In the modern manufacturing sector, the ways in which disputes may arise are extensive. Differing interpretations as to contractual terms, unpaid debts, and alleged product defects are a few common examples.
However the dispute arises, 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. The considerations are not listed in order of importance, nor are they 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 daily business.
Crucially, such documents may be vital in preventing, proving, or defending claims or regulatory investigations. Therefore, manufacturers anticipating disputes should promptly assess what evidence it may possess to strengthen its position. For example:
- Detailed records may allow manufacturers 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 their own obligations, manufacturers anticipating potential involvement in a dispute should immediately suspend any processes related to document deletion or destruction. It is essential to request that all relevant employees, as well as former employees who may possess documents relevant to the dispute preserve and hand over those documents, regardless of how tangentially related those documents may seem.
Additionally, manufacturers should instruct agents and third parties who hold documents on their behalf to refrain from deleting or destroying any potentially relevant materials.
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 properly stored to prevent degradation and should be made available for examination by an expert before deterioration occurs, to preserve critical evidence and allow for an accurate 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 first-hand accounts and insights that are vital to understanding the context of the dispute.
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 first-hand 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. 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. Maintaining tactful communication is crucial.
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, 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 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 manufacturers at a disadvantage in an increasingly competitive landscape.
In extreme cases, disputes can cause a cascading effect and lead to supply chain disruptions, such as delayed deliveries, retention of title issues, lost contracts, increased running costs, and damaged relationships with key suppliers.
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 also be reached in a settlement agreement, whereas there can only be one winner following a trial.
Manufacturers should also review their existing insurance coverage to understand whether they have the benefit of legal expenses insurance. If they do not have this coverage, they should consider obtaining it, as securing legal cover sooner generally leads to lower premiums.
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 cause reputational issues. Customers 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 should be 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.
