Resolving a Business Dispute Before Court: Practical Options in Victoria

Why Alternatives to Trial Are Often Considered

Litigation is time consuming, exposes the parties to costs and adverse costs orders, and does not guarantee a particular outcome — even a strong case can turn on the evidence at trial. The cost of running a matter to hearing can be significant relative to the amount in dispute, and the diversion of management time is itself a real business cost. These factors often lead parties to consider whether an earlier, proportionate resolution is realistically available.

Whether settlement is an appropriate objective in a given matter is a strategic question that depends on the parties, the issues, the evidence, the commercial context and the realistic range of outcomes if the matter proceeds. A well-advised business owner can weigh those considerations against the cost, time and risk of litigation and decide, matter by matter, whether and when to pursue resolution.

Common Causes of Business Disputes

Business disputes arise in many contexts. Understanding the type of dispute you are facing helps determine the right resolution strategy. Common categories include:

• Contract disputes — breach of a written or oral agreement, non-performance, defective work, late delivery or disputed variations.
• Shareholder disputes — deadlock over company direction, exclusion from management, allegations of oppressive conduct under section 232 of the Corporations Act 2001 (Cth), or disputes over dividend policy and distributions.
• Partnership disputes — disagreements over capital contributions, profit sharing, retirement of a partner, or breach of fiduciary duties.
• Debt recovery disputes — unpaid invoices, disputed debts, set-offs and claims that goods or services were defective.
• Supplier and customer disputes — quality complaints, supply chain failures, warranty claims and termination of ongoing commercial relationships.

Each category has its own legal framework, but the resolution pathways are broadly the same: informal negotiation, formal correspondence, structured mediation, expert determination, arbitration, tribunal proceedings or court litigation.

Contract Disputes

Contract disputes are a common form of commercial disagreement. They often turn on one of three questions: what did the contract require, was there a breach, and what loss was caused. The starting point is the written agreement — if there is one. Oral contracts may be enforceable in Victoria, but they are harder to prove and more vulnerable to disputes about terms.

When a contract dispute arises, gather the agreement, variations, correspondence, invoices and payment records. Identify the clause said to have been breached and the remedy the contract provides. Some contracts contain a tiered dispute resolution clause requiring negotiation and then mediation before proceedings. Where such a clause applies, complying with it may be contractually required and can affect the parties' positions on costs if the matter later goes to court.

Shareholder and Partnership Disputes

Shareholder and partnership disputes can be commercially and personally difficult because they involve people who once trusted each other. In companies, the primary statutory remedy is an oppression action under Part 2F.1 of the Corporations Act 2001 (Cth), including sections 232–234, which allow a member (and, in some circumstances, others) to seek relief where the company's affairs are being conducted in a way that is oppressive, unfairly prejudicial or unfairly discriminatory. In partnerships, the Partnership Act 1958 (Vic) governs the relationship and provides mechanisms for winding up or dissolving the partnership. Directors also owe duties under sections 180–184 of the Corporations Act 2001 (Cth) that are separate from any shareholder rights.

These disputes may be suited to mediation where the parties have overlapping business interests and value confidentiality. A mediated outcome can include a negotiated buy-out, revised governance arrangements, a revised shareholders' agreement or an orderly exit. Whether mediation is appropriate — and what outcome is realistically available — depends on the parties, the issues and the evidence.

Debt Recovery Disputes

Unpaid debts strain cash flow and can threaten the viability of a business. The first step is to review the terms of trade, invoice and any credit application to confirm that the debt is due and payable. Then, issue a formal letter of demand. A well-drafted letter sets out the amount owing, the basis of the debt, a reasonable deadline for payment and a statement of intention to commence proceedings if payment is not received.

For smaller debts, the Victorian Civil and Administrative Tribunal (VCAT) provides a cost-effective forum. For larger or more complex debts, proceedings in the Magistrates', County or Supreme Court may be appropriate. Where the debtor disputes the debt — for example, by claiming that goods were defective — the dispute may become a broader contractual claim requiring evidence of quality, compliance with specifications and the contractual allocation of risk. For guidance on responding to a formal demand, see our companion article on what to do when you receive a letter of demand.

Supplier and Customer Disputes

Disputes with suppliers and customers often involve questions of quality, timing and communication. A customer claims that delivered goods do not meet the specification. A supplier argues that payment was withheld without justification. These disputes are rarely about a single transaction; they usually arise in the context of an ongoing relationship that both parties want to continue.

The commercial imperative is to resolve the dispute without destroying the relationship. That means framing the issue constructively, offering evidence rather than accusations, and proposing solutions that allow both sides to move forward. Where the relationship has long-term value, a mediated resolution that addresses the immediate dispute and resets expectations is often more valuable than a court judgment that terminates the relationship entirely.

The Importance of Preserving Commercial Relationships

One of the most significant differences between commercial and personal disputes is that business relationships often have ongoing value. A shareholder may want to exit, but the company continues. A customer may be unhappy with one delivery, but has placed orders for the next six months. A landlord and tenant may be in conflict over one lease term, but both benefit from the tenant remaining in occupation.

Litigation can strain relationships. The process is adversarial and often public. Once proceedings are commenced, positions tend to entrench. Negotiation and mediation may allow the parties to acknowledge grievances, explore options and preserve a commercial connection. Whether preservation of the relationship is the right objective depends on the parties and the matter.

Letters of Demand

A letter of demand is the formal starting point for most commercial disputes. It puts the other party on notice that a claim exists, sets out the factual and legal basis, specifies the remedy sought and provides a deadline for response. A well-drafted letter achieves several things: it creates a record, it invites negotiation, it tests the other side's appetite for litigation and it starts the limitation clock running in the right direction.

The tone of a letter of demand matters. A letter that is aggressive, overstated or threatening can provoke defensiveness and reduce the chance of settlement. A letter that is clear, measured and evidence-based signals competence and seriousness without escalating unnecessarily. It should identify the contract or legal basis, quantify the loss, attach supporting documents and propose a constructive way forward.

Without Prejudice Negotiations

Without-prejudice privilege attaches to communications made in a genuine attempt to settle an existing dispute; the label "without prejudice", by itself, does not create the protection. Where the privilege applies, admissions made in the course of settlement discussions are ordinarily inadmissible as evidence against the maker. Recognised exceptions apply (for example, to demonstrate that a concluded settlement exists, to explain delay or to counter an allegation of misleading conduct).

A communication marked "without prejudice save as to costs" (commonly a Calderbank offer) is treated as without prejudice for the substantive dispute but may be shown to the court on the question of costs after judgment, to support an argument that the recipient should have accepted the offer. The scope of both categories is matter-specific and turns on the substance of the communication.

Genuine, appropriately-marked settlement negotiations allow the parties to explore options — including non-monetary outcomes such as revised contractual terms, ongoing supply arrangements or confidentiality obligations — that a court could not necessarily order. If agreement is reached, enforceability depends on the concluded settlement terms, which may be recorded in signed terms of settlement, a contract or deed, and where proceedings exist may also be reflected in consent orders.

Mediation

Mediation is a structured negotiation conducted with the assistance of an independent mediator. In Victoria, commercial mediations are often conducted under the rules of an institution such as the Resolution Institute, the Australian Centre for International Commercial Arbitration or the Law Institute of Victoria. The mediator does not decide the dispute. Their role is to help the parties identify interests, narrow issues, generate options and, if possible, reach agreement.

Mediations are typically conducted on a confidential basis under the mediation agreement, and are usually less formal than a contested hearing. Cost and duration depend on the nature of the dispute, the mediator engaged and the parties' preparation. The mediation itself does not determine the dispute. If agreement is reached, enforceability depends on the concluded settlement terms, which may be recorded in signed terms of settlement, a contract or deed, and where proceedings exist may also be reflected in consent orders.

Expert Determination

Expert determination is a process in which an independent expert is appointed to decide a specific technical or valuation question. It requires a contractual or ad hoc submission that authorises the expert and defines the scope of the reference. The expert's decision is ordinarily binding on the parties in accordance with the terms of that submission, though the ability to review or challenge a determination is limited and depends on the applicable terms and general law. It is commonly used for construction defects, accounting disagreements, valuations or insurance quantum questions.

The advantages of expert determination can include speed and specialisation. The scope of the expert's jurisdiction is confined to the question referred, so where a dispute involves mixed questions of fact, law and technical opinion, expert determination may need to be combined with negotiation or other processes on the broader issues.

Arbitration

Arbitration is a private, consensual process in which an arbitrator or panel of arbitrators hears evidence and delivers a binding award. It requires a valid arbitration agreement or submission and, in Victoria, domestic commercial arbitration is governed by the Commercial Arbitration Act 2011 (Vic); international commercial arbitration seated in Australia is governed by the International Arbitration Act 1974 (Cth). Arbitration is commonly used in commercial contracts — for example construction, resources, franchising and international trade — where the parties want a final decision without the publicity or procedural formalities of court.

Arbitration can offer confidentiality, procedural flexibility and, ordinarily, limited rights of appeal or set-aside on the grounds prescribed by the applicable legislation. Awards may be enforceable internationally under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) in the many states that are party to it. Costs — including arbitrators' fees, venue costs and representation — can be significant, particularly in complex or multi-party matters.

VCAT Proceedings

The Victorian Civil and Administrative Tribunal is established under the Victorian Civil and Administrative Tribunal Act 1998 (Vic). Its jurisdiction is statutory and list-specific — VCAT is not a court of general commercial jurisdiction. For businesses, relevant lists can include the Civil Claims List, the Owners Corporations List and the Planning and Environment List; whether VCAT has jurisdiction over a particular commercial dispute depends on the enabling legislation for the relevant list.

Where VCAT has jurisdiction, procedure is designed to be less formal than court and can be a proportionate forum for suitable disputes. Under section 109 of the Act, the starting position is that each party bears its own costs; the Tribunal has a discretion to order costs in the circumstances the section identifies. Outcomes on cost recovery therefore depend on the statutory framework and the Tribunal's exercise of discretion. For a detailed guide to VCAT procedure, see our companion article on going to VCAT.

Court Proceedings

When negotiation, mediation and other alternatives have been exhausted, court proceedings remain the final avenue for resolving a commercial dispute. In Victoria, the County Court and Supreme Court hear substantial commercial matters, while the Magistrates' Court handles smaller claims. The choice of court depends on the amount in dispute, the complexity of the legal issues and the remedies sought.

Court proceedings follow a structured timeline: statement of claim, defence, discovery, interlocutory applications, court-ordered mediation, pre-trial conferences and trial. The court can also order interim relief — such as injunctions freezing assets — where there is a risk the respondent will dissipate assets pending final judgment.

Costs Considerations

Cost is a central factor in choosing how to pursue or defend a commercial dispute. In court proceedings costs are ordinarily in the court's discretion and often follow the event, but the successful party typically recovers only a portion of its actual costs; the balance is borne by that party. In VCAT the default under section 109 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) is that each party bears its own costs unless the Tribunal orders otherwise. Cost allocation in mediation, expert determination and arbitration is governed by the parties' agreement or the rules of the process. The resolution strategy should be matched to the value, complexity and commercial context of the dispute.

Commercial Risks of Litigation

Litigation carries risks beyond cost and time. There is the risk of an adverse judgment, including orders for damages, interest and costs. There is the risk of reputational damage, particularly where the dispute involves customers, suppliers or industry regulators. There is the risk of disclosure — court proceedings are public, and sensitive commercial information may become accessible to competitors. And there is the risk of disruption: senior management time, employee morale and customer confidence can all suffer when a business is engaged in protracted litigation.

These risks do not mean that litigation should always be avoided. Sometimes a party has no choice — the other side refuses to negotiate, assets are at risk or an injunction is urgently needed. But they do mean that litigation should be entered into with a clear understanding of the full range of potential outcomes and their commercial consequences.

Practical Steps When a Dispute First Arises

When a commercial dispute first surfaces, the steps you take in the first forty-eight hours can determine whether the matter is resolved quickly or escalates into protracted litigation. The following steps are recommended:

• Preserve all evidence. Gather contracts, correspondence, invoices, delivery records, file notes and any other documents relevant to the dispute. Issue a litigation hold to prevent routine destruction.
• Review the contract. Identify dispute resolution clauses, termination provisions, limitation of liability clauses and any contractual requirements for notice or negotiation.
• Assess the legal position. Identify the strengths and weaknesses of your position, the remedies available and the realistic range of outcomes.
• Consider the commercial objective. Decide whether the priority is to recover money, preserve a relationship, terminate an agreement, or obtain a binding determination. The objective shapes the strategy.
• Act promptly. Delay can weaken your position, risks limitation periods and may signal uncertainty to the other side. A prompt, measured response is generally preferable to silence.
• Engage legal advice early. A brief consultation with a commercial litigator at the outset can clarify the merits, identify the best resolution pathway and prevent costly mistakes.

Common Mistakes That Make Disputes Harder to Resolve

Business owners often make predictable mistakes that escalate disputes and reduce the chance of settlement. The most common include:

• Ignoring the problem. Hoping a dispute will go away usually makes it worse. Unanswered correspondence is treated as a tacit admission, and the other side escalates.
• Reacting emotionally. Angry emails, public accusations and personal attacks destroy goodwill and make settlement harder. Commercial disputes should be handled calmly and professionally.
• Failing to document. Verbal agreements and informal understandings are difficult to prove. Contemporaneous records are the foundation of a strong position.
• Overstating the claim. Inflated demands undermine credibility and invite the other side to dig in. Claims should be evidence-based and proportionate.
• Commencing proceedings prematurely. Court proceedings should be a last resort, not a first response. Starting proceedings before exploring negotiation or mediation often increases cost and reduces flexibility.
• Rejecting settlement without understanding the risks.A bird in the hand is often worth more than the uncertain prospect of a larger judgment after years of litigation.

When Legal Advice Should Be Obtained

Legal advice is valuable at every stage of a commercial dispute, but it is essential in the following circumstances:

• when the amount in dispute is significant or the contractual provisions are complex;
• when the other side is legally represented or has commenced proceedings;
• when an injunction, freezing order or other urgent relief is required;
• when the dispute involves regulatory compliance, director duties or potential personal liability;
• when limitation periods may be approaching — a contract claim in Victoria is generally subject to a six-year limitation period under the Limitation of Actions Act 1958 (Vic), but accrual, contractual variation and statutory exceptions can alter that position and require claim-specific advice;
• when the dispute involves a related party, shareholder or partner, where personal and commercial interests are entangled.

Early legal advice does not mean immediate escalation. A good commercial lawyer will assess the merits, map the resolution options, draft correspondence that advances your position without inflaming the dispute, and help you make informed commercial decisions at every stage. For ongoing commercial legal support, see our Commercial & Business Law and Litigation & Dispute Resolution services. For campaign-specific issues, see our guide to advertising and influencer marketing law in Australia.

Frequently Asked Questions