Litigation avoidance and resolution typically focus on disputes between businesses. However, litigation and disputes within companies, between their shareholders, can also arise in many ways and deserve some consideration before they do. Such disputes can escalate and have a devastating impact on the operation and success of a business. It is therefore important to plan ahead so that businesses and their shareholders are well-placed to prevent and resolve their disputes in ways which minimise their impact.

Prevention is Better Than Cure 

A well drafted shareholders’ agreement can prevent issues arising in the first place. Starting a business is typically a time intensive venture. At the outset, typically we see that the commercial aims of the business are prioritised over its internal mechanisms. In particular, when businesses are set up between friends or even family no trouble is foreseen for the relationship. However, circumstances change over time and a shareholders’ agreement can prevent problems arising in the future. For example, minority shareholders can find decisions made without their input and, vice versa, a majority of shareholders may find the sale of the company blocked. Without an agreement put into place with respect to shareholders’ powers and rights, resentment and tensions can rise quickly.

A shareholders’ agreement can specify in more detail the positions of the parties and regulate the conduct of the business so as to compliment the company’s articles of association. For example, it can address the necessary requirements for decision making, matters requiring shareholder consent, and the dividend policy of the business. Procedures surrounding the transfer of shares, including pre-emption rights and exit obligations, can also be put into place. The agreement can also include restrictions on the shareholders being involved in other competing businesses. 

Ownership of Business

Disputes can arise in relation to the ownership of businesses, particularly start ups, and alleged promises or understandings about the allocation of shares. These issues tend to come to the fore when a business is successful and there is a dispute regarding who should share in that success. Individuals should document and formalise all their dealings in respect of the ownership of shares, so that there is no dispute in the future regarding the basis on which businesses are owned. 

Address The Issue Early and with Independent Advice

Once a shareholder agreement emerges, it is better to obtain early advice, before the issue becomes more corrosive. Early reference to the shareholder obligations, as contained in a bespoke agreement, can help define the ways in which the parties ought to conduct themselves. More time and money tends to be needed when resolving an issue once it has already escalated beyond an initial concern.  

Independent Advice

It would be sensible to instruct a solicitor who does not act for the company. The company may require its own advice in respect of the issue which is the subject of the complaint and the company solicitor may therefore be conflicted from acting for one of the individual shareholders. 

Dispute Resolution and Mediation

In companies with potential deadlock situations (such as a 50:50 business owned by two shareholders), the parties can be assisted by including in their shareholders’ agreement a dispute resolution clause. A solution should be sought which ensures both parties can continue to work together professionally and for their mutual success. A structured mediation or other alternative dispute resolution procedure can help the parties achieve their objectives. 

If you are worried about a shareholder dispute and the potential impact on your business, please contact our team on 0800 131 3355. 

Breach of Duty 

Professionals such as solicitors, accountants, tax advisors, engineers and insurance brokers owe a duty of care to their clients to supply their services with reasonable skill and care. In addition, the professional will owe contractual duties which sit alongside the common law duty of care. 

Professional negligence is the phrase used to describe the situation in which the professional has breached its duties by failing to perform the services to the required standard. These are the standards that could be expected from a reasonably competent professional, having regard to the standards normally in his profession.

Circumstances 

There are many reasons and circumstances which may lead to a professional negligence claim, too many to consider them all. Typical claims would include: 

• Failure to complete a project, either on time or at all;
• Poor recommendations for business strategy;
• Clerical errors with significant consequences.

Loss and Mitigation

The client will need to prove that the loss they claim is a direct result of the negligent advice or actions of the professional. Not every negligent act will give rise to a loss which the client can recover. In some cases, an intervening event will operate to mean that the client’s loss was not caused by the original negligent act.

Clients affected by negligent advice also have a duty to mitigate their loss. The client is obliged to take reasonable steps to minimise their loss and avoid taking steps that will increase the loss. Losses which could have been avoided by taking reasonable steps will not be recoverable.

Limitations of Liability

Where the relevant services have been supplied under a contract, frequently the professional will include a limitation of liability clause in the contract terms. The limitation of liability clause will typically state that certain types of loss are excluded. The clause may also specify a limit on the maximum amount of damages that the client will be able to recover from the professional. Well-drafted clauses can offer protection to the professional but will not always be effective. In some circumstance,s they can be subjected to a reasonableness test in the courts. 

Insurance

Many professionals will have professional indemnity insurance in place by which, subject to terms, the insurer will agree to indemnify the professional for claims arising from negligence. In some sectors, insurance is required as part of the regulation of the professional.

Even when a professional perform a service to the best of their abilities, a negligence claim can arise if the client perceives the services delivered differently. Often a claim will arise out of circumstances that were beyond the professional’s control.

Having professional indemnity insurance in place can help protect the business from allegations of professional negligence which lack merit.  The insurer will wish to appoint solicitors to investigate and defend the claim in these circumstances. 

Limitation

Professional negligence claims are subject to time limits, typically six years from the act of negligence. In certain circumstances, this time period may be extended if the client was not aware of the negligence. If the claim is brought beyond the time limit, the professional will be able to defend the claim on that basis. If you are a client considering bringing a professional negligence claim then it is always prudent to act quickly.

Do you have a potential professional negligence claim you wish to discuss further? Then please contact the Pannone Corporate team on 0800 131 3355 for a confidential discussion regarding your circumstances.

Commercial litigation refers to any form of dispute that is present within a business environment. Whilst people know what business disputes are, and that lawyers can help, many are still unclear on what a commercial litigator actually does and how they can help a company.

Here at Pannone Corporate, we specialise in commercial disputes in relation to contracts, company affairs, real estate, intellectual property, professional negligence, debt recovery and more. The brief points in this blog may help you better understand the services of a commercial litigator.

What to Do Before Beginning Proceedings?

Achieving the best possible outcome for clients is always the key focus for commercial litigators. It is important to properly understand the situation first to help identify the best course of action.

Typically, all parties must outline their claims and responses in pre-action correspondence. It is vital as a claimant that your claim is correctly articulated from the start. A specialist commercial litigator will first investigate the facts with you and analyse the claims that may be available. They may obtain preliminary expert input where the claim requires expert support.  A similar process of investigation will be needed if someone is making a claim against you, before a response to the claim is set out in correspondence.

Alternative Dispute Resolution

Litigation is typically imagined in the court environment. Whilst a court ruling is necessary in some cases, often Alternative Dispute Resolution (ADR) is used prior to the final court hearing.

ADR refers to the various ways in which disputes can be settled out of court. ADR could be conducted by negotiations verbally or through correspondence, informal or “without prejudice” meetings, or by more structured procedures such as mediation or expert determination. A litigation solicitor will be able to advise you on the route which is appropriate for your case and the time at which ADR ought to be used.

What Happens If ADR Does Not Work?

If the solution cannot be found outside of court, commercial litigation solicitors will be able to work with you to complete the steps needed to bring your case to a final hearing in the courts.

Solicitors will usually prepare the statements of case. This will include a claim form and a particulars of claim for a claimant and a defence for a defendant.  In more complex cases, a commercial litigator will typically instruct a specialist barrier in respect of this step. In part, this is because the barrister will argue the case if a trial is reached. After the exchange of statements of case, a commercial litigation solicitor will complete the procedural steps in the litigation, including attending a case management conference (CMC) at the court, the disclosure of relevant documents, inspection of the opponent’s documents, and the preparation of witness statements and expert evidence.

At the CMC the court will likely require the parties to file budgets of their estimated costs. The court will consider those budgets and make orders in order to manage costs.

Before any hearing or trial, your appointed commercial litigator will brief the appointed barrister to argue the case. Your litigator will attend the trial and will support the barrister.

Finally, after the court judgment has been given or the dispute has been settled, your dispute resolution solicitor will assist you if necessary to ensure that the terms of the judgment or settlement are implemented.

Instructing a commercial litigator from the very beginning of a dispute can ensure that you have the best chance to achieve your desired outcome either in or outside of court.

If you would like more information or help with a current business dispute, please get in touch with our commercial litigation solicitors by using our contact form or by calling 0800 131 3355.