Litigation costs are one expense that any business would prefer to keep off their books. Here are three things that all start-ups, founders and owners should think about in terms of disputes and how to go about avoiding costs related to them:
1. Put it in writing
Simple yet effective, a paper trail has multiple benefits in the commercial context.
First, we tend to give a bit more thought to what we put in writing compared to verbal conversations, knowing that a written record will exist. This prompts parties to work out, in advance, what they want to achieve with any business relationship, and how the parties might resolve certain issues that arise. For example, a shareholder’s agreement might set out in advance, a process for valuing the shares of the company and effecting a buyout, should the shareholders no longer agree on how a company is being run and wish to part ways. This avoids the expense of going to Court should the shareholders disagree on how the company should be valued.
Secondly, verbal agreements can be difficult to prove as they often rely on circumstantial evidence. Having a written record provides clear evidence if any issues arise and reduces the time and expense in working out your position. If you have agreed something verbally at a meeting, but there is no written record, you can always follow up the meeting with an email to the attendees listing the points that were discussed at the meeting, and ask the email recipients to let you know if your email doesn’t match their recollection as to what was agreed. This approach is more “low key” than getting a formal document signed up for every agreement (or admission) made at a meeting and yet will still be valuable evidence that your email accurately reflected what was agreed during your conversation, should you later need to prove it.
Thirdly, an oral agreement might not be enforced where a pre-existing written agreement is in place. It is common for written agreements to include a clause preventing parties from orally amending the agreement, known as ‘no oral modification’ clauses (NMO). NMOs make it harder for the Court to work out what the parties intended and so a party looking to enforce an oral variation will need to have strong compelling evidence to displace any NMO in a written agreement.
2. Get advice early on
As we have seen in the past year, the way we do business can forcibly change overnight. Understanding what your rights and obligations are in any given situation, whether it be with suppliers, consumers or employees, can and should inform your company’s actions. If you get advice early on, when and as problems arise, then you might be able to avoid expensive litigation costs down the line. If this advice results in you deciding that you owe the other party something, but not all of what they are claiming, or you are willing to compromise on what the other party owes you, your lawyer may advise you to make a settlement offer known as a “Calderbank” offer, at an early stage. In the right circumstances, this type of offer can give you litigation cost protection if the offer isn’t accepted and you end up in Court.
Another benefit to early advice is that it can alter your own expectations of the outcome of an issue – a closer look at any agreed terms, legal obligations or prior communications might just change your perspective and affect your subsequent actions in handling that situation, to prevent a dispute. It is always better to find out where you stand early on, rather than waiting until a costly dispute arises.
3. Communicate effectively (and calmly)
Relationships can get off track quickly when late night email rants are not reigned in from the outset. While it might be satisfying to hit ‘reply’ immediately, it is these sorts of emails that are later produced to the Court, as examples of one side behaving unreasonably. With any dispute, all emails and other written communications should be written with care, and in particular with the view to a third party viewing them at a later date, such as the Judge who is ultimately asked to determine your dispute.
If a dispute ensues, alternative dispute resolution is preferable to the expense of Court proceedings, and parties are much more likely to come to the table and actively engage in productive dispute resolution where communications have been reasonable throughout.
Author: Sarah Cachopa
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