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Contracts – Avoiding Litigation

Running a small business requires directors and owners to be responsible for just as many tasks as their larger competitors, but without the same resources. Whilst focusing on managing the business, it could be easy for the owners to overlook future risks of litigation. Having a matter escalate to legal proceedings could be very costly, time-consuming, and possibly damage the valuable reputation of the business.

Of course, not all risks can be predicted, however, there are some simple solutions that a business could and should adopt.

The risks of a verbal contract

It is not uncommon for established business relationships to have a verbal agreement without any written formalities. In those circumstances, it would be possible for a verbal agreement to form a contract. However, verbal contracts do not have the same certainty and clarity as a written contract. Over time, terms on which a verbal contract was made could become blurred and therefore be disputed by the parties. This is when every business owner’s worry of an expensive legal bill could become a reality.

A written contract

Drafting a contract that clearly sets out duties, responsibilities, and expectations for either a business transaction, joint venture, or an employee could avert the escalation of a potentially litigious matter. Furthermore, obtaining a signature is obtaining assurance from the signatory that they understand and agree on compliance with the established terms; though not all risks can be predicted, having a written and signed contract in place would certainly diminish opportunities for a party to dispute the agreement, whilst also hopefully mitigating any legal costs.

Keep written details of conversations

Further to the importance of putting agreements into a formal contract, it is also as important to follow up any oral conversations, negotiations, or disputes in writing. This will ensure all parties involved agree (or at least are aware) of each other’s positions.

Respond to a problem

Being observant and attentive to a possible issue within your business is not only good practice but could also be the key to avoiding or at least mitigating litigation. A proactive response to a problem, no matter how small it may seem at the beginning, is likely to have a positive effect and hopefully see the matter addressed within a relatively short period of time – this in turn saves money.  Third parties will also be less likely to take a matter further if your business shows determination to put things right quickly.  As a result, a pre-emptive approach to contracts and potential disputes will ensure both the financial and reputational impact on your business is moderated.

Can we help?

Should you have any questions regarding contract formation or general commercial matters please contact our commercial team. In the event you should require support in any litigious matters then our litigation department is also available to assist.

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