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.

Mediation and arbitration

Mediation

This is a process in which the parties to a dispute, with the assistance of an impartial third party, the mediator, identify the issues in disputes, develop and consider some alternatives and strive to reach agreement. For a mediation to be successful, the parties to it must genuinely wish to resolve the dispute as the mediator has no advisory or determinative role but will facilitate the mediation process. If there is this genuine intent from both parties a settlement will usually emerge. The outcome of this settlement is usually documented and an agreement signed. If the parties are unable to reach agreement they may look at other forms of resolution, but these will often have a binding outcome like an arbitration or a court determination.

Arbitration

In an arbitration, the parties to the dispute present arguments and evidence to the arbitrator. This is a more formal process than a mediation. At its core is the confidential, private judicial determination of a dispute by an independent third party. The arbitrator’s decision is final.

Litigation

Litigation is often seen as a last resort when there is a dispute and as the more adversarial option. Depending on the extent and amount being claimed, it can be a relatively slow and expensive alternative to dispute resolution. The litigants are subject to the formal court procedures and rules of evidence and the proceedings take place in public.

Why choose Arbitration over litigation?

One of the greatest benefits of arbitration over litigation is speed. It may take a significant period for the dispute to get into court, but the process may be fast -tracked when the parties decide to go to arbitration. Other benefits may include the following:

• • parties can choose the arbitrator or agree who can choose the arbitrator if they are cannot agree;
• • the process is not bound by formal court procedures and parties can agree on the procedures to be adopted;
• • the process is confidential and private; and
• • arbitrators are not bound by the rules of evidence but the rules of natural justice.

However, it should be noted that in an arbitration the decision is final and rarely can there be an appeal from an arbitrator’s decision.

See Avoiding and resolving disputes.

Choosing the mediator or arbitrator

If the parties cannot agree as to who should act as mediator or arbitrator, there are several organizations which provide this service including:

• • Australian Commercial Dispute Centre;
• • Resolution Institute (merger between IAMA and LEADR); and
• • Law Societies of a state.

See Mediation and arbitration.