Having a good working relationship with your suppliers is vital to ensure your business runs smoothly. Although you’ve likely taken the time to find the right suppliers for your business and build good relationships with them, it’s important to know what to do if any issues arise. This article will outline how you can handle any disputes with your suppliers and offer tips on how to avoid them in the first place.

Dealing With a Dispute

Most disputes can be resolved quickly and efficiently without the need for legal assistance. Before communicating your concern with your supplier and taking action, you should always read through the terms and conditions of your supply agreement. It’s important not to escalate the dispute before you are clear about the terms your supplier has breached and what remedy you may have. Furthermore, supply agreements often outline the dispute resolution process. If this is the case, you must ensure that you comply with each step in that process. Otherwise, you may lose your right to pursue the matter further.

The following steps are helpful if your supply agreement does not include a dispute resolution process or if you don’t have a contract at all.

Step 1: Contact Your Supplier

After reviewing your contract and understanding your position, you should try to resolve the matter directly with your supplier. More often than not, the supplier isn’t even aware of the issue. When contacting your supplier, you should explain the issue but also listen to what they are saying and try to understand their position. The goal of this initial call is to negotiate an agreement that works for both of you.

You should always keep all records of communication in a dispute. This may come in handy if the matter escalates. Therefore, you should follow up the call with an email summarising what you discussed.

Step 2: Issue a Formal Letter of Demand

If the matter continues or you have been unable to get in contact with your supplier, the next step is to issue a letter of demand. A letter of demand is usually a necessary step before you can escalate the matter further.

A letter of demand should set out your:

  • legal claim;
  • rights; and
  • demand for compensation, refund or performance of an obligation.

You can also include a time limit that your supplier must comply with or risk going to court to settle the issue. While a letter of demand can be an informal document, it is important to ensure that you present your argument effectively. It should include a clear structure, all relevant details and a concise legal argument. It is important your letter at least includes:

  • a summary of your contract with the supplier;
  • details of the breach of contract;
  • damages you suffered;
  • a demand for remedies such as compensation; and
  • your intention to take the matter to court if the supplier does not comply.

There is no requirement for a lawyer to issue the letter of demand on your behalf. However, there are some benefits to having the lawyer issue it as they may be able to:

  • identify additional ways to take action against the supplier;
  • recommend a strategy; and
  • provide extra ‘motivation’ for the supplier to comply or reach an agreement with you.

Step 3: Contact a Resolution Authority

If the letter of demand does not work, you can seek the assistance of agencies or industry associations that offer help for free.

Some useful contacts and places to go for help include the:

Step 4: Take Legal Action

If the previous steps fail, you should get independent legal advice. A lawyer will review the situation as a whole and advise you on the most appropriate next steps. It may be that you are entitled to start a claim in a small claims court or tribunal in your state or territory. However, if the dispute involves a substantial amount of money, the next step may be to commence litigation in a higher court.

Litigation is finalised when a magistrate or judge hands down their decision or when you and the other party reach an agreement. If you are unsuccessful in your litigation, the court may require you to pay part of your supplier’s legal costs. Likewise, if you are successful, there is a possibility that you may recover some of your legal costs from your supplier. Litigation can be costly and time-consuming and you should consider these factors before commencing any court proceedings.

Avoiding the Dispute

While it’s important to know how to handle disputes as they arise, it’s even better to prevent them from happening in the first place. Here are two tips to get you started:

1. Negotiate a Good Contract

A good supply agreement will protect your business if your supplier fails to meet their obligations. At a minimum, your supply agreement should include clauses relating to:

  • pricing;
  • volume;
  • payment;
  • exclusivity;
  • duration;
  • product quality, recalls and unusable products;
  • labelling requirements; and
  • the dispute resolution process.

2. Do Your Due Diligence

It’s a good idea to make sure you know who you’re dealing with. Therefore, you should do background checks on your suppliers before you sign with them. You can also look up their ABN to identify the person operating the business and search them through the ASIC Business Checks app.

Key Takeaways

Having a well-drafted supplier agreement can prevent a supply issue arising or set a clear process to resolve any issues that do arise as quickly as possible. If a dispute does arise, you should:

  1. understand the dispute;
  2. talk to your supplier; and
  3. ask for help from a third party.

If these steps fail, then you should get a lawyer to either advise you on your position and recommend a strategy or commence a claim on your behalf. However, litigation is expensive and time-consuming and should be considered carefully.

If you have any questions about resolving a dispute with your supplier or want advice on commencing a claim, you can contact LegalVision’s dispute resolutions lawyers on 1300 544 755 or fill out the form on this page.

Nessim Malak
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