Pre-trial procedure for settlement of disputes of entrepreneurs

Feb, 02 2022

Contents:

A variety of conflicts may arise between entrepreneurs: around compliance with the terms of contracts, financial obligations, property rights. One of the most common disputes is over supply contracts, when suppliers violate deadlines or violate the quality and characteristics of goods.

Disputes between entrepreneurs are considered by arbitration courts. But it is much more effective and easier to settle disagreements in a pre-trial order, when one side makes a claim, and the other responds to it.

When the pre-trial settlement of the dispute of entrepreneurs is mandatory

In some cases, the law requires the parties to the conflict to first try to resolve the issue without going to court, and only if this does not bring results – to write a statement of claim. In other words, if the law directly requires a pre-trial settlement of the conflict, the court will not accept the case for consideration without this stage.

Also, the pre-trial claim procedure for settling disputes of entrepreneurs may be mandatory if it is provided for by the contract. If neither legislation nor contracts impose such obligations, the parties to the conflict may act at their discretion.

In which cases, before applying to the court, it is necessary to try to resolve the conflict in a claim-based manner, stipulates Article 5 of the Arbitration Procedural Code. For example, this rule applies to financial debts on transactions, unjustified enrichment, economic disputes.

But most often entrepreneurs have to turn to the claim settlement of conflicts when terminating contracts. There is an important caveat: when applying to the court, the plaintiff cannot change the subject and the legal basis of the dispute, which was indicated in the claim. Therefore, it is important to contact lawyers at the stage of pre-trial conflict resolution.

Another case where the pre–trial procedure is a mandatory stage is counterclaims. But if the essence of the conflict concerns compensation for harm, recovery of collateral, the law does not oblige the parties to try to settle their differences without a trial.

The difference between pre-trial and out-of-court dispute settlement procedures

Pre-trial procedure should not be confused with an out-of-court method. The latter implies that the parties to the conflict voluntarily enter into negotiations without supporting their claims with special documents. But in the future they have the right to go to court.

Pre-trial procedure is a mandatory stage of dispute settlement, which must be documented. If the plaintiff cannot prove that he tried to resolve the conflict in this way, the court will not accept his claim. However, with the support of competent lawyers, many disputes between businessmen can really be resolved before the court, and there is often no need to file claims.

Pre-trial procedure for settlement of disputes of entrepreneurs: what does it mean

The pre-trial procedure allows the parties to the conflict to settle their differences without going to court. We have already mentioned above that in some cases this is a mandatory stage of resolving a dispute between entrepreneurs, and sometimes resorting to it is a voluntary decision of the parties to the conflict.

The procedure is designed to reconcile the parties, exhaust disagreements and restore normal relations (or exit the relationship without loss). What the procedure looks like depends largely on the situation and the participants in the conflict.

For example, one of the parties may be an official. In this case, the law requires the resolution of the conflict in an administrative manner, that is, it is necessary to send a complaint to a higher state or municipal authority. But before the second party to the conflict does this, he is obliged to inform the opponent in writing about his claims and intentions. If we are talking about a conflict between entrepreneurs, one of the parties makes an official claim and sends it to the second.

If the case unfolds favorably, the parties reconcile and conclude an agreement. If the conflict cannot be resolved otherwise, its participants have every right to make a statement of claim and file it in court.

Advantages of the pre-trial dispute settlement procedure

  • Strengthening business relationships. Unlike court proceedings, this procedure allows the parties to remain partners and continue mutually beneficial cooperation.
  • Cost savings. Litigation is associated with additional costs: payment of fees, hiring a lawyer, conducting examinations and involving third-party specialists. In addition, the losing party is forced to pay the opponent’s legal costs. Of course, the pre-trial procedure may also require the participation of lawyers, but it is much cheaper than litigation.
  • Risk reduction. Lawsuits are damage to reputation and risk, even if in the end the court takes your side. Information about litigation is publicly available, it is easy to get to your potential partners. The pre-trial settlement of the dispute will not get into the public space.
  • Save time. The litigation will be delayed because the judicial system is overloaded, and one of the parties to the conflict may deliberately delay the proceedings. Even filing a lawsuit itself is a time-consuming procedure, because you need to collect evidence. The pre-trial procedure allows you to resolve the conflict much faster.
  • The solution will suit both sides. It’s not just that court decisions do not always meet the expectations of the parties. Even if he takes your side, the verdict may be far from what you expected. But if you solve the issue in a pre-trial order, you can achieve a solution that will suit everyone.

The main advantage of pre-trial dispute settlement is the absence of negative consequences. For example, the seizure of property or accounts, restrictions on actions and the like. Applying to the court, one of the parties may demand measures that will ensure the execution of the decision, and this is extremely undesirable for the opponent.

Problems of pre-trial settlement of disputes of entrepreneurs

Nevertheless, claims proceedings have negative sides. One of them can be considered a loss of time. After all, you can know in advance that reconciliation with an opponent is impossible, and you will have to go to court. However, if the law requires a preliminary pre-trial settlement, you will be forced to resort to it. And then this procedure will only prolong the conflict.

Another disadvantage worth mentioning is actually a consequence of the advantages of the procedure. We are talking about the impossibility of interim measures. That is, the fulfillment of the agreements still depends on the will of the parties to the conflict, no one will force them to fulfill their promises. Much worse is that the pre-trial proceedings may serve as a warning for one of the parties. And then an unscrupulous debtor will hastily withdraw assets or hide property, so it will be difficult to ensure even the execution of a court decision in the future.

Another problem is a possible conflict around the timely receipt of a claim. Thus, an unscrupulous opponent may intentionally delay the terms of the proceedings, avoiding receiving a claim. However, the rule of law in this case provides for a nuance: the claim is considered received, even if the opponent evaded receiving it at the post office, and the letter was returned.

Separately, it is worth considering cases when one of the parties to the conflict deliberately delays the terms of pre-trial proceedings in order for the statute of limitations to expire. That is, the opponent is not going to constructively resolve the conflict, he is just waiting for you to lose the opportunity to sue him.

However, it is important to remember here that the Civil Code stipulates the suspension of the limitation period if you are considering a conflict in a claim procedure. Therefore, such tricks of the opponent may not give the expected results for him, but the conflict will still drag on.

To successfully and quickly resolve conflicts with business partners, suppliers, contractors, use the support of experienced lawyers. VALEN company is ready to help your business at any stage of dispute settlement: we will make competent claims, negotiate with opponents – we will do everything possible for pre-trial settlement of the conflict. If necessary, we are also ready to represent your interests in court.

Author of the article
Pre-trial procedure for settlement of disputes of entrepreneurs
Valentina Khlavich
Managing Partner
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