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Legal disputes threaten to increase for retailers as recovery gains pace


Online retail sales boomed on so-called ‘Cyber Monday’ this year and demonstrated that for many retailers, business is picking up once again after a tough and prolonged recession. Whilst online sales may be taking over from busy high streets up and down the country, the recovery of the retail sector (and wider economy) is obviously good news for business. Yet with this positive news comes a more sobering thought borne out of experience of previous economic cycles - namely that recovery from earlier recessions has been accompanied by a spike in expensive litigation. The anticipated rise in court proceedings is based upon retailers and other businesses in their supply chain becoming more confident and therefore prepared to fund disputes. Retailers could fall foul of this trend, putting their businesses at risk once again.

During the recession, companies would avoid issuing proceedings as they did not have the cash reserves or commercial appetite to fund litigation. However, a company can wait six years to bring a contractual claim before it becomes time barred and so legal disputes, which may have been “mothballed” during the bad times, may now be pursued as retailers fill their order books, stack their physical or virtual shelves and increase their cash reserves.

Retailers should take the following steps to avoid becoming embroiled in an unnecessary dispute:

  1. Ensure that terms and conditions upon which you buy and market your products are effective, reflect your requirements such as retaining ownership of the goods until they have been paid for and (importantly) are incorporated into the contract with any suppliers and other businesses in your supply chain. You should periodically review these terms and conditions and ensure that they provide a solid platform if you do face litigation, and also adequately limit or exclude liability for claims brought against your company.

  2. Make sure you are aware of updates in the regulatory framework relevant to your company. For example, and depending on what is being sold by your company, retailers may possibly face legal obligations to ensure the safety of the product and to warn consumers about any potential risks. Failure to comply can lead to litigation or even criminal proceedings. Ensure that the manufacturers your business uses regularly reviews quality control and industry standards to ensure regulatory compliance.

  3. Manage relationships with the supply chain to minimise the risk of legal proceedings being initiated. If a dispute becomes inevitable, bear in mind that the Civil Procedure Rules (“CPR”) set the framework for how litigation is conducted and require that the parties engage in appropriate pre-action conduct which encourages settlement of disputes without going to court. Matters can often be resolved on the strength of personal relationships, but if litigation becomes unavoidable prepare an early cost/benefit analysis with your legal team and remember early settlement is often commercially advisable.

  4. Finally if you do find yourself a party to litigation, the CPR imposes a duty on each side to consider settling the dispute by alternative dispute resolution (“ADR”). ADR is now utilised in the majority of cases and often leads to settlement without the need (or cost and management time) of pursuing litigation through to trial.

Published on Wednesday 18 December by Editorial Assistant

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