Common business disputes: A guide for managers and executives

Common business disputes sometimes transition into commercial litigation. However, understanding more about how they can arise, and your rights and obligations as a business manager or executive, can help you work out what needs to happen to avoid the dispute or minimise the damage.

In this guide, we’ll explore the following:

• Part I: Understanding the fundamentals of common business disputes
  
• Part II: Common types of business disputes
• Part III: Management and prevention of common business disputes
  
• Part IV: Understanding roles, rights and responsibilities

PART I: Understanding the fundamentals of common business disputes

What are the differences between business disputes and commercial litigation?

Business disputes are also known as commercial disputes. They concern disagreements or conflicts between two or more businesses (or other organisations such as government entities) involved in a transaction or operation. There’s usually some form of agreement in place.

A business dispute may transition into commercial litigation when a party (or parties) takes legal action. Sometimes, this can happen after the parties have tried unsuccessfully to resolve the dispute or when the issues are of such importance that the parties need a court to decide them. This is sometimes referred to as “high-stakes litigation.”

Not all commercial litigation matters go to trial. For example, during the process, the parties may find a way to settle the action, often with the help of their lawyers or other independent parties. However, legal action may go to a court trial if negotiations fail.

Commercial litigation significantly burdens financials, time, and resources, so it’s usually wise to explore settlement and alternative dispute resolution (ADR) options early in the process and revisit them when necessary.

Do I need a business dispute lawyer?

If your business dispute turns into litigation, you must consider the potential consequences, for example, costs and damage to reputation.

Having the help of a business dispute lawyer early in the dispute can help minimise the impact and, in many cases, prevent it from becoming litigation. It’s also an excellent opportunity to assess the strengths and weaknesses of all parties’ positions.

With decades of commercial litigation experience, our business dispute lawyers are skilled in helping clients successfully navigate these issues.

PART II: Common types of business disputes

There’s a vast range of possible business disputes, but in our experience, the more common business disputes are:

• Debt collection
• Contract issues
  
• Insurance disputes
• Partnership and shareholder issues
  
• Franchise issues
• Retail and commercial lease disputes
  
• Complex property, loan and mortgage disputes
• Building and construction disputes
  
• Professional negligence claims
• Misleading and deceptive conduct claims
  
• Deceased estate claims
• Insolvency disputes

DEBT COLLECTION

Debt collection is one of the most common business disputes and may arise if a business or organisation hasn’t paid as agreed or disputes the money owed. Examples include:

• Major business transactions
• Unpaid invoices
  
• Large-scale lending arrangements.

Sometimes, legal action is the only option, which may include insolvency proceedings.

Supply chain issues may also result in debt collection disputes because problems such as trade disruptions or late payments can lead to disagreements over money owed.

Debt collection disputes may involve multiple creditors seeking to recover money from the same organisation, making debt recovery slower and more complex. They may also involve legal questions of contractual interpretation and enforcement. National and international cross-border considerations are sometimes relevant, depending on the parties' locations.

CONTRACT ISSUES

Contracts are at the heart of most commercial relationships, so it’s little surprise that contractual issues often cause business disputes. For example:

• Breaches of contract
• Differing interpretations of contract terms
  
• Failure to meet contractual obligations.

One party may attempt to terminate the contract or launch a breach of contract legal action to recover any losses. Other remedies may also be available, depending on the nature of the dispute and the laws involved.

INSURANCE DISPUTES

Various events can trigger insurance claims, including property damage, fraud, negligence, injury, document loss, and director liability claims.

Contracts usually underpin insurance policies, so insurance disputes are frequently considered a branch of contract law. These disputes can arise when insurers refuse to pay a claim. The insurance contract (including the product disclosure statement) often becomes the basis for arguments for or against the insurer’s decision.

Common insurance disputes include:

• Disagreements over policy interpretation
• Allegations that either party breached its duty to act in good faith
  
• Significant claims
• Professional negligence claims.

PARTNERSHIP AND SHAREHOLDERS ISSUES

Business partnership disputes often involve:

• Financial disagreements
• Breach of fiduciary duties
  
• Decision-making disagreements
• Disagreements about the terms of the partnership.

Shareholder disputes can commonly arise when shareholders disagree with the company's management or the distribution of profits. Shareholders may also allege that directors have breached their duties.

If these disputes are protracted or complex, they can cause significant damage to the business. However, written partnership or shareholder agreements are often effective at preventing or minimising these issues.

FRANCHISE ISSUES

Common disputes between parties in a business franchise include:

• Communication issues
• Financial disputes
• Allegations of misleading and deceptive conduct
• Breaches of the Franchising Code of Conduct.

Usually, the franchise agreement will set out dispute resolution procedures, but in any event, all parties must comply with the dispute resolution procedures in the Franchising Code of Conduct. These procedures can include ADR methods such as negotiation and mediation.

One of the most pressing aims of resolving franchise issues is to preserve the franchisor-franchisee relationship to ensure the business can continue.

RETAIL AND COMMERCIAL LEASE DISPUTES

Some common reasons for retail or commercial lease disputes include:

• Failure to pay rent
• Damage to the property
• Property access restrictions

Disputes often arise in the interpretation of the lease or the performance of obligations under the lease.

Where a small business is the lessee of a standard form retail or commercial lease, federal unfair contract laws can apply (in addition to State-based leasing laws).

COMPLEX PROPERTY, LOAN AND MORTGAGE DISPUTES

These disputes can include:

• Issues arising from selling or purchasing real property
• Problems concerning property business interests
• Complex security arrangements involving significant assets or financing.

While the Australian Financial Complaints Authority (AFCA) has the power to handle complaints from small businesses, larger organisations should seek legal help for significant or complex claims, especially where the dispute has the potential to interrupt operations or damage the business’s reputation.

BUILDING AND CONSTRUCTION DISPUTES

Commercial building and construction disputes often include:

• Breaches of contract
• Contract variations
• Payment terms
• Delays
• Quality of work
• Non-compliance with laws, regulations and codes.

In Victoria, the Security of Payment Scheme is intended to be an efficient means of recovering payments under a commercial construction contract or the supply of related goods or services (but not domestic work). It provides a statutory right to payment.

PROFESSIONAL NEGLIGENCE CLAIMS

Professional negligence claims can involve scenarios where you engaged someone’s professional services (such as legal, consulting, engineering or accounting), and they failed to exercise reasonable care and skill when providing their services. It resulted in harm or financial loss to your business.

Professional negligence can have significant consequences. For example, an accountant’s negligent taxation advice resulted in massive fines and other penalties.

These claims also require that key elements can be legally established, such as:

• Duty of care
• Breach of that duty
• Causation
• Harm or loss.

They may also involve other issues, such as fiduciary duties, specific requirements for professional standards, and professional indemnity insurance cover.

MISLEADING AND DECEPTIVE CONDUCT CLAIMS

These disputes arise when a business’s actions or statements mislead or deceive its customers, clients, or other organisations. Examples include:

• False product claims
• Failing to disclose important information
• Deceiving the other party for an unfair advantage
• Giving wrong information during a due diligence process.

Usually, the Australian Consumer Law applies. It also regulates consumer protection in the areas of unconscionable conduct, unfair contract terms and breach of consumer warranties.
Penalties can be significant; for example, some fines amount to millions of dollars. Some cases may also attract negative publicity.

DECEASED ESTATE CLAIMS

Legal action that claims a share, or a larger share, of a deceased person’s property is known as a deceased estate claim. Sometimes, business disputes arise as part of such claims, for example:

• A dispute over the existence or amount of a debt owed by the deceased’s business
• Beneficiary disagreement over ownership or control of the deceased’s business
• Beneficiary disagreement over asset distribution
• Taxation issues
• Asset ownership or valuation disputes
• Beneficiary conflicts of interest
• Questions about the will’s validity.

Deceased estate disputes are often complex, involving many laws and dealing with different structures such as companies and trusts.

INSOLVENCY DISPUTES

Business insolvency disputes commonly include:

• Breach of director duty claim
• Disputes with liquidators and regulators
• Liquidator recovery actions
• Liquidator voidable transactions and uncommercial transactions
• Creditor priority and security interest disputes
• Allegations of insolvent trading
• Unfair preference claims
• Oppressive conduct claims
• Statutory demands.

Insolvency disputes may require forensic analysis of a company’s financial information and other forms of litigation support.

PART III: Management and prevention of common business disputes

Should I consider other forms of dispute resolution?

Commercial litigation isn’t the only path to resolving a business dispute. The idea of “having your day in court” must be balanced against the other issues that litigation presents, for example, significant cost and time investments, disruption to the business, and potentially harmful publicity.

Usually, the lead-in to a trial can take a long time, possibly a few years (depending on the complexity of the matter). When the trial is finished, it may take many months for the court to deliver its decision, and an appeal will take several more months. This means there may be a long period of uncertainty while you wait for the litigation to be resolved fully.

For these reasons, it’s wise to consider other forms of dispute resolution (ADR). Courts usually order parties to explore settlement early in the litigation process, such as a judicial resolution conference.

There are various ADR methods. Which one you choose will depend on several things, including:

• The nature and complexity of the dispute
• Whether communication between the parties is possible
• The attitude of each party towards the ADR methods
• Legal advice.

ADR methods include:

• Negotiation, in which the parties try to negotiate a settlement, typically through their lawyers. The entire process remains private, often with a written agreement reflecting the settlement terms.
  
• Mediation, in which a mediator helps the parties discuss the issues and explore settlement options. The mediator is an independent third party, and the discussions and outcomes are confidential. The parties can agree to their lawyers being present. The mediator can make recommendations, but they can’t make binding decisions. Settlement terms are usually recorded in a written agreement.
  
• Conciliation is like mediation because the parties and their lawyers meet with an independent third party, the conciliator. However, the process differs because the conciliator takes a more active role in resolving the dispute. They may suggest resolution options, explore alternatives and make recommendations.
  
• Arbitration is like a court hearing but is private and confidential. The parties appoint an arbitrator to oversee the process. They submit documents and witness evidence and present their submissions. The arbitrator considers everything and makes a legally binding decision. It’s similar to a court judgment but remains confidential. Arbitration is more expensive than other forms of ADR, but it can happen more quickly than a court trial and without the risks of negative publicity or reputational damage that may result from a court hearing.

Discussing ADR with your lawyer should be part of your business dispute management strategy. The possibility of ADR should be regularly revisited during the dispute because every development brings a different level of possibility for resolution.

Should I consider prevention strategies?

Business dispute prevention strategies are most effective when considered and implemented before entering into any commercial agreement or transaction.

Some helpful prevention strategies include:

• Entering into a written agreement (preferably drafted by a lawyer) from the outset
• Ensuring the written agreement is comprehensive, covering all aspects of the relationship
• Encouraging all parties to seek independent legal advice on the agreement, and roles and responsibilities
• Ensuring everyone understands lines of reporting and communication requirements to minimise misunderstandings and errors
• Scheduling regular contract reviews to ensure accuracy and currency, and to identify any issues that may escalate
• Ensuring language barriers are minimised, for example, using plain language wherever possible and translation services if necessary.

How do I minimise the costs if the dispute escalates to litigation?

If it’s impossible to avoid a dispute, you’ll need to focus on preventing it from transitioning into litigation. We recommend seeking legal help early in the process.

It’s often an effective strategy to keep your lawyer in the background for help and support, especially if you’re concerned about escalation. It also means your lawyer is already instructed and familiar with the details and issues in dispute, should it become legal action. This can save valuable time and money.

Whenever you choose to involve your lawyer, it will be necessary to identify the legal issues. You can help your lawyer more quickly understand these issues by:

• Locating relevant documents
• Sorting the documents logically (for example, in chronological order or into different themes).

PART IV: Understanding roles, rights and responsibilities

How do I prepare to work with a lawyer?

When you decide to get legal help, you’re committing to spending time and energy, and working effectively with your legal team.

In other words, it’s a serious undertaking.

What's the P&B approach to working with clients?

Our approach to business disputes is to work as a team with our clients.

How do I prepare my business for litigation?

Consider how you’ll prepare your business for a prolonged dispute or litigation. This may include:

• Planning how to minimise business disruption due to closures, absences, negative publicity, or other issues
• Establishing effective communication with staff, the public and any other stakeholders
• Managing the required documents and data.

If the dispute doesn’t resolve, you’ll also need to consider how to fund any litigation.

Is it necessary to use a lawyer for a business dispute?

• Knowledge of relevant laws and court processes
• Ability to interpret, draft and review key documents
• Ability to develop submissions and strategies
• Understanding how to navigate the complexities of the dispute
• Considering how to best protect your business interests
• Representing you in ADR processes
• Representing you in court
• Ensuring legal compliance

• Financial losses
• Lost business opportunities
• Legal compliance issues
• Negotiating agreements that may not fully protect your rights
• Inadequate documentation to support your claims.

Summing Up

Understanding the fundamentals of common business disputes is a great start in avoiding them. However, you’ll also need other preventative measures, such as a comprehensive and professionally drafted agreement. Remember that not all business disputes can be resolved, so it’s a good idea to understand dispute resolution methods and measure your willingness to commit to litigation.

We’re a leading business litigation law firm with decades of experience representing clients in common business disputes. Contact our business dispute lawyers to learn more about our services.