We all know that disputes that arise in commercial transactions are a significant distraction, expensive to litigate, and can tarnish a business reputation.

That is why it is important that any commercial enterprise put in place an appropriate dispute management strategy, which can hedge against these risks.

The starting position is that disputes in your commercial life are inevitable. They will arise in various forms and the risk of a dispute is the downside to the benefits of your bargain.

Accordingly, effective dispute management starts before the dispute arises. This means that you factor in the appropriate protections at the beginning of your contract, or deal, or bargain. At the most basic level this means making sure that your respective obligations are in writing.

Effective dispute management also requires that you think about dispute resolution not only before you enter the deal but also before the deal is drafted. Where and how you want any disputes resolved can affect the way in which the terms and conditions are crafted.

For example, if you have many deals with a particular party, you may prefer mediation to resolve any disputes, so as to preserve the likelihood of maintaining good relations.

Alternatively, you may think it is cheaper and fairer to have any disputes resolved by an expert in your industry, in which case an appropriately drafted arbitration clause may be appropriate. These are matters on which you should take expert legal advice and you can factor this expense in to the price of the deal.

If your deal is with international parties, you need to consider where you want your dispute to be resolved - i.e. which country. This is a factor which requires you to consider where you can easily enforce any judgement, where you can cost effectively defend or bring an action, and where you would prefer you or your company to be pursued.

For example, if you have a limited liability company, you may prefer a jurisdiction in which separate corporate personality is not easily ignored.

This decision can affect the governing law of the agreement and in turn this can determine the meaning and enforceability of other terms and conditions of your deal.

Make sure that the terms of the deal reflect the practical realities of how your business operates. Your deal should not contain terms and conditions that represent a fictional business - i.e. the business you wish you had. You must be realistic and undertake obligations that you can reasonably provide.

Once you enter the performance stage of the deal make sure you perform the contract in accordance with its terms. If circumstances change, manage the transaction itself with a view to maintaining an appropriate record of performance, expectations, changes in the contractual requirements and so on.

If the deal starts going south, be proactive and address the issues. The ostrich approach is not an effective way to steer away from a dispute.

Keep all of these documents in an organised manner. In short, protect yourself.

Finally, when a dispute does arise you should immediately remind yourself of the history of your relationship with the other party, be he or she a client, employee, debtor, or creditor.

Document management, covered more extensively in a previous column, is crucial. You will need to immediately gather, secure and preserve all of your relevant records.

If it is a straightforward matter, on which the answer is clear from the agreement, remind the other party of the previous terms agreed.

If the dispute is more complex or the positions become entrenched, send the relevant documents to your lawyer and seek legal advice. Many a commercial dispute is resolved cheaply and effectively by an appropriate letter written by legal counsel that can prompt payment or lead to a reasonable compromise.

Finally, understand that litigation over commercial disputes can be very costly.

As reluctant as I am to say it, dispute management includes managing your lawyers.

Make sure that your lawyers have the expertise in the area of the dispute. Dispute management has no room for misplaced loyalty.

Ask your lawyer for an estimate at the beginning. Find out their chargeable rates.

Obtain a clear understanding from the law firm on who will be assigned to work on your case. Seek undertakings from the firm on continuity of members of the team, to reduce duplication in fees.

Seek advice early on settlement strategies and opportunities. Limit the number of internal personnel with access to your lawyers, this will save costs and ensure that privilege is preserved.

Finally, learn from the disputes that have arisen and revise your other deals, contracts, and conduct accordingly.

@EDITRULE:

Kiernan J. Bell is an associate lawyer in the Litigation Department of Appleby Spurling & Kempe. Copies of Ms. Bell's columns can be obtained on the Appleby Spurling & Kempe website at www.ask.bm.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.