problem. If one of the contracting parties is having solvency issues, steps need to be taken to ensure you are not exposed should things go wrong. Again, communication is key.
It is important to remember that behind any dispute is a decision-maker and understanding their motivation or objective is often the key to resolving disputes quickly. In some circumstances it may be that a suitably worded apology is more effective than financial compensation.
The best and most effective things you can do to prevent disputes with your clients or suppliers from threatening your business are to properly know your counterparty before you enter into a binding contract with them (do your due diligence), and ensure the terms upon which you do business are clear and appropriate from the outset and regularly reviewed and updated over time. Making provision for how you will handle any issues should be a priority for your contract from the beginning.