July 13, 2015

Mitigating Litigation Risk: Common Agreements

The adage, “Prevention is better than a cure,” is scarcely more pertinent than when talking about litigation, and in particular – how a dispute transformed into litigation.

There are many ways businesses can prevent a dispute from escalating, or even happening in the first place. A starting point is reducing agreements to writing.

Some of the commonplace agreements we find are missing, or inadequate under scrutiny are:

  • Governance agreements (for example, shareholders, partnership agreements)
  • Agreements to govern intellectual property
  • Employment and contractor agreements
  • Business succession agreements
  • Business terms (such as terms of trade, credit applications)
  • Agreements for online businesses (for example privacy policies, terms and conditions)

The list of potentially preventable disputes which may arise when these agreements don’t exist is virtually endless, however we’ve chosen a common and important few:

  1. A business engages a contractor to develop a product for the business (for example, software or a web site), but does not reduce that agreement to writing. A dispute arises between the contractor and the business in relation to the scope of the contractor’s engagement, the time period the product was to be delivered by and who owns the intellectual property created.

    In these circumstances, a contractor agreement specifically addressing timeframes for deliverables, payment terms and intellectual property rights would have meant the parties had a clear understanding and agreement.

  2. Business partners run a successful business for a number of years; however one of those friends passes away. The partners did not contemplate what should happen if this event occurred. The deceased’s portion of the business will pass in accordance with succession law, and the beneficiaries of the estate (potentially the surviving spouse or children) may step into the deceased’s shoes and help run the business, or alternatively sell that portion of the business. This situation is often less than ideal, particularly where the beneficiary is not experienced in the business.

    Business succession agreements allow the surviving business partner/s to purchase the portion of the deceased’s share in the business while the deceased’s estate is paid the beneficiary’s share through life insurance proceeds.

  3. A business engages a person in a high level position, but never finalises that role in writing, by implementing an employment agreement. The employee leaves the business after some time, and in the process contacts key clients and other employees and entices them across to their new venture.

    Had an employment agreement containing post-employment restraints been executed, this conduct may not have occurred, or the employer may have had a clear cause of action against the employee for breach.

    If you would like to discuss ways in which you may be able to limit your exposure to litigation risk, please contact our team at Rouse Lawyers on 07 3648 9900.