Liability & indemnity

Damage limitation: Protecting your interests in business disputes

There are various ways that a business can implement ways of damage limitation in the event of a dispute, whether this is limiting its liability, restricting its financial exposure or protecting their sensitive or commercially important information.

Prevention is better than cure

Firstly being correctly established as a limited company goes some way to protecting the owners personally if things go wrong. Ensuring the business is a corporate entity means it can sue and be sued in its own name, rather than as you as an individual.

It is always important to have proper and relevant contracts in place with your staff, co-founders, suppliers and customers. These should clearly set out the duties and responsibilities of each party. The saying prevention is better than cure? is never so relevant than trying to limit your businesses exposure in the event of a dispute.

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A definitive contract review checklist every business owner needs to read

It seems to have come as quite a shock to people that you don’t have to play fair when negotiating a contract.

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Whilst it may be easier said than done it is important to consider early whether there are processes and procedures you can implement in your business, and in any commercial relationship, which may limit your exposure to a dispute and making the likelihood of a dispute lower.

Methods might include not disclosing sensitive or commercially important information to everyone, having clearly defined structure as to who can access this information and anyone who does have access entering into a properly drafted non-disclosure agreement or strict confidentially clauses.

You should consider at the outset of all commercial relationships what would happen in the event of a dispute. Good alternative dispute resolution clauses may minimise the costs of legally dealing with a dispute.

It is also important to consider at what stage any asset or title in any goods pass under an agreement, for example with a website you should consider whether there is a need to put the source code in escrow to protect it from being held to ransom in the event of a dispute.

It is important to have on hand trusted advisors who know and understand your business and who can respond swiftly and effectively at the outset of a dispute. Retaining good advice at an early stage is crucial. Any and all actions will be scrutinised if the matter ends up in Court. It is important to show you have been as reasonable as possible in the circumstances.

Limiting your liability

Most commercial contracts will include a clause, sensibly titled, Limitation on liability. This would typically place a maximum cap of financial exposure that the business may owe to the other contracting party, this cap may be based on the value of the deal or an annual subscription or amount paid in fees or another amount.