Five Ways to Keep Your Dispute Out of Court
If you’ve found yourself in a legal dispute, it can be easy to get caught up in the emotion and the ‘principle’ of the situation. We often have clients say to us that they want to pursue a dispute because of the principle. That is, until they realise how much stress, money and time that principle is likely to cost them.
If a dispute makes it all the way to trial, it is likely to take about 18-24 months. In a Magistrates Court matter, a cost of $40,000 to $70,000, depending on the complexity, to take it to trial, is a reasonable estimate. To take a matter to trial in the Supreme or District Court, legal costs are likely to be in the range of $120,000 to $200,000 depending on the complexity of the matter. However, one should always remember only about 3% of civil disputes are determined at trial. On top of that, the losing party will have to pay some of the costs of the other party, leaving them even further out of pocket.
So, if you’re fighting with someone over a $10,000 debt, for example, you may want to think twice about how hard you want to pursue it.
This article will outline five ways that you can keep a dispute out of court, to help save you time, money and stress.
- Do your research
It’s really important to do your research before entering into any sort of contract. The searches you should do will depend on what type of contract is involved, for example, you may need to do different searches before buying a business, compared to the searches you would do before leasing a premises to a tenant. Here are some examples of searches you may want to do as part of your due diligence process before entering into a contract:
- Obtain financial statements of the other party (and have an accountant look over them for you)
- An ASIC search (if you’re dealing with a company)
- A bankruptcy search (if you’re dealing with an individual or a partnership)
- Title searches of any real property involved
- PPSR searches of any personal property involved
If there is a major contract, you should engage in research of the other party. Obtain trace credit records from their past suppliers and/or customers. Conduct online searches to investigate all you can about their history. In short, get to know them before you get into a major business transaction with them.
- Good drafting
A very important way to keep a dispute out of court is to prevent a dispute from arising in the first place. A well drafted legal document can greatly reduce the chance of a dispute arising.
Let’s take the example of a shareholders’ agreement. A well drafted shareholders’ agreement should include a dispute resolution clause that sets out how disputes are to be handled if they do arise. But even more fundamental than that, the very act of preparing a shareholders’ agreement is likely to reduce the likelihood of future disputes because it encourages the shareholders to discuss a range of topics that are integral to the business, that they might not have discussed otherwise. It then creates a clear ‘set of rules’ that everyone agrees to before any issue arises and clearly sets out how issues are to be dealt with if they arise.
Well drafted contracts are a bit like insurance; you don’t want a dispute to arise, but if it does, the contract will (if drafted correctly) will provide a roadmap detailing how to resolve the dispute.
A little bit of money upfront put towards well drafted legal documents has the potential to save you a significant amount of money down the track.
- Negotiations / Letter of demand
If a dispute does arise, the first thing you should do is engage in negotiations with the other side to see if you can reach an agreement without the need to commence court proceedings. Often this is a very successful process, and we have many clients who manage to settle their disputes without having to set foot in court.
Let’s say you perform services for Person A, who is supposed to pay you $50,000 but they refuse to pay you because they say the quality of your work was poor. Instead of commencing court proceedings and spending tens of thousands of dollars (or more) trying to resolve the dispute, a few letters back and forth could result in a settlement in which Person A agrees to pay you $30,000.
Negotiations can be a good way of reaching a resolution that pleases both parties. In the example used above, you might be a bit annoyed that you missed out on the full $50,000 but compared to the amount of money and time you would have to spend to commence court proceedings, a settlement of $30,000 is potentially a good outcome. Say, for example, if you had spent $30,000 on legal fees to get $50,000, the $20,000 in your pocket in this example is less than the $30,000 from a negotiated settlement.
Of course, what constitutes a ‘good outcome’ will depend on the circumstances of each individual case. If your case is particularly strong and the other side is not agreeing to any offer that you consider reasonable, your lawyer may advise you to commence court proceedings. On the other hand, if your lawyer doesn’t think you have a very strong case, they may advise you to accept a settlement offer from the other side.
This highlights the importance of engaging a lawyer for assistance in negotiating a dispute. A lawyer who specialises in dispute resolution will be able to provide you with advice about what your chances are likely to be in court, and about the reasonableness of any offer presented by the other side.
- Informal conference / meeting
An informal conference is just another way of describing a meeting between the parties and their legal representatives. If letters between the parties don’t seem to be getting anywhere, it could be a good idea to arrange for everyone to get together in one room and try to reach a resolution. This can often be a good way to get everyone on the same page, without the formalities, money and stress that can sometimes be associated with court.
- Alternative dispute resolution – Mediation / Arbitration
Mediation is similar to an informal conference, except it involves an independent third party mediator, whose role it is to help facilitate the discussion between the parties. Mediation provides an opportunity for the parties to explain their side of the story, in a confidential setting. It should be agreed before mediation that it is conducted on a ‘without prejudice’ basis, that is that nothing that is said in mediation can be brought up later in court, if the dispute gets to that stage.
Mediation can be beneficial for a number of reasons, such as:
- being more time and cost effective than proceeding to trial
- higher possibility of maintaining a relationship between the parties
- it’s informal
- each party has full control over whether they settle or not
For more information about mediation, you can read our article: The benefits of mediation.
Arbitration is another process that involves the parties and their legal representatives meeting together to discuss the dispute. Much like mediation, in an arbitration an independent third party is appointed to assist the parties, however, unlike mediation, an arbitrator has the authority to make a decision about the dispute.
In mediation, the mediator assists the parties to try to reach a settlement, but they don’t have the power to make a binding decision, whereas an arbitrator does. The benefit of arbitration, compared to litigation, is that it is usually much more time and cost effective. It also has the benefit of not being in a court room, which might make the process a little less stressful for some people.
You can read a bit more about arbitration on our ‘Mediation and Arbitration’ page on our website.
If you have found yourself in a dispute, the best thing to do is see a lawyer promptly. At Lynn & Brown we have a team that specialises in dispute resolution who will be able to assist you to reach a resolution in the most time and cost effective way possible. We can also assist you to draft legal documents to minimise the chance of a dispute occurring at all. If this sounds like something you could find beneficial, don’t hesitate to get in touch today.
About the authors: This article has been co-authored by Chelsea McNeill and Steven Brown. Chelsea is a Law Graduate from Murdoch University. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.