How to settle disputes

Two businesspeople argue over a contract disagreement

If your business is involved in a commercial dispute, you need to understand how to deal with the pressure and apply it on the other party when trying to reach a settlement

Settling a dispute satisfactorily can save your business a lot of money, effort and anxiety. So, what is the key to getting a favourable outcome?

1. Know which terms apply

Whether written, oral or both, knowing which contract terms you're arguing over enables you to apply more pressure. If you're claiming that your standard contract terms apply, for example, and can show the other side agreed to them before the contract was made, you're in a much better position.

If a specific agreement was being negotiated but you started work before a final agreement was signed off, you're in a weaker position. If a contract is partly in writing and partly oral, what you said and did while performing the contract can count against you if there's a later dispute about what was agreed orally. If terms are ambiguous or unclear, the court will decide what a reasonable person would have thought you agreed - and that might not be what you think you agreed.

2. Keep adequate records

Maintain proper written record of negotiations leading up to the contract in dispute (including email printouts), because the courts will sometimes look at pre-contract negotiations to construe what the parties intended in the eventual contract. Parties without proper records will have a harder time arguing the accuracy of their version of events.

3. Don't make offers that later prejudice you

Negotiate in confidence. Know when making your settlement offer that 'without prejudice' means it can't be referred to in court to your possible detriment if negotiations break down. However, just adding the words 'without prejudice' is not enough: they must be attached to a genuine offer to resolve a dispute.

4. Deal with someone with the necessary authority

The other side may try to argue that the person with whom you negotiated lacked authority to make the contract (especially if they've since left). But if their title implied they had authority or was 'held out' to you as authorised, you're safe - but take advice if there is any doubt.

5. Ensure proper handover of information

If the employee who negotiated the contract on your behalf is to leave, make sure there is a proper handover of information, with full notes and a debrief. Otherwise you'll find it hard to rebut allegations about what they said. Ensure your personnel procedures enable you to trace ex-employees if required.

6. Don't just ignore it

If you do nothing about a dispute or don't rebut points raised by the other side, the courts may later construe this as an admission you're wrong.

7. Don't rush to court

There are alternatives, such as mediation, commercial dispute resolution or arbitration, which can lead to a quicker and cheaper settlement. If you're going to court, some types of dispute require specific protocols, for example, putting your case and providing information to the other side, which is designed to encourage settlement before it reaches court. Failure to do so means you risk being penalised in costs at any subsequent court hearing.

8. Don't dig in on your strict legal rights

Negotiating from a position of certainty about your legal position, based on good advice, is essential, but settlements are built on creating solutions agreeable to both parties. Relying on your strict legal rights can stop you from achieving a satisfactory settlement.

9. Learn to recognise tactics

For example, if you're taking someone to court they can make a 'Part 36 offer', which is a formal offer of money to settle the case. How it is made is regulated by court rules. Usually the loser pays the winner's legal costs, but if the loser has made a formal 'Part 36' offer, and the winner is awarded less than the offer, the loser does not have to pay the winner's legal costs incurred after the offer was made. This can make a big difference to the amount the winner walks away with.

If Part 36 doesn't apply (eg because the claim is not for money), an informal offer can still be made, and the courts will still take it into account when assessing costs if the winner fails to beat it.

So if you're considering whether to make or accept a Part 36 or other offer, carry out a thorough assessment of the strength of your case and likely damages, and consider whether you need further information from the other side first, when calculating how much to offer, or whether to reject an offer.

10. Get the wording of your settlement right

The courts are full of cases where the wording of settlements has left businesses out of pocket. For example, a payment in settlement of "all claims made" in a construction dispute didn't prevent a new claim being raised afterwards in relation to the same job - because the words "all claims made" don't cover future claims.

Another common mistake is not taking tailored legal advice. There are so many traps and pitfalls that it can be a false economy to try to 'go it alone'. Take advice from a specialist legal adviser.

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