For many good reasons, families go into business together. From husband and wife partnerships through to Walmart Inc, family businesses can be hugely successful and unsurprisingly so. Family members in business together are likely to have common goals, common outlooks and a similar drive and passion for their family business. Moreover, when working in the family business, you find yourself working with those people you trust most in the world.
As a result, there can often be less formality around agreements and working practices. With this comes the risk of dispute and worse still, a dispute where the parties cannot quickly resolve their dispute by relying on a document (such as a Shareholders’ Agreement) which supports their position. As a result, family members quickly become polarised and entrenched. One family member may find themselves being excluded from management or no longer included in decision making by a dominant family member. Other examples might arise from differences of opinion as to the best direction of the business and the parties may find themselves in deadlock.
It is not surprising that many disputes concerning family businesses quickly escalate and can very often end up in front of a Judge. However, it is the norm in almost all litigation for a mediation to at least be considered and in many ways, family dynamics which can often lead to a dispute can also be the key to unlock a dispute and reach a compromise. As such, the prospect of settling a dispute at mediation is often more favourable in family dispute.
Agree to Disagree
However, that may not be the end of it as a recent judgment of the High Court sets out. Abberley v Abberley involved a dispute arising out of a family farming business when certain family members decided to go their separate ways. In short, after having instructed solicitors, the parties agreed to mediate. A mediation took place in 2011 before an experienced mediator. The parties agreed heads of terms which were written out by the mediator and signed by the parties' respective solicitors.
The heads of term left certain elements to be decided in order to implement the heads of term into the necessary contractual documents to reflect what was set out in writing by the mediator. The inevitable, post-mediation wrangling between the two camps (via their lawyers) then ensued and continued through to 2013 when matters came to a head and Court proceedings were issued. The issue before the Court was whether the heads of terms constituted a binding contract, or was intended merely to set out some matters agreed in principle as part of a process of later arriving at a full and effective, binding agreement.
In this case, the Court held that the heads of term did constitute a binding agreement and made a declaration to that effect. So in essence, the parties could not agree whether or not they reached an agreement and required intervention of the Court to conclude that they had reached a binding agreement.
This is a salutary lesson that extends far beyond the scope of reaching agreement at a mediation. Agreements should be documented but importantly, where a document is signed on behalf of a party which may be held out as documenting an agreement, it is essential to give detailed thought to the implications of what you are signing and the very real possibility that you might be held to it even where the entirety of the agreement does not necessarily exist within the four corners of the page.
Ashfords has a significant breadth of experience in advising family businesses before entering into agreements both in the ordinary course of business and where disputes arise. If, after reading this, you would like to discuss your legal needs or any legal issue concerning a family business, please get in touch with Liam Tolen, Associate in our Dispute Resolution Team.