How to prevent client disputes

Businessman stopping a conflict
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In the first two parts of this series, we looked at mediation as a form of dispute resolution. As important as effective client dispute resolution is, it is equally important, if not more so, to avoid dispute in the first instance.

The most common cause of disputes is the failure to see the future. Am I suggesting you should invest in crystal balls and palm reading? Not at all. I am suggesting that there are certain future events in business or in client relations that are almost inevitable, and failing to adequately prepare for those eventualities is the most common cause of client disputes.

Take for example the shareholders’ agreement: how many of your clients have entered into business arrangements without obtaining one of these before doing the deed?

One could argue further that the standard shareholders’ agreement is not entirely adequate as a provision for most disputes, as many scenarios will not be clarified in the standard template. That aside, it is incredibly common for well meaning parties to enter in to business arrangements without any form of written agreement in place, not even on  the back of a beer mat.

When drawing up an agreement, a clause setting out an agreed procedure for resolving disputes should be inserted.

It could be a general clause that specifies the requirement to mediate disputes before resorting to legal action. Or it could identify a mediator as the person to whom disputes will be referred for resolution. Such a clause would go a long way to stop disputes spiralling out of control and causing the breakup of a relationship.

In a similar vein, failing to prepare for the future is a common contributory factor to a breakdown in a client relationship.

Managing expectations of service and timeframes as well as costs at every stage of communicating with a client will avoid much bother in the future. The letter of engagement alone is not going to convey such sentiments.

At this time of year, especially, the following example shouldn't be an unheard of scenario. A client submits a plastic bag of receipts and invoices for the year and phones up four weeks later to rant about how long you take to do the accounts, and no doubt your bill will be higher than last year for doing “less” work.

This is probably a prelude to another grievance that is ultimately an excuse to leave you. Assuming that  you have no wish to see the back of the client this could be nipped in the bud if at the outset you explain to them that seeing as the books are in such a mess, it will take several weeks to sort out and that will incur the additional fees etc.

Here are some of the more common SME shareholder disputes:

  • The perception that one party is contributing more to the business, either in time worked or in profits generated.
  • Disagreement over future direction of the business, or regarding priorities of the business.
  • Employing family members from the next generation in a family owned business.
  • The scheduling of repayment of director’s loans.
  • One shareholder wishes to exit the business, dispute arises over the sale of the shares and the valuation.

In the context of SME’s, where there are commonly two partners who are equal shareholders, these issues have the potential to bring a viable business to its knees in a short time, as every dispute consumes the mental and emotional resources of the partners which should be focused on the growing of the business. As nobody has a majority vote the result is deadlock, of the unhealthy sort.

I would go so far as to recommend that parties contemplating a joint venture should employ a neutral third party with experience and acumen to help all parties decide how they will approach these common scenarios in advance, and draw that up as part of a shareholders’ agreement – that would be mediation for dispute prevention.

So with a little advance planning and a bit of foresight much distress and dispute could be avoided, or at least brought to a conclusion sooner than in the absence of that planning.

About Rafael Katz

Rafael Katz

Rafael is accredited by the Chartered Institute of Arbitrators, and has extensive experience of mediating and resolving business disputes, bringing about successful resolutions in matters ranging from boundary disputes to professional practice dissolution, and most memorably a poorly manufactured submarine. 
 

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