The advantage of having a management liability policy in a contract dispute

It is often nice to do business with people, as the saying goes, but sometimes the relationship can turn sour, leading to legal wrangles and a very quick racking up of legal costs as the fall-out continues. To safeguard against this, two things make great sense. Firstly, all business relationships should be formalised through a contract. Secondly, businesses should safeguard themselves against the legal costs associated with a contract dispute by buying Management Liability insurance.

A contract dispute can cause significant financial damage to a business and be extremely dangerous from a legal perspective. Such disputes can take various forms, from contract or partnership disagreements, to contract breaches, intellectual property infringements and shareholder actions.

The disagreement might relate to the availability and ultimate supply date of goods or the quality of goods supplied. One of the parties may believe the other has mispresented their offering. One party may have been supplied with machinery that is defective or not fit for purpose. Building works carried out by one contract partner may be faulty. Designs might not prove workable in practice. Or perhaps one party has overcharged the other and not abided by the contract in that regard. They could just as easily have failed to deliver the work programme outlined in the contract. The possibilities are numerous.

Having a clearly worded and legally binding contract is the first step any business should take when entering into an agreement with another party. This will be the document to which any mediator or court refers if a contract dispute occurs. From there, those involved in the wrangle need to be cautious. Ideally, with the right legal advice and expertise, they would go through a mediation process and come to a mutually satisfying agreement that avoids taking the matter to court.

If they cannot agree on terms without a formal judgment, they will then have to proceed to a court of law. This is the stage at which the costs can truly escalate. It will be essential to prove that a contract existed and that, as alleged, one party broke the terms of the agreement and suffered a loss as a result. If that can be proved, the judge will provide a settlement figure for the required compensation, and damages could also be awarded.

Whilst such a judgement can be essential in some cases, the financial impacts of achieving the compensatory award can make it painful. Defending a contract dispute, even if a business believes it is not at fault, can be equally detrimental to the bottom line.

When lawyers are working to agreed hourly rates laid out by Government, and when these are between £312 and £566 per hour for a lawyer in London with eight years or more experience, (£282-£288 in other locations), it is easy to see how costs can run away with themselves. Even trainee lawyers in London earn between £143 and £205 per hour, with the figure being £139 per hour elsewhere in the country. If you have a team of lawyers working on your case, thousands of pounds in legal costs can be incurred after just a few days.

Yet, pursuing legal rights is important in business, as is rectifying damaging situations caused by a third party under contract to deliver more. To fully realise the desired outcome of a contractual arrangement, a business needs to be able to draw upon a type of legal insurance protection that will back its pursuit of contractual rights.

Management Liability Insurance (MLP) is the ally you need in such contract disputes. This will provide you with the necessary legal expertise and cover the costs of your legal advice and representation, with no hit to your company’s accounts. It will allow you to pursue your claim or defence to the hilt, but ideally, also provide the legal know-how to find a solution before a long-drawn-out court case occurs. It will also offer support when initially drawing up your contracts, with a suite of resources at your disposal, as well as accessible help from experts, who can answer your questions.

Do not let a contract dispute be the ruin of your business. Use MLP protection for this reason – and numerous others besides – and you may be able to pursue or defend a legal action without fear of the final legal costs you could face. Talk to us today to get your cover in place.