- Compact Contract
How best to manage the early stages of a contractual dispute
26 May 2022
Even seasoned litigators accept litigation can be time-consuming, often expensive, and uncertain. While you may in some cases be able to avoid it entirely, what should you do (or, for that matter, not do) in the early stages of a contractual dispute? And how should you handle the run up to formal proceedings if they are starting to look inevitable?
1. Observe notice provisions strictly - who, what, when, where and why?
Our first, and perhaps most important, tip is to follow contractual notice provisions to the letter. This isn’t a glamorous topic, but we see issues arise commonly where contractual notice provisions aren’t followed. This can be fatal if you run out of time to correct any inadequacies. Almost all litigators will have a tale of leaving a notice or claim form at a building site, much to the bemusement of the security guards! We do this for a reason. We also tend to send a courtesy copy by post or email to the other side, so they have actual as well as formal notice.
Who, what, when, where and why is a neat way of thinking about it:
- Who needs to send and who needs to receive the notice?
- What does it need to have in it?
- When does it need to be sent and received, and how is the timing calculated?
- Where does it need to be sent to? Do exactly what it says on the tin.
- Why are you sending the notice? This is important as a cross check to manual to see if you are properly giving notice – if the reasonable recipient wouldn't understand it then you probably aren't.
2. Check (contractual and statutory) limitation periods carefully
This is another area where you need to strictly comply, and not something to leave until the last minute.
If you are filing a claim at court in England the relatively new online service is a real boon, but in an urgent scenario it can be difficult to get help from the court staff.
3. Reserve (and don’t waive) your rights
Moving away from procedure to the substance – reserve your rights. Yes, it’s good to say that expressly, but it’s equally important to act consistently with that reservation. If you act differently, for example by upholding (or “affirming”) a contract when you later say you want to terminate the contract, you may find you’ve given up that right to terminate. Actions tend to speak louder than words.
4. Ensure a clear internal escalation process for disputes
Our last tip here is to be clear, internally, with relevant parts of your business, when a potential dispute should be referred to the legal team. Different companies will have different thresholds for escalation, but disputes can be exacerbated if they are not treated appropriately from the off.
5. Effective management of contractual disputes at the early stages
If, despite your best efforts, a dispute looks inevitable, here are some practical tips to think about:
- Involve the right stakeholders
It really pays to make sure, from the outset, you engage the right internal decision-makers. It’s also worth thinking about when to involve external lawyers and experts. Depending on the dispute, it can be a false economy to leave this to the last moment.
- Look after legal privilege and limit what is put in writing
These are both aimed at minimising the creation of (often entirely avoidable) prejudicial documents that may undermine your case.
- Enforce the contract
Make sure you don’t worsen your position; adhere strictly to the provisions in the contract. At the same time, call out the other side’s failure to do so. This includes any express terms dealing with dispute resolution. An express good faith obligation to negotiate for a prescribed time period requires some engagement though, of course, it does not require you to reach a settlement.
- Comply with any pre-action protocols
Not only do you need to adhere to the terms of contract, if you are likely to end up before the English courts, you should follow the relevant pre-action protocol(s). These are generally aimed at early exchange of information with a view to resolving or narrowing the dispute.
- Issue document preservation notices
A core obligation when it appears that you may become a party to litigation is to preserve all potentially relevant documents. You should issue hold or document preservation notices to relevant staff at any early stage and speak to IT about stopping routine destruction of documents. This avoids very difficult issues if documents are later lost or deleted.
- Think strategically and form a view on the merits
Once you have the right people, procedure and holds in place, carefully and critically examine your case. This may involve early fact finding. To the extent possible, this should be done in a privileged manner and while being mindful of what searches are carried out: the results of these search may impact any adverse documents you are said to know about.
Now’s the time to be getting specialist legal advice and testing points with experts. This will help you devise a clear case strategy from the outset. To the extent you can, it’s important to have a realistic view on merits at an early stage. If, understandably, emotions are high, the legal team can help to bring some objectivity.
- Use “without prejudice” cover, but discerningly
Bearing mind the English court’s emphasis on early dispute resolution, are settlement discussions or some other form of alternative dispute resolution appropriate? These should be conducted on a “without prejudice” basis.
However, don’t get carried away with the comfort of “without prejudice” cover. The rule only protects actual settlement discussion, not everything you say. And, although any "without prejudice” communications can’t be referred to in court, if you reveal your key weaknesses or concerns to the other side, they will then know about them, and no doubt will try to exploit them.
- Mitigate your losses
If you are the one claiming that there has been a breach you will want to mitigate your losses. If you don’t you may not be able to recover all of them. For example, if the other side has failed to deliver goods in a supply chain, go out to the market and see if you can get them from another supplier so that you can meet your obligations to your customers.
- Offsetting liability
If the claim is being made against you, think about whether any other parties should be brought into the matter and consider if it’s best to involve them at an early stage or later.
- Inform your insurers
Don’t forget to think about any insurance claims you might have. If so, carefully check the notification provision (thinking of the guidance on notice provision above), claims control provisions (which will set out what control the insurer has), and renewal dates (which are important for the timing of any notices).
Also, be sure to have your insurance position in mind in any settlement discussions and involve the insurers if their consent is required.