No matter how much work you put into drafting the best contract, chances are you will experience at one time or another performance issues and disagreement on the scope of work. And sometimes the unexpected can happen. Most of the time, the parties can resolve those issues without launching a lawsuit or even involving a lawyer.
Unfortunately when you can’t reach an agreement, there’s a risk your past communications during commercial discussions, or in trying to settle a commercial dispute, can be used against you in litigation.
Consider these two scenarios:
- During a conversation about performance issues, you tell the supplier that one of the problems he caused is “not important” because you are focusing on the big picture. In your mind, that particular problem would not be the end of the world if the supplier could resolve the most pressing issue. If you can’t agree on the path forward, you might not be able to hold the supplier liable for the ‘not-as-important’ issue.
- You’ve now got him to resolve the issue, but the delays have cost you some money because you had to keep your staff in overtime while they were fixing the problem. The supplier is apologetic about what happened and offers to compensate you for the overtime. So you ask your finance team to come up with the number. It only focuses on the big ticket items. But if the supplier later refuses to pay, you might not be able to claim other costs and expenses you have incurred (beyond the overtime).
Here’s what you can do to protect yourself. Keep in mind that, in the real world, you want to strike a balance between adequately protecting yourself while avoiding being so “lawyerly” that it drives your supplier into his lawyer’s arms, thereby killing any prospect for an amicable solution.
1. Protect the information you share with the other party:
a. If a exchange documents with the supplier in preparation for your negotiations, mark each document as “Confidential & Without Prejudice”. By doing this you are not committing to any
b. When sending documents or information to the other party, make it clear that you are sharing them confidentially and on a “no prejudice” basis.
For example, your email could contain a note like this:
“In anticipation of our upcoming call, we are sending you the attached document(s) on a confidential basis to facilitate our discussions during such call and hopefully help us come to a commercial agreement on how to resolve our issues [give a short description of what these issues are].”
c. Consider the “headlines” test.What would be the impact on you and your organization if the information was to be made public (think of an “anonymous” leak or a court order that you can’t fight)? If you have doubts, then talk to a legal counsel before proceeding.
2. Decide if you want the discussion to be “without prejudice”:
“Without prejudice” means that no one can use what will be said during the call or meeting in future litigation.
A word of caution: Courts grant this protection to facilitate settlement discussions. But using the phrase alone is not a magic wand. There must be a clear intent to negotiate and reach compromises over a dispute.
a. Doing so can help negotiations in a difficult situation as the parties are not constantly “watching” their words or trying to avoid admitting any responsibility.
b. Before the discussion starts, be clear and state that the goal is to reach a commercial solution to the issues in front of you. As such, you want the meeting to be on a “Without Prejudice Basis” so that everyone should feel free to speak openly. If you are not sure how the other side might react, then consider suggesting it in an advance email.
c. In some cases, you might benefit from using what you expect the other party to say. If so, contact your legal counsel to review your strategy.
3. Prepare, prepare, prepare:
a. Put together a timeline or a chronological point-form list of important dates, events and communications. It will help you down the road.
b. Review your contract. Make sure to follow whatever process you have agreed to (sending notices, escalation of disputes, etc.). Have you done what you have promised to do? If not, consider how it might impact your position.
c. Make sure you get the full picture, not just the picture that you or your team would like to see.
Ready for the tough discussion? Now consider the case one more time, but put yourself in the other party’s shoes. This will help you anticipate the arguments against you and be ready to counter them.
Be critical of your own actions and biases. No one likes to admit their own wrongdoing. We all tend to diminish the impact of our actions and put a magnifier on other people’s mistakes.
4. During the negotiations:
a. Avoid a “piecemeal” approach. It is often preferable not to compromise on one issue at the time, but to have an understanding of everyone’s position and agree on the condition that you reach a comprise on all disputed issues. Having said that, it’s sometimes in your best interest to get the other party to compromise issue by issue.
b. It’s hard to negotiate and keep track of the details of what is said and agreed at the same time. Whenever possible, make sure one of your team members is attending the call or meeting as the note taker for any significant items discussed and compromises reached. Ideally, it should be someone knowledgeable about the issues and known to the supplier so that he/she doesn’t ‘stick out’.
5. The path forward.
a. Clarify what your next steps are. If you undertook to do some things, make sure to assign each task to a particular person and get back to the other party in the agreed timeline. Keep a record of important dates and don’t let things drag for too long. Remember that your right to claim money or exercise other remedies may be limited in time.
b. Depending on the outcome of the meeting, consider involving your legal counsel (if not done already). Ideally, the summary of the meeting notes should be sent to your legal counsel, especially if it contains “sensitive” information – check below our note Attorney-Client Privilege.
c. If you have reached a commercial agreement, decide on the best way to document it. If it’s a simple matter, an email confirming the discussion and the agreed solution might suffice. If it’s more complex because of the material amounts involved, or if negotiations were heated, the level of trust between the parties might be low. If you need additional guarantees, try getting a more “formal” agreement. Your legal counsel can guide you in deciding if you need such document and in drafting it.
If you have not reached an agreement, and the dispute is likely to end up in court, discuss with your counsel how to implement a “litigation hold” to preserve all relevant information.
Quick Note on Attorney-Client Privilege:
If the right conditions are met, information shared confidentially with your counsel is protected by attorney-client privilege. Any facts and documents covered under privileged communication cannot be used against you in future litigation.
There are a number of criteria, but following these rules will set you up on the right path:
- If you want to benefit from the privilege mark the communication as “Confidential and Attorney-Client Privilege”.
- Make sure the communication you use in writing clearly states that you are providing the information to obtain his/her legal advice on the path forward.
- Keep the distribution list to the minimum, only copying people who truly “need-to-know”.
The obligatory disclaimer (this is not a legal opinion!): In the odd chances that someone thought an 800-word or so blog post could cover everything you need to do or could replace a legal advice, well we’re sorry to disappoint. Nothing will replace a good discussion with your legal counsel who would review your specific circumstances and help you manage this risk.
Need help? Give us a call or email, we’d be happy to brainstorm with you on how best to manage your situation.