10 Easy Steps to Avoid Litigation

By following a couple of simple rules, your business can better protect itself against being sued, and be better prepared to win a just resolution (in or out of court) in the event of a commercial stoush.

Commercial litigation can involve a wide range of matters, including disputes with customers, suppliers, business partners, financiers, competitors and government.

While good legal representation is a valuable asset to have when a dispute has arisen, maximizing your chances of avoiding disputes altogether is invaluable.

1. Limit your liability contractually

The beauty of business is that – subject to a couple of important exceptions – you get to choose (or at least negotiate) the terms on which you do business. It is amazing how many businesses do not take advantage of this fact. Quite often this is because the business owner does not want to spend a few thousand dollars on lawyers. The good news is – this is often the best insurance you will ever buy.

There is no excuse for not having comprehensive and defensive trading terms in place with ALL your customers. You should also carefully review the trading terms that your suppliers try and force on you. You should be limiting your liability contractually whenever possible, and you should be disclaiming responsibility for things that you cannot reasonably afford to control.

2. Get insurance – and a lot of it

Pick up the phone now and ring your insurance broker. Ask him or her if they think your current cover is adequate – ask them what risks they see in your business, and what cover you can get. Any risks that you can not limit contractually should – MUST – be covered by adequate insurance. One claim can simply destroy your business. If not adequately insured all your hard work could be wasted.

Furthermore, just as you need to insure your hard assets, you also need to insure against potential legal costs. You and your insurance broker should review your policies to ensure that they adequately cover possible law suits for such things as product liability, environmental damage, negligence and employee harm – and that they also provide adequately for likely legal fees and expenses. Without adequate cover, a single law suit can threaten the existence of your company. Plan ahead, review your company’s growth, and remember that appropriate insurance cover is a necessity, not a luxury.

3. Limit your liability “structurally”

If all else fails – that is your contractual terms are insufficient and your insurance does not cover the loss (see above) – make sure that your business is structured to weather the storm to fight another day.

There are a number of things you can do with your business structure to build in what we call an “Armageddon defence”. The most robust is to adopt a “Dual Business Structure” where business assets are legally separated from operational activities.

4. Know the legal environment in which you operate

You can not prepare for what you do not know about. Take the time to get to understand the key legal issues that affect your business and industry. It may be limitation of liability issues, it may be intellectual property issues, trade practices, competition law, franchise law, consumer protection, financial services licensing – find out what the key issues are.

Find a lawyer who knows your industry, and ask them for guidance. If you are dealing with Government, review the Acts that impact the area you are dealing in, and read their contracts and negotiate. You may be surprised by the commercial edge you are able to achieve on your competitors through these simple steps.

5. Maintain a good filing system

You can not bring or defend a claim without evidence. There is no point in going to Court to recover a debt if you can not prove that the customer agreed to the work being undertaken, and that you actually performed what was required. Once again, you will be amazed at the competitive advantage you gain on competitors and suppliers when you maintain the evidence and know where you stand – most businesses fail miserably in this area.

It may seem obvious, but what good is a complete record if you cannot access it when you need to? As such, make sure your filing-system is readily searchable. This includes having a filing-system that is easily understandable and readily accessible, competent administrative staff and secure hard copy and on-line storage. Remember to keep at least one backup of on-line storage, preferably located off-site. It is a good idea to include a hard copy storage backup (comprising photocopied documents) along with any on-line backup.

6. Be honest

Be honest with others – but more importantly, be honest with yourself. Did you make yourself clear to a customer about what you would deliver and what it would cost? Was the work you carried out of the quality that your customer believed would be delivered?  Have you demonstrated good faith toward your business partners and employees?

Most problems can be solved with a bit of mutual honesty. Ego and pride are two of the most expensive business assets you will ever invest in – and almost all lawyers are more than happy to assist you make that investment.

Remember that honesty gives rise to integrity, and integrity in turn promotes consumer confidence and business success. Acting honestly and ethically may be beneficial, but it is also good policy to keep a record of honest dealings. As such, you should archive all business correspondence, including all internal communications.

7. Be prepared

Business is unpredictable. That is what makes it so much fun. The more prepared you are for both the expected and unexpected, the better you will do. Be sure to think about and anticipate what may happen – and then address any issues in a timely and efficient manner – don’t let them fester.

Being prepared may also entail having outside help. For example, if you are a growing business which deals significantly with government business, you may need to employ a compliance officer or consultant to navigate the ins and outs of government regulations. Similarly, if your company generates a lot of paperwork, it is a good idea to engage a records manager.

8. Plan for the worst

The paranoid survive. In reality, thorough preparation cannot prevent all commercial disputes: it is possible (even likely) that you will be sued, or you may decide to instigate legal action yourself. Should either of these events occur, you do not want to spend valuable time familiarizing yourself with the issues and then “shopping around” for the best legal help.

You should ensure you have an established relationship with a qualified solicitor or law firm. In doing this, you should consult with a number of law firms, not only to gauge whether you feel you can trust them with your legal affairs, but also to ensure that they understand your professional needs, and your business niche. This process of consultation should continue as your company grows, in order to ensure your legal representative remains abreast of developments within your business and industry.

9. Train staff about relevant risk issues

You can not address what you do not know about – and your staff are the most likely people to come in contact with relevant risks and opportunities. From a risk and legal standpoint, anything that happens in a business may be important. While some matters giving rise to potential liability are more obvious, some are not. You must ensure that your staff are trained to be aware of the likely events that may give rise to liability – and to be comfortable enough to raise them with you. Create a culture of honesty and transparency – to give yourself a fighting chance of knowing what is actually going on in your business.

10. Conduct regular reviews

Business is a series or risks and opportunities. Conducting regular “Risk Reviews” is as integral to your business’ survival as exploiting opportunities. They go hand in hand.  One ensures your prosperity, the other ensures your survival.  Risk Reviews should be completed at least once a quarter, and in some cases monthly. They may form part of your regular Board or Partners’ meetings. You should get your lawyer and other advisers (e.g. accountant, financiers, etc) involved.

Whilst we cannot guarantee that you will avoid all legal action, with foresight and planning you can at least be better prepared and protected.

Please call us on 1300 654 590 for assistance in undertaking a Risk Review, or to assist you with a dispute.

The information contained in this post was reviewed on 16 May 2022

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