Three common commercial disputes and how to address them
11/08/2017 | ACUMEN BUSINESS LAW
Certain types of disputes are common in the business world and so it is important to understand how to deal with those situations when they arise. Here we consider three common types of commercial dispute and the action available to you should you face such problems.
Partners at war:
Two friends or relatives have a business idea, set up a company in which they both own a 50% share, and set about making their fortune. There is no way they will fall out because they have been close for years, right?
Unfortunately, the reality is that things can go wrong. Friends fall out, couples split up and businesses suffer as a result. From the greedy shareholder, seduced by greed, siphoning funds from the company to the two shareholders who cannot agree on the direction of the company and everything in between, what can be done in these situations?
There are two main legal solutions to the above and the scenario will dictate which one is relevant. If two shareholders are at loggerheads and simply cannot continue to work together then it is likely that the best action is to seek an order for a just and equitable winding up of the company, meaning the company will be liquidated and all assets divided up. Be warned though, that courts will not make such an order lightly. If, instead, one party has acted in a manner detrimental to the other, it may be more suitable to initiate an unfair prejudice action. In such cases the court can order that the wronged party is bought out and can set a point in time for the valuation of the shares. For example, if Shareholder A stole company funds, the court can order that Shareholder B’s shares are valued at a point in time when those funds were still in the company account.
Imitation is the worst form of flattery:
Many businesses will have a badge of origin, whether it is a registered trade mark or simply a name or logo which denotes the businesses goodwill and reputation.
Policing any use of your mark, for example with a simple periodic search on Google for any companies using a similar name, will enable you to identify a potential breach. From there, it is important to take swift action so as to avoid prejudicing your position and devaluing the value of your brand. Often, a robust cease and desist letter will bring an end to the matter, however if this is not the case it is important to understand the claims available to you.
If you own a registered trade mark you will be able to initiate proceedings for infringement by virtue of the Trade Marks Act 1994, however it may also be the case that a number of secondary claims are available. An owner of a registered trade mark will also often be able to bring a claim for passing off, on the basis that your mark also has substantial goodwill and reputation, as an alternative claim. Similarly, if your trade mark consists of a design, such as a logo, and you own the copyright in those designs, there may also be a breach of copyright claim. It is important for all of these potential claims to be assessed at an early stage in order to maximise your chases of obtaining the remedy you require, which will often be an injunction, preventing use of the mark, and redress for any loss suffered.
The reality of business is that often contractual promises are broken. Sometimes, these breaches of contract will not be serious and parties find a way to move forwards. However, on occasion a serious, or repudiatory, breach of contract will occur and the wronged party will not want to continue with the contract.
A repudiatory breach is a breach which goes to the heart of the contract. Contracts can stipulate that certain breaches will be repudiatory or a breach may be repudiatory due to the facts of a case. If such a breach occurs and you wish to bring the contract to an end you will need to act swiftly to communicate this fact and ensure that you do nothing which would be deemed as affirming the contract. Affirmation of the contract will prevent you from relying on the breach and will mean that the contract will continue. It is also important to carefully consider whether the breach is indeed repudiatory as seeking to terminate where there is no repudiatory breach can, in itself, be a repudiatory breach and could lead to claims against you. Assuming you are entitled to terminate due to the breach, and you have communicated this intention, a contractual claim can be initiated in order for you to seek damages from the other party.
The above three situations give you an idea of how to deal with a dispute which has already arisen but of course prevention is always better than cure. Taking steps to ensure these types of dispute do not arise, for example entering into a shareholder’s agreement or having carefully drafted contracts, is always best. It is also important to remember that reaching a settlement, whether via a formal mediation or other negotiations, is often the more commercially sensible approach. However, it is worth being aware of the types of actions you can take when faced with one of the common issues, such as the ones above, which arise in the world of business.