Resolving commercial disputes. (Checklist 159).

This checklist advises on how to resolve commercial disputes, whatever the size of organisation you work in, by selecting and applying the best method to effectively resolve disagreements between businesses.

This checklist is designed as an overview of the main techniques for dispute resolution, and does not constitute legal advice. If you are involved in a commercial dispute, you should seek legal guidance.

Definition

A commercial dispute is any disagreement between two businesses, usually regarding a contract (a legally binding agreement). Although the agreement is normally oral or in writing, contracts can also exist when nothing has been said or written by the parties to it: these are implied contracts. Other types of commercial dispute not covered by contracts include libel against a business.

There are three main types of dispute resolution currently in use:

* Litigation

* Arbitration/Expert Determination

* Alternative Dispute Resolution (ADR).

This checklist will examine all three methods.

Advantages of resolving commercial disputes

Resolving a commercial dispute provides an opportunity to:

* remedy an unwanted commercial situation

* present your side of the argument

* remedy an injustice

* learn lessons about the way your business is run

* appear strong, principled and magnanimous.

Disadvantages of resolving commercial disputes

There are few drawbacks to actually resolving disputes, but during the process some or all of the following problems might arise:

* financial expense

* increased stress and pressure

* senior executives' time being taken up by the dispute

* bad publicity.

Action checklist

1. Discuss the situation with your legal advisers

It is important that you speak with your legal advisers as soon it becomes clear that a disagreement is serious. They can provide practical, objective advice on actions or strategies that may be difficult to identify for those closely involved in the situation, and can ensure that mistakes are not made that could weaken your position in the future. One particular reason for getting early legal advice is that if you wish to make a claim in the English courts there are time limits within which certain claims must be brought.

Legal advice can be expensive, but it tends to be cheaper earlier on in the process--and an hour's advice at the start can potentially save much more in the future.

2. Attempt to resolve the situation amicably and `without prejudice'

Depending on your legal advice, it may be worth trying one last attempt at resolving the situation amicably, but it is important to remember the `without prejudice' rule when negotiating to resolve a dispute. This means that offers or admissions made in these negotiations cannot subsequently be revealed to the court, enabling the parties to make an honest attempt at reaching a sensible compromise. It is common when negotiating in these circumstances to put a heading of `without prejudice' on all correspondence. Once an agreement has been reached the terms are usually confirmed in correspondence which does not have a heading of `without prejudice', creating a binding agreement which can be revealed to the court.

3. Gather the facts and documentation

Ensure that all the relevant information and correspondence are available, as they may be required if you go to court. This will help in briefing your advisers, and will highlight the strength of your position, showing what solution is reasonable and possibly even affecting the method you choose for resolving the dispute.

4. Review your options and consider the implications

The following background information is useful in understanding which of the three main options is appropriate to resolving your dispute.

Litigation

This is when a dispute is resolved in court. It is important to know where the dispute will be heard. In England and Wales commercial litigation will normally be heard in one of two courts: the County Court or the High Court. The following general rules apply for the County Court:

* Where a claim does not exceed 1,000 [pounds sterling], such as a small unpaid debt, this is processed through the `small claims' procedure.

* Claims for less than 25,000 [pounds sterling] are almost always tried in the County Court, and claims for up to 100,000 [pounds sterling] are generally heard in the County Court.

Litigation has the following key features:

* It is long and complex. It has the advantage of being thorough, with checks and balances throughout (including the right of appeal), but it is also time-consuming (taking months, possibly years) and, as a result, expensive.

* Litigation in England involves a procedure known as `discovery'. This means that each party has to serve on the other a list of all documents relevant to the action that they possess (or have had in their possession). Seven days after exchanging lists each party can inspect the other side's documents.

* Before trial there are a number of other stages where the pleadings--claims and counterclaims--are served, where the Summons is served, and where evidence is exchanged.

* Generally there are two ways of avoiding a trial. The first is by obtaining a judgement prior to the full trial--if, for example, the defendant fails within the 14 day time limit to acknowledge the service form from the court; or if the plaintiff's case is so strong that it is apparent there is no defence, in which case they may obtain a `summary judgement'. The second is by settling out of court (see point 6).

Arbitration/Expert Determination

Arbitration allows the parties in a dispute to have it resolved by a private tribunal of their own choosing, rather than by the courts. Many contracts have standard clauses that allow for arbitration in the case of disputes and it is a useful option. Key features are:

* Parties take part in arbitration only by agreement.

* The right of appeal from arbitrators' awards is limited. Arbitration in England is respected by the courts (and reinforced by the 1979 Arbitration Act), so that an award by an arbitrator in the vast majority of cases is not then subject to litigation in the courts.

* Arbitrators must be qualified to act in accordance with both English law and the arbitration agreement (a commercial court judge can act as an arbitrator). English law assumes that only one arbitrator will be used (although some agreements refer to two).

* Arbitrators have rights and obligations, including a duty to act impartially. They cannot, for example, refuse to hear one party or receive information without the other party being present or informed.

* The procedure used during arbitration depends on the nature of the dispute and the practice normally used in the industry or for that type of dispute.

Expert determination is similar to arbitration. Under this system the parties to a dispute appoint a technical expert to decide the point of conflict that has arisen. The advantages are that it is much quicker and cheaper than other methods, and it is flexible and simple. The disadvantages are that it is only feasible in certain disputes, there are no pleadings or hearings--so the parties have much less control--and there are almost no rights of appeal.

Alternative Dispute Resolution (ADR)

There are many different methods of ADR, including mediation (the most common), executive tribunal and mini trial. With ADR, a neutral third party does not decide the case but instead provides a structure to negotiations, helping the parties to discuss the case, clarify the issues, explore areas of agreement and gradually promote a compromise. Other key features are:

* Most forms of ADR are quickly arranged.

* The parties' rights to litigate or arbitrate as usual are preserved.

* Even when ADR does not work completely it can help clarify the most heavily disputed issue, which may then be the subject of a formal hearing.

* It is flexible. Unlike the two other methods where the objective is for the judge or arbitrator to apply the law and impose a decision, ADR also allows the neutral mediator to accommodate the parties' commercial and other legitimate interests. This process recognises, for example, that the parties may wish to continue trading with each other.

5. Assemble your team

A core team needs to handle the dispute. The exact composition depends on the size and nature of the dispute, but the team will usually include some or all of the following people: the chief executive; representatives from the legal and finance departments; an external lawyer; a manager with detailed knowledge of the dispute; specialists and expert witnesses; PR and communications personnel in the event of media interest; and administrative backup.

6. Prepare for action and consider settling out of court

* Review the case and check your information.

* If you are negotiating (rather than litigating), then clearly define your position--where you will compromise and where you will not.

* Consider settling out of court. Because of the time and costs involved many businesses frequently agree on a compromise, even when advised that they are likely to win the action. The most common way in which a settlement is reached is through negotiation. This can take place directly between the parties, between their lawyers, or between the parties and their lawyers.

7. Settle the dispute and confirm the outcome

Once action is under way it is important to remain patient, keeping in mind your final objective, and you will also need to be flexible. Once an agreement has been reached, confirm it in writing and, if possible, make it binding, otherwise a change of heart or personnel after an agreement can cause the whole dispute to open up again in the future.

8. Review the dispute and learn the lessons

Following a commercial dispute there may well be a number of lessons for the business to learn. It is probably worth reviewing general issues, such as the type of standard clauses contained in your agreements or your terms of business, as well as specific points resulting from the dispute. Senior managers should also establish a procedure for referring potential problems at an early stage.

Dos and don'ts for resolving commercial disputes

Do

* Consult with legal advisers at the earliest opportunity.

* Keep track of costs--they can escalate quickly.

* Take control--the whole process of resolving a commercial dispute needs to be managed across different departments.

Don't

* Delay--the sooner you recognise a dispute and decide what course of action to take, the more likely it will be to succeed.

* Destroy or cover up information--it causes many more problems than it solves.

Useful addresses Centre for Dispute Resolution, Princes House, 95 Gresham Street, London, EC2V 7NA Tel: 0171 600 0500 Chartered Institute of Arbitrators, International Arbitration Centre, 24 Angel Gate, City Road, London, EC1V 2RS Tel: 0171 837 4483 The Academy of Experts, 2 South Square, Gray's Inn, London, WC1R 5HP Tel: 0171 637 0333

Thought starters

* Do you have all the facts and information, and have you taken the best available advice?

* Are you clear about the outcome that you want?

* Have you considered your options before deciding which route to take (litigation, arbitration or ADR)?

* What are the financial implications of this dispute--the costs and the benefits?

Further information

Checklists are available in the following formats:

* Individual checklists.

* A complete set of 195 on CD-ROM or in hard copy.

* Checklists with permission to photocopy.

Full details of the range of checklists available can be obtained from:

Lavis Marketing, 73 Lime Walk, Headington, Oxford, OX3 7AD Tel: 0845 702 3736 (local rate call) Fax: +44 1865 750079 or from Checkpoint on the Chartered Management Institute's website at www.managers.org.uk