Commercial disputes on the rise as economy cools

The Law Society has warned that commercial disputes are on the rise as businesses seek to clarify the terms of their contracts with customers, and business partners argue over the future of their businesses.

Paul Marsh, President of the Law Society commented:

“Our members are telling us that companies are exercising caution with their contracts as they tighten their belts. In a healthy economic climate, businesses tend to be less strict, but when finances begin to suffer they are less relaxed.”

“Disputes tend to arise over what is a fair or unfair contract term. In the current climate many contracts will be under the microscope.”

The Society is also hearing from members that business partnership disputes are increasing as disagreements over the future of a business in tough times rise to the surface.

The rising tension internally and externally is a threat for those businesses and needs to be dealt with before it is too late, says the Law Society.

Paul Marsh says: “Going through the courts is sometimes unavoidable in commercial disputes but there are other options. Many solicitors, as well as being skilled litigators, are also trained in alternative dispute resolution methods, such as mediation. Not every dispute needs to go to court, but the need for a legal professional to iron out and explain the contractual liabilities is vital.”

Recent Insolvency Service statistics show that businesses are struggling financially, with the number of companies becoming insolvent up 15 per cent in the second quarter of 2008 compared with the same period in 2007.

Paul Marsh says: “Businesses have a lot to contend with in terms of raising capital, chasing debts, paying rent and so on. Clearly they are struggling and pursuing every option to survive, including checking their contracts and seeking to enforce terms.”

Small businesses are particularly vulnerable to larger firms seeking to impose strict terms in their contracts with SMEs, says the Law Society.

Paul Marsh says: “Larger companies are taking a tougher line over the terms of the contracts they have with smaller suppliers and customers. For example, they might look to extend the period by which payments to their smaller suppliers are made. However, smaller companies might fear challenging them in case they lose favour and their contract. Yet there are ways smaller businesses and customers can protect their position if they take advice from a solicitor.”

Businesses seeking legal experts and advice can find out more information from the Law Society’s Lawyers for Your Business initiative.