Business disputes are an unfortunate reality of the modern world, but they do not have to be detrimental to your business. It is important for business owners and leaders to recognise when a dispute arises and to deal with it diligently from the outset. This involves understanding the underlying causes as well as identifying potential solutions that are beneficial for all parties involved.
Proactively addressing any kind of business dispute is key to preventing long-term damage and restoring critical relationships, both internal and external.
This blog is based on the Dispute Resolution section of Jeremy Streten’s Business Legal Lifecycle book.
What classifies as a business dispute?
A business dispute is a situation in which two parties have opposing opinions that seemingly can’t be resolved. Disputes can arise between businesses, their customers, employees and other stakeholders, and can involve issues such as contracts, service reliability or intellectual property.
They may start out small, but without resolution, they can quickly become major legal battles or acrimonious financial disputes over lost money or assets. As the stakes can be high it is important to handle a business dispute promptly and effectively to prevent the recurrence of the problem or future issues with the opposite party.
Reasons for business disputes
There are several reasons why a disagreement between companies can arise. One of the most common reasons is the breach of contract. For example, a party might fail to supply the number of raw materials as stated in the contract.
Another instance is if a party does not provide a satisfying service. Such service could be maintenance and repairs or distribution of finished products.
It is normal for disputes to exist between two parties. Sometimes these disputes might be simple, and other times they could be very complex and drag out for a long period.
Common causes of business disputes
Business disputes can arise in a variety of circumstances, ranging from disagreement over how to divide profits to misappropriation of funds or assets.
In the context of business partnerships, common sources of disharmony include situations where one partner fails to perform or contribute as needed; fails to adhere to an equitable arrangement surrounding a partner’s exit or has engaged in misconduct through the mishandling of funds or assets.
Many disputes can be contained internally, however, external interventions may be necessary if other processes fail.
It is important to note that finding a quick solution to a dispute is in the best interest of all the parties involved. This is because a long business dispute costs both time and money for all parties involved.
Business Dispute Resolution
Business dispute resolution involves the application of various provisions and processes, as set forth by law, to resolve differences of opinion between two or more involved parties.
Resolving disputes is typically faster and less costly than pursuing business litigation.
Mediation, negotiation and arbitration are all mechanisms used to resolve business disputes, with each having its own methodology for achieving resolution.
- In mediation, the mediator leads discussions between both sides in an effort to encourage mutual understanding and agreement.
- During negotiations, the parties will attempt to reach a solution on their own accord without involving an outside party.
- And lastly, arbitration uses a third-party arbitrator who hears both sides’ arguments and then renders his or her decision on the issue at hand.
Business dispute resolution helps foster a collaborative environment that can help preserve relationships between involved parties while also providing cost savings and improved outcomes over traditional legal proceedings.
Business Dispute Resolution Process
Resolving a business dispute often requires following one of these processes above– this will ensure proper handling of the dispute and help maintain the business relationship that exists.
A common business dispute resolution process will trace the following steps:
#1. Analysing and Understanding the Problem
The first step to resolving a dispute is carrying out an analysis to understand the reason for the dispute. A proper understanding of the issue will provide a roadmap to solving the problem. This might demand reading the contractual agreement. At times, the contract may provide a means to solve a dispute.
#2. Maintain Communication With the Other Party
When involved in a business dispute, constant communication is key to resolving issues. Note that for communication to be effective, it must be based on a genuine need to find a solution. This involves the willingness to negotiate and compromise.
#3. Document Agreement
In a situation where negotiations are successful, it is important to document the agreement reached. Before documentation, all parties should have signed the agreement. Also, all parties should have a copy of the signed agreement.
#4. Seek the Assistance of a Third Party
A third party such as mediators or conciliators can assist in dispute resolutions – especially if it is complex. This mediator/conciliator must be impartial and well-knowledgeable in helping disputing parties reach an amicable agreement.
Small Business Dispute Resolution
Small businesses are just as likely to experience business disputes just the same way large organisations do. The only difference is that while large organisations have different plans to resolve these disputes, a small organisation may not.
As such, even at the starting phase of a business, there should be provisions for resolving disputes. One of the best ways for a small business to resolve business disputes is by seeking mediation or conciliation.
Take a Business Legal Risk Assessment
At Business Legal Lifecycle, we provide business owners with advice and education regarding legal risks. We do this through our legal risk assessment, which business owners can undertake.
This quiz will help determine the areas where a business may be prone to legal risks. Along with this assessment, we also carry a book, “The Business Legal Lifecycle”. With the help of this book, a business owner can build a company with a headstart on navigating legal risks.