How to Handle a Business Dispute Before It Escalates
This is general information, not legal advice. For guidance on your situation, contact us directly.
Discovering a commercial dispute in your business—whether a client hasn’t paid, a supplier has failed to deliver, or a partner is acting unpredictably—can be stressful.
Business owners in New Zealand often assume that waiting to involve a lawyer will save money, but delaying legal advice in a dispute can increase risk and costs. At Gordian Legal, we encourage our clients to involve us as soon as they become aware of a dispute.
This article covers some of the key things businesses should consider in the early stages of a dispute.
Understand Your Obligations
Before acting, take stock of your legal and contractual responsibilities:
Insurance: Confirm whether potential claims need to be reported promptly. Failing to notify insurers can void coverage.
Contracts: Check for pre-litigation requirements such as notices, response periods, or mandatory mediation. Missing these steps can weaken your position.
Evidence: Begin collecting and preserving key documents—contracts, correspondence, invoices, and relevant records. Create a timeline of events.
Information from the other party: Where appropriate, gather clarifying information carefully. Remember that anything you write or say may be used later.
Manage Communications Carefully
How you communicate—both internally and externally—can significantly influence the outcome:
Internal communications:
You should be aware of how legal privilege applies to your internal documents and discussions. In New Zealand, litigation privilege protects communications created in anticipation of legal action, including internal emails, notes, and strategy documents—provided their dominant purpose is preparing for potential litigation. This means internal communications discussing facts or operational decisions for ordinary business purposes may not be protected and could be discoverable if a dispute escalates. To maintain protection, clearly separate routine business discussions from documents or messages drafted specifically to plan a legal strategy, and involve your lawyer early when creating or sharing sensitive material. Internal discipline is important in staff communications about disputes.
External communications:
Be aware and take advantage of settlement privilege. Communications made in connection with an attempt to settle a dispute by negotiation or compromise are typically privileged (i.e. inadmissible). You can label such communications “Without prejudice save as to costs” to make it clear that you consider these communications privileged – but that you reserve the right to rely on them in the context of a court’s legal costs determination (usually to show that the other party had an opportunity to settle and avoid litigation). You should be aware that simply labelling correspondence “without prejudice” does not by itself make correspondence privileged. Parties who don’t understand this sometimes gain false confidence and end up making harmful admissions. Used correctly, however, “without prejudice” communication is a good way to explore a settlement with limited risk.
Beware of any communication that could be construed as blackmail, even “without prejudice.” Sometimes when a relationship breaks down one party will be aware of another party’s misdoings and seek to leverage them in a dispute (e.g. threats to report information to government authorities). Section 237 of the Crimes Act 1961 defines blackmail as (inter alia) a threat (express or implied) to make an accusation about a person or to disclose something about a person with the intent of causing the person to act in accordance with the will of the person making the threat. Blackmail is a serious crime, which carries a penalty of up to 14 years’ imprisonment.
Early positions as to facts or the law taken on the record carry significant risk. Parties can undermine themselves by committing too early to a theory of the case that isn’t legally sound or that later evidence contradicts. For example, a business might state, “We want to cancel the contract because the price we paid feels excessive.” From a moral perspective, this seems reasonable, but legally, “buyer’s remorse” is almost never a valid ground to terminate a contract. Such an admission can limit a lawyer’s ability to later argue genuine contractual defects or other legal remedies. Similarly, a party might insist, “We are terminating for breach of Clause 12,” committing to a specific legal argument. Doing so too early can preclude pursuing alternative or stronger legal arguments, such as other breaches or remedies, if evidence later suggests these would be more advantageous.
At the same time, it can be important to get certain things on the record early; for example, actions that require notice. It takes a high level of understanding of the facts and the relevant law to decide what should/shouldn’t be on the record and there is no substitute for a skilled lawyer, but generally speaking correspondence should be factual, calm, and reasonable, and should avoid taking positions that may have legal implications. Less is typically more. We often see client correspondence from prior to our involvement in a matter that makes prejudicial admissions or that comes across poorly. Remember that anything you put on the record could eventually end up being read out in court.
You should recognise that the other party may have legal counsel ghost writing correspondence strategically. A major shift in a party’s communication style often signals this. Parties will often get their counsel to ghost-write correspondence for clients in the early stages to reduce risk and, where possible, to gain advantage – such as forcing the other side to admit key facts or take useful positions. The first party to get a lawyer involved is often at a real advantage – because the other side may still believe they are “just arguing” without realising they are being led into legal traps.
Oral Communications:
Parties often believe that talking on the phone or face to face is safer than communicating in writing. To a small degree this is true – an email is almost certainly going to be discoverable. A meeting may or may not be recorded.
However, you should be aware that New Zealand has a one-party consent law. A covert recording is generally admissible as long as it was made by one of the parties to the conversation. A lot of people don’t realise this and mistakenly treat oral conversations as “off the record”. This can lead a client to make harmful statements.
Don’t act precipitously without advice
Be very careful when taking or threatening to take actions, especially actions that alter legal relations (e.g. attempting an eviction, cancelling a contract, withholding a payment, dismissing an employee) unless you are absolutely certain you understand the legal implications.
A lot of actions have prescribed statutory processes that must be followed. It is tempting in a dispute to want to take immediate steps, but this is extremely risky.
For example, cancelling or threatening to cancel a contract can often backfire. If you do not have proper grounds to cancel, your cancellation can be treated as repudiation. The other party can use your repudiation as a basis to cancel the contract and pursue you for damages. Actions such as cancelling a commercial lease due to non-payment of rent must be done by a notice with prescribed contents and method of service. If you get the notice wrong and then cancel you may expose yourself to liability. Dismissing an employee without following proper process can make you the losing party, even if you had genuine grounds.
Likewise, if you are the party raising the dispute, there are various legal tools that may or may not apply. Depending on what the dispute concerns (e.g. construction, or consumer goods, or a motor vehicle) there will often be statutory processes, protections, or remedies that you should be aware of.
Assess the Dispute’s Seriousness
This is particularly relevant in circumstances where you are not the “aggrieved” party, and you would be happy if the dispute just went away. For example, if you are a car dealer and a client attempts to reject a vehicle under the Consumer Guarantees Act 1993. You aren’t seeking anything; you just want the issue to go away as cheaply as it can. In these circumstances, it is normal to feel hesitant about involving lawyers until you are sure the problem isn’t going to go away (particularly if it looks like a try on).
Not every angry email or threat signals imminent litigation. There is a relatively tried and true path that leads from an initial dispute to the filing of proceedings.
If a client is still communicating directly with you, there is still significant room to resolve the dispute. If the client’s communication style has changed this may indicate that they have involved a lawyer, but in the age of Ai-assisted drafting it is a lot harder for a layperson to tell if this is the case.
Receiving a legal letter is the reliable sign that things have escalated. But not every legal letter indicates the same intent. Letters from credible, well-resourced firms are more likely to signal real escalation. Does it show signs of having been costly to produce? A lengthy, well-reasoned, letter of demand shows more intent than a short or vague demand – lawyers will often fire off a quick demand for a cheap fee. Does the letter make specific litigation threats? Lawyers are not meant to threaten litigation without instructions. Generally speaking, a demand letter that attaches a draft statement of claim signals high intent (basically a ‘letter before litigation’), a letter that articulates a claim in detail and notes a specific barrister has been engaged and/or that there are instructions to file proceedings if the demand is not met signals medium to high intent. A letter that makes vague references to litigation, e.g. “we have advised our client to instruct us to file proceedings”, or similar, signals lower intent. Lower intent threats are often just pressure tactics, though they can escalate.
Your counterparty will often understand (and their lawyer almost certainly will) these signals of intent too. A letter of demand is often a good way to get action if your own threats have been ignored – particularly if it has been prepared by a credible and experienced “disputes” lawyer or barrister and shows signs of serious intent. Sometimes however, parties won’t engage constructively until proceedings are filed. In our experience filing proceedings can sometimes create sufficient leverage to settle, even if you do not intend to take the matter to a defended hearing.
The Value of Early Legal Advice
Engaging a lawyer early can significantly improve outcomes. Legal advice can help you:
· Evaluate the merits of the dispute.
· Advise on safe communication strategies
· Ensure evidence is preserved correctly.
· Guide timing, leverage, and negotiation strategy.
· Draft correspondence to advance objectives while avoiding unintended admissions.
Even before formal proceedings, early legal guidance allows businesses to make informed decisions about settlement, negotiation, or escalation, often saving significant cost and effort.
Sometimes a full opinion on the merits of the dispute (your potential exposure to liability or the prospects of your claim) and on potential strategies can be really valuable even early on.
At a minimum there is usually enormous value in a short call with your lawyer, or a brief legal review of correspondence/contracts at the very outset of a dispute. Some light legal guidance in the early stages is typically inexpensive; especially when compared to the potential costs and risks a dispute may involve. A skilled lawyer ought to be able to flag when their deeper involvement would add value, and help you decide if it is worth the cost. Sometimes, it may not be worth getting them involved until/unless the dispute escalates – but it is almost universally worth having this preliminary conversation.
Need a quick legal check?
At Gordian Legal, we’re always happy to take a short call to review your dispute, often without charging a thing. A few minutes early guidance can save weeks of stress—and thousands of dollars—later. Contact us today to see if you need formal legal involvement or just a quick strategic check-in.