April 2011 | Scott FreidmanFiona McLay

Not having a written agreement

Small businesses often try to save money by not having a lawyer prepare a written agreement recording how they intend to operate a business, partnership or joint venture. This can be disastrous if the relationship between the persons operating the business breaks down, particularly if the business is operated by family members. In the absence of a written agreement, usually both sides face uncertainty as to the likely outcome of the dispute which can make it much harder to find an acceptable compromise.

Not getting legal advice before entering a written agreement

Just as risky is trying to save money by relying upon a document drawn up by lawyers acting for the other side. Agreements can have legal consequences which are not immediately apparent. You need your own lawyer to check that your interests are protected both now, and if things change in the future.

Disregarding contractual restraints

Restraints are common in employment contracts and licence agreements, and although not all restraints are ultimately enforceable, the court will usually order that a restraint be complied with temporarily until the dispute can be finally determined. This kind of order, known as an injunction, can be a considerable inconvenience to your business.

Not getting help soon enough

The time to seek legal advice is when things begin to go wrong and litigation begins to look like a possibility. It is a natural tendency to hope that things will resolve themselves and people can be reluctant to spend money on lawyers when they see themselves as having done no wrong. If a business relationship cannot be salvaged, the next best thing to do is to get advice on how to minimise your risk. Hoping a problem will disappear can ultimately cost your business much more than the cost of promptly seeking legal advice.

Not keeping records

Even when you feel you were completely in the right, without accurate records it can be difficult for you to persuade a claimant, and ultimately the Court, why you are not liable. As time passes, memories fade and important employees can move on, leaving the business unable to properly defend a claim. You need a system for keeping records of transactions and ensuring that employees do not keep business records in personal files or computers that you may not be able to access when you need them in the future.

Not following (or not having) systems

No one is perfect but having systems, checklists and relevant risk management procedures can help to reduce the chance of a mistake that causes your business to get sued. A good risk management system does not have to be complicated, it just has to work and you have to ensure that people use it. You need to be able to prove not only that you had a system, but also that it was in fact used, in order to prove that you took reasonable steps to minimise the risk of causing loss or damage to others.

Written by Scott Freidman and Fiona McLay
(02) 9231 2466

Harris Freidman Lawyers can help you review your business arrangements and advise you on documenting agreements or arrangements to help you minimise these risks. Contact Scott or Fiona on 9231 2466 for more information.

Related Content