In today’s complex manufacturing landscape, disputes can arise in various ways. Differing interpretations as to contractual terms, unpaid debts, and alleged product defects are a few common examples.
Whatever the dispute, early and effective management is critical. Effective management begins at the “pre-action” stage, that is, before the claim has entered the Court system. This should not be left until a claim has been commenced with the Court.
Taking proactive steps at an early stage is likely to enhance prospects of successfully bringing or defeating a claim, and if done effectively, can reduce costs, minimise business disruption, lessen any reputation damage, and result in an early resolution.
In this article, we look at some of the key factors manufacturers should consider when faced with a dispute. These are listed by no means in order of importance, and there is much overlap between some of the considerations. The examples given in this article are also by no means exhaustive.
Evidence preservation and record keeping
As a matter of good business practice, manufacturers should maintain detailed records of contracts, communications, quality control, transaction histories, and all other forms of documentation produced and obtained as part of conducting business.
Crucially, such documents can serve as evidence and may be vital in preventing, proving, or defending claims or regulatory investigations. When anticipating a dispute, a manufacturer should therefore promptly assess what evidence it may possess to strengthen its position. For example:
- Detailed records may allow a manufacturer to trace the origin of materials, production processes, and product distribution. This traceability may be essential in identifying the source of defects or issues.
- Documentation related to quality assurance and testing processes may demonstrate adherence to industry standards. This can be particularly crucial in disputes over product quality. Such records can also demonstrate industry/regulatory compliance in the event of inspections or audits.
- Detailed documentation may aid in resolving a dispute before it escalates, by clarifying misunderstandings and facilitating negotiations, potentially avoiding costly litigation.
- Records may provide a historical account of practices, decisions, and changes in processes. This information can be invaluable for understanding how and why certain actions were taken, which can influence the outcome of a dispute.
To fulfil its own legal obligations, a manufacturer anticipating potential involvement in a dispute should immediately suspend any processes related to document deletion or destruction. It is essential to notify all relevant employees, as well as former employees who may possess documents pertinent to the dispute to preserve and hand over those documents, regardless of how tangentially related those documents may seem.
Additionally, the manufacturer should instruct agents and third parties who hold documents on its behalf to refrain from deleting or destroying any potentially relevant materials.
By taking these proactive steps, the manufacturer may be able to later rely on helpful evidence and demonstrate it has upheld its legal responsibility to preserve documents in the event of a dispute. Failing to preserve documents when anticipating a dispute can lead to negative consequences, including costs sanctions, or adverse inferences drawn by the Court.
Special measures should also be taken to preserve perishable evidence that may form part of the dispute. Where possible, samples should be stored properly to prevent degradation and should be made available for examination by an expert before deterioration. If a manufacturer is facing a claim regarding the quality of a perishable product, preserving the product or samples not only provides critical evidence but also allows for an objective assessment of the product’s condition at the time of the dispute.
Potential witnesses
It is crucial for manufacturers to identify, at an early stage, the individuals within their own organisation that may have some involvement in the background of the dispute. Understanding who may provide witness evidence helps ensure that the most knowledgeable and relevant individuals are available to support the case. These witnesses can offer firsthand accounts and insights that are vital to understanding the context of the dispute.
A witness statement should be presented in the witness’s own words; however, knowing who is available to provide evidence can facilitate preparation. It allows for thoughtful consideration of which individuals have the best perspective on the matter, enhancing the overall strength of the case.
There may also be individuals that have left the business, but who may serve as valuable witnesses. Engaging with former employees can provide insights that current staff may not possess, particularly if those individuals were involved in critical events or decisions related to the dispute. They may have firsthand knowledge of past practices, policies, or conversations that are pivotal to understanding the circumstances leading to the dispute.
However, it is important to approach former employees with care. Maintaining a positive relationship and ensuring confidentiality is crucial, as their willingness to cooperate can hinge on how they perceive their previous employer.
The role of a witness is to assist the Court. A witness who feels resentment towards their former employer, or who is now employed by a competitor, may not be able to provide honest, objective evidence in their own words.
More generally, speaking to all relevant individuals at an early stage will allow for an early understanding of the legal and evidential matrix, which will afford the manufacturer and its legal representative the opportunity to conduct a more thorough analysis of the dispute.
Organisational disruption
Disputes and litigation can cause significant business and organisational disruption. Often, resources that would typically be allocated to core business activities are diverted to handle the dispute. This can lead to delays in production, diminished employee productivity, a strained focus on strategic objectives, and stifled innovation.
For example, a manufacturer’s key personnel, such as project manufacturers, engineers, or quality control staff, may be pulled away from their regular duties to participate in meetings, provide written witness evidence, gather documentation, and attend hearings, slowing down the overall workflow and damaging profitability.
Senior management may find themselves caught up in legal strategy discussions rather than focusing on expanding market presence or enhancing operational efficiencies. This shift in focus can stall long-term growth initiatives, leaving the company vulnerable in an increasingly competitive landscape.
In extreme cases, disputes may cause supply chain disruptions, lead to missed delivery deadlines (creating further disputes), and result in lost contracts.
Costs
Legal fees, expert witness fees, settlement costs, and potential damages can impose significant financial burdens on manufacturers, particularly affecting smaller manufacturers who may have far more limited resources.
It is essential for manufacturers to consider whether to bring a claim to assess whether they have the budget to engage in a lengthy legal battle. Litigation can involve costs, including lawyers’ fees, Court fees, expert fees, and expenses related to gathering evidence. By conducting a thorough cost-benefit analysis, manufacturers can determine whether the potential recovery would justify the expenses.
On the other hand, manufacturers facing a claim should carefully consider whether pursuing a settlement might be the most prudent way forward. Settlements can often resolve disputes more quickly and with less financial strain compared to litigation. Additionally, settlements can provide greater certainty compared to the unpredictability of a Court decision. A compromise can be reached in a settlement agreement, however, there can only be one winner following a trial, and the standard rule is that “the loser pays the winner’s costs”.
Manufacturers should also review their existing insurance coverage to understand whether it has the benefit of legal expenses insurance.
Reputation management and public perceptions
The reputational damage from litigation can extend beyond the immediate parties involved. Legal disputes often become public knowledge, which can adversely affect a manufacturer’s standing in the industry.
Clients and partners may hesitate to engage with a manufacturer perceived as embroiled in conflict, fearing that their own interests could be jeopardised.
By proactively communicating with stakeholders where necessary, manufacturers can maintain trust and confidence during challenging times. However, legal advice should be taken as to how this is approached to avoid waiving privilege. Privilege is the legal right to keep certain communications or information confidential.
Larger manufacturers or those against whom serious accusations have been made may want to consider putting in place a communications plan and public relations strategy to manage public perception and establish a protocol for responding to inquiries and concerns. Again, care must be taken to not waive privilege.
Commercial relationships
Manufacturers engaged in disputes with suppliers, customers, or partners may find that their interactions become increasingly combative. As the relationship becomes strained, open communication may diminish, making it difficult to resolve not only the current dispute but also future issues that may arise. This deterioration can also lead to a loss of business.
Therefore, manufacturers should carefully consider whether to initiate a dispute or pursue litigation against a party with whom they have a commercial relationship, weighing the potential benefits of letting the matter go against the advantages of swiftly resolving the issue through informal negotiations.
A specialist solicitor will be able to tailor the tone in correspondence and recommend actions that best suit the commercial relationship.
Alternative Dispute Resolution
Alternative Dispute Resolution (“ADR”) refers to a set of processes used to resolve disputes outside of traditional litigation. ADR methods are designed to provide parties with more flexible, efficient, and often less adversarial options for resolving conflicts.
There are multiple types of ADR, and each one is different and has its own advantages and disadvantages. ADR methods can reduce costs, result in quicker resolutions, and can sometimes preserve relationships. Because ADR processes can be tailored to the specific needs of the parties, they often lead to more satisfactory outcomes than traditional litigation.
Manufacturers should consider whether to invite or engage in ADR to resolve the dispute. ADR does not always guarantee a settlement, nor is it useful in every single case. However, the Court expects parties to consider, at a minimum, whether to use ADR, and a party that unreasonably refused to engage in ADR is at risk of a costs sanction.
For certain types of manufacturing disputes, certain types of ADR, such as arbitration, expert determination, or expert examination may be particularly useful.
Comment
Disputes are an unavoidable reality in the manufacturing sector, and their potential fallout can be severe. From financial strain to operational disruptions, the impacts of unresolved conflicts can threaten a manufacturer’s viability and reputation. Therefore, it is essential to confront disputes with a proactive mindset and a well-structured approach.
Manufacturers must prioritise robust documentation practices and evidence preservation to protect their interests and uphold legal responsibilities. By doing so, they can minimise the risk of negative outcomes and avoid costly litigation. Furthermore, careful consideration of financial implications and strategic options—such as alternative dispute resolution—can lead to quicker, more efficient resolutions that preserve critical business relationships.
Ultimately, the key to navigating disputes lies in early and effective management. By recognising the seriousness of conflicts and taking deliberate steps to mitigate their effects, manufacturers can better safeguard their operations and maintain stability in an ever-evolving landscape. In this high-stakes environment, adopting a proactive approach is not just beneficial; it is essential for long-term survival and success.
This article is for information only and does not constitute legal/financial advice. Please contact us for advice tailored to your specific position. Some of the content presented on our website has been generated with the assistance of Artificial Intelligence (AI). We ensure that all AI-generated content meets our high standards for accuracy and relevance.
