The existential threat
from within a business
– be it the ill-advised
or even unscrupulous actions
of its employees – poses
possibly the greatest danger
to that business’ reputation
and prosperity.
As well as facing up to the constant challenges
posed by competitors, customers and regulators,
manufacturing businesses must also be
unyielding in policing the actions of their
employees. For one client, an international
manufacturing firm, concern about an
employee’s actions became the most urgent
consideration when it learned that a senior
director had misappropriated the company’s
products and resold them online for his own
profit.
Their situation was made even more precarious
as, prior to the directors’ dismissal on the
grounds of gross misconduct, a major customer
had learned of the subterfuge and made clear
that they would take their business elsewhere
unless the director was removed from his
position. This would have devastated the
company’s order book and so our client’s hand
was forced in needing to take swift and decisive
action to remove the director whose position
had become untenable. Our employment law
experts were able to assist in implementing the
company’s disciplinary process and removing
the director from his position before engaging
our specialist litigation team in respect of the
shareholders’ dispute which followed.
Initial investigations into the directors’ deceit
– including CCTV evidence from the company
premises - yielded further evidence of various
thefts from the company and our team acted
rapidly to successfully apply for an injunction
which ordered the director to deliver up a number
of incriminating items and documents including
information he had been seen removing from
company computers on a USB stick. A forensic
IT specialist was engaged to look into what
had been removed and, on the strength of the
evidence obtained under the injunction, the
director acquiesced.
He entered into a settlement agreement on
terms highly favourable to our client which
included the buy-back by the company of the
director’s shares. Having successfully removed
the corrupt director from his position, our client
was able to secure the subsequent sale of
the director’s former shareholding to another
director, an aspect on which our corporate law
specialists advised, and the company is now
looking forward to the most successful year in
its history and unprecedented growth without
the distraction of on-going legal proceedings
and without the threat from within posed by
the dishonesty of a director.
The importance to the client of a successful
outcome could not be overstated. The
company’s survival hinged on being able to
maintain commercial relationships severely
strained by the actions of the rogue director
and its exposure to embarrassment within the
manufacturing sector, on account of the actions
of one employee was significant and potentially
very damaging.
Our experienced manufacturing sector team
was able to employ a broad portfolio of skills
and expertise across specialisms including
employment, commercial and corporate law
as well as dispute resolution and litigation.
The various facets of this matter reinforce the
importance of engaging, as early as possible, a
legal team possessing the necessary expertise
across specialisms, some of which may not
appear relevant to the initial dispute.
Considering alternatives
in Dispute Resolution
Whether bringing legal action against a
supplier, or facing a prospective lawsuit from
a dissatisfied customer, manufacturers should
accept the potential for legal disputes as an ongoing
business risk.
Whilst a company may be hopeful that a
potential dispute will disappear, or be resolved
before the commencement of legal action,
it would be prudent to consider alternative
methods of dispute resolution at an early stage.
Alternative Dispute Resolution
Whilst companies have traditionally turned
to the Courts for the judgment of a neutral
third party, commercial organisations have
increasingly sought to resolve disputes outside
the Court using Alternative Dispute Resolution
(ADR). Arbitration and mediation have bec
Some
popular alternatives to litigation.
Companies engaged in commercial disputes
may find that ADR to be beneficial due to
reduced time, costs and procedural complexity.
Further, rather than being heard in open Court,
matters can be discussed privately between
parties to protect commercial sensitivities.
The Contract
The first step in considering how to resolve
commercial disputes should be to look at
whether there is a contract between the parties
and, if so, whether it specifies the method of
dispute resolution that should be used in the
event of a disagreement between the parties.
For example, a contract may specify that
arbitration should be used to provide a binding
decision in the event of a dispute, specify the
number of arbitrators and how they should be
appointed.
Should a company have a strong preference
for using ADR over litigation, it may be worth
seeking legal advice on including such a clause
in the company’s contracts with third parties.
The ADR Directive
The UK Government is required to transpose
the requirements of the EU ADR Directive into
national law by 9 July 2015 and the Alternative
Dispute Resolution for Consumer Disputes
(Competent Authorities and Information)
Regulations 2015 have now been published
implementing the majority of the ADR
Directive. The Regulations aim to ensure that
ADR is available (although not mandatory) for
any dispute concerning contractual obligations
between a consumer and a business.
The Regulations provide that businesses who
sell their goods or services online will also
be required to provide information about
certified ADR providers on their websites or
sale contracts in some circumstances and, in
the event of an unresolved dispute, all business
may be required to provide information about
certified ADR providers.
Significantly, where an ADR process is on-going,
the six year limitation period for commencing
litigation will be extended by eight weeks. This
extension would give parties further opportunity
to resolve their dispute prior to the issue of legal
proceedings.
Online Dispute Resolution (ODR)
The ODR Regulation will automatically take
effect in the UK on 9 January 2016. The ODR
Regulation provides for the establishment of
an ODR platform, an online service which offers
EU consumers and traders a single point of
entry for the out-of-court resolution of online
disputes. ADR providers for the relevant national
jurisdiction will then be linked with disputing
parties to progress with ADR.
ODR has the potential to become a useful tool
for parties in settling disputes in a cost effective
and time efficient manner. However, the success
of ODR is dependent on the ADR framework
that it is built on and is a technological
extension of current ADR options as opposed
to constituting a separate method of dispute
resolution.
Where manufacturers are not dealing directly
with consumers and are predominantly dealing
with other businesses, parties may still consider
using online mediation platforms in the event
that this would ease the dispute resolution
process.
The selection of methods available for resolving
commercial disputes will be highly dependent
on the circumstances of the individual
dispute and it is therefore recommended that
manufacturers seek legal advice in considering
how to approach dispute resolution.
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