Resolving Commercial Disputes Pre-Action - A Guide for In-House Lawyers

For in-house lawyers, dealing with commercial disputes is often costly, time-consuming and distracting, and the vast majority never reach court proceedings.

Coupled with the ongoing pressure to reduce external legal spend, in-house lawyers need to perfect the art of resolving disputes at the pre-action stage, now more than ever.

Here’s our guide on how to ensure pre-action matters can be closed quickly and compliantly, saving the business time, money and possible reputational damage.

1. Contracts

At the heart of most commercial disputes is a contract. Disputes regularly arise where one party fails (or is accused of failing) to comply with their obligations under the contract, or where one party wants to vary or terminate the contract. 

In-house teams should regularly review and audit all ongoing contracts to make sure they're consistent with the company’s changing circumstances, and to identify any possible termination or variation issues in advance. Many contractual disputes can be resolved quickly once all parties are clear, and in agreement on, the contractual terms in force.

2. Dispute resolution clauses and notice provisions

Many commercial contracts contain a pre-determined process for resolving disputes, so they should be reviewed at an early stage. For example, the company’s representatives might be required to hold a formal meeting to attempt to resolve matters before any formal dispute resolution measures can be taken. Any contractual dispute resolution processes must be followed in the event of a dispute. 

Finally, always check contractual notice provisions to ensure any notices, particularly termination notices, are validly served.

3. Document preservation and privilege

Whenever a potential dispute arises, in-house teams should ensure that all relevant documents (including email correspondence) are preserved and not destroyed. 

At an early stage, consideration should also be given to documents created internally which a company might later wish to claim privilege over. In particular, internal communications concerning a dispute, even those relating to settlement, won't automatically be covered by litigation privilege. If in doubt, avoid putting it in writing.

4. Unpaid debts

Another area where many disputes arise is the payment of commercial debts. It's generally accepted that the longer a debt remains unpaid, the less likely it is to ever be paid, so early detection and engagement is vital. In-house lawyers are likely to only become involved when debts are particularly large, disputed for a long time, and/or where there are complex legal or contractual issues. Always ensure compliance with any relevant pre-action protocols when engaging with a debtor. 

Finally, businesses should always check the status and credit-worthiness of a debtor before taking formal steps such as legal proceedings or a winding up petition.

5. Compliance with protocols

Before engaging in any pre-action correspondence, always check which Civil Procedure Rules Pre-Action Protocol applies to the particular situation and ensure that it is complied with. Where no specific Protocol applies, the General Practice Direction – Pre-Action Conduct and Protocols will apply. The protocols set out the general principles and specific steps that parties to a dispute must follow when engaging pre-action. The protocols are there to guide parties to resolve disputes pre-action, and they must be complied with otherwise the court can impose cost penalties down the line.

6. Limitation and other deadlines

Pre-action correspondence can become protracted and continue for months or years. It's vital to keep an eye on the limitation ‘clock,’ which will continue to tick while correspondence is ongoing, for example by setting regular calendar reminders. 

Also, remember to check whether there are any limitation deadlines or timescales expressly contained in the contract (for example, timescales in which to notify of a breach), or otherwise incorporated in to the contract (for example, a timescale or deadline contained within a trade body's standard terms). Consider keeping a calendar of key contractual dates such as notification deadlines, renewal dates or termination dates. 

If a limitation date is potentially looming but correspondence is ongoing, consider entering into a standstill agreement with the other parties to avoid the need to issue proceedings protectively.

7. Settlement considerations

In almost all disputes, it's in all parties’ best interests to reach a commercial settlement without resorting to court. Settlement negotiations can take place in correspondence or in a more formal process, such as a mediation or arbitration. All settlement correspondence should be headed “Without Prejudice Save as to Costs,” and in most cases any agreement reached should be formally documented in a settlement agreement. A settlement agreement provides clarity and a route for recovery if the terms of the deal are breached.

8. Floodgates

Opening the floodgates is always a concern when dealing with disputes, particularly those with a consumer element. If this is a concern, it can be mitigated by requiring parties to sign a non-disclosure agreement before starting any settlement negotiations, and/or including confidentiality clauses in any settlement agreement.

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