Avoiding and resolving disputes

Because of the complexity involved in the sale and purchase of a business, there is the potential for many causes of disputes. To ensure that as far as possible disputes are avoided the practitioner must make it clear to their client what such a transaction involves. Some common causes of disputes and ways to minimise such are:

Client expectations

Many clients believe that a sale or purchase of a business should be quick, easy and cheap. When they realise this is not the case, the client may blame the other side or their advisors. To short-circuit this, clients should be given realistic advice at the outset to, among others, be cognisant of the steps involved in such a transaction, timing and costs (direct and indirect).

Agents

Where communication between the parties is via a business agent, misunderstanding may arise. Direct discussions between the vendor and the purchaser can often overcome these problems.

While this should be encouraged, the practitioner should ensure that their client does not inadvertently agree to something without first considering the implications of such an agreement or referring back to their legal adviser.

Disputes between exchange and settlement

Once contracts are exchanged, disputes which cannot be resolved may end up in court. This possibility can be reduced by minimizing the period between exchange and settlement.

This can also be avoided if the purchaser conducts a pre-purchase evaluation, also known as a due diligence possibly with the assistance of professionals such as accountants. While this may delay the purchase and sale, it could avoid later delays, costs and potential litigation. See Due diligence.

The problem may also be avoided by having simultaneous exchange and settlement. See Simultaneous exchange and settlement.

Dispute resolution clauses

Expert determination

It is a good idea to include provisions in contracts to refer to specified types of disputes for determination by an independent person with expertise in that field. This often involves submitting documents to the expert, who makes a decision without any meetings or hearings. This provides a relatively quick, inexpensive resolution of such disputes. However, while such clauses in a contract may be expressed to be “final and binding”, the decision may be challenged in the courts if the decision has not been made in accordance with the terms of the contract.

Conferences

Clauses in some precedent documents require the parties to follow a procedure, including meetings of executives, prior to taking any other step to resolve a dispute. If a party will not attend a meeting without contractual compulsion, the meeting is probably doomed to failure. Accordingly, such provisions are usually a waste of time and money except as a guide to parties to adopt sound process.