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Although you have likely taken the time to find the right suppliers for your business and build good relationships with them, it is important to know what to do if any issues arise. This article will outline how you can handle a dispute with your supplier and offer tips on how to avoid conflict.

Dealing With a Dispute

Most of the time, your business can resolve disputes quickly and efficiently without the need for legal assistance. Before communicating your concern with your supplier and considering taking legal action, you should always read through the terms and conditions of any agreement you have with them, such as a supply agreement. Reading these terms is important because you do not want to escalate your dispute unnecessarily. You should ensure you are clear about the terms your supplier has breached and what remedy you may have. Importantly, contracts such as supply agreements often outline a dispute resolution process which is a process that parties must follow if a dispute occurs before moving to formal legal action. In this case, you must ensure that you comply with each step in that process. Otherwise, you may lose your right to pursue the matter further. 

This article will outline what you can do if you do not have a supply agreement or other contract in place.

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 may not be aware of the issue. When contacting your supplier, you should ensure you communicate effectively by:

• explaining the issue;
• listening to your supplier’s response; and
• trying to understand their position. 

The goal of this initial call is to negotiate an agreement that works for both you and your supplier.

You should always keep records of communication you have with your supplier. This is because if the matter escalates, it will be useful to demonstrate what matters were raised or agreed upon between the parties. For example, if you discuss issues over the phone, you may want to follow up with an email confirming what was discussed and identify any action items. You should ask the recipient to reply by email to either agree or correct the record of that conversation. 

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 may be 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 the other party’s obligation.

You can also include a time limit that your supplier must comply with before you consider alternative legal avenues. 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 crucial 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 consider taking 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 a lawyer issue it as they may be able to:

• advise on your legal position under the supply agreement and provide possible options available to the supplier; 
• identify additional ways to take action against the supplier;
• recommend a strategy; and
• add authority to your letter and provide extra ‘motivation’ for the supplier to comply or reach an agreement with you.

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 or for a cost-effective fee.

Some useful contacts and places to contact for help include the following:

• Australian Small Business and Family Enterprise Ombudsman
• Consumer Protection Agencies of your local state or territory
• Industry Ombudsman and Dispute Resolution Schemes
• Australian Competition and Consumer Commission
• Small Business Commissioner in your State or Territory 
• Fair Trading 

These organisations can assist by facilitating mediation between parties or reaching out to the supplier to prompt them to resolve the dispute directly with you.

4. Take Legal Action

If the previous steps fail, you should seek 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. There may be a case where your lawyer exhausts all dispute resolution options, and the dispute is still unresolved. If the dispute also involves a substantial amount of money, a potential next step is to commence formal court proceedings.

Litigation is costly, and there is no guarantee that you will be successful. If you are unsuccessful, 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 also be very time-consuming and stressful. It can divert resources and attention away from your business. As a result of these risks, it is essential that you consider all alternative options and the pros and cons of taking legal action before you do so. 

Avoiding the Dispute

While it is important to know how to handle disputes as they arise, preventing them from happening in the first place is essential. Below are two key tips to help you do so. 

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

You should make sure you have a solid foundational understanding of the supplier you are interacting 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 for them through the ASIC Business Checks app.

Key Takeaways

Having a well-drafted supplier agreement may prevent a supply issue from arising or set a clear process to resolve any issues efficiently. However, if a dispute does arise, you should:

• understand your position under the supply agreement;
• talk to your supplier; and
• ask for help from a third-party dispute resolution provider.

If these steps fail, you should contact a lawyer to 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.

Amelia Bowring Stone - Senior Lawyer
March 20, 2024
legalvision.com.au