What is legal risk management?

Legal risk management involves identifying circumstances that could expose a business or organisation to legal liability, financial loss, regulatory consequences or disputes and taking appropriate steps to manage those risks.

Depending upon the business, this may involve reviewing:

• contracts and commercial agreements;
• insurance arrangements;
• employment and contractor arrangements;
• property and leasing arrangements;
• business structures;
• shareholder and partnership arrangements;
• director and governance issues;
• intellectual property and confidential information;
• regulatory obligations;
• privacy and information management;
• disputes and complaints;
• debt recovery procedures;
• building and construction arrangements;
• relationships with suppliers and customers; and
• internal policies and procedures.

The appropriate scope of a risk review depends upon the nature, size and activities of the organisation.

Contract Risk Management

Contracts are one of the most common sources of commercial legal risk.

A contract may create obligations or liabilities that are not immediately apparent to the business entering into it.

We can assist with identifying and managing issues such as:

• unclear obligations;
• inappropriate warranties;
• indemnities;
• liability provisions;
• termination rights;
• dispute-resolution clauses;
• payment provisions;
• limitation of liability clauses;
• guarantees;
• insurance requirements;
• intellectual property provisions;
• confidentiality obligations; and
• risks associated with standard-form contracts.

The objective is not necessarily to eliminate every risk.

Rather, it is to ensure that the business understands the risks it is assuming and makes an informed decision about how those risks should be managed.

Insurance Risk Management

Insurance is an important part of a business’s overall risk-management strategy.

However, having insurance does not necessarily mean that every potential loss will be covered.

Issues may arise concerning:

• the scope of cover;
• policy exclusions;
• policy conditions;
• limits and sub-limits;
• deductibles and excesses;
• notification requirements;
• business interruption;
• professional indemnity;
• public liability;
• property damage;
• cyber and other emerging risks;
• changes in the nature of the insured business; and
• whether the insurance program continues to reflect the actual risks of the business.

Ross’s previous experience as an insurance claims officer, loss adjuster and underwriter provides a practical perspective when reviewing these issues.

Legal advice can complement, rather than replace, advice from an appropriately licensed insurance broker or other insurance professional.

Claims Risk Management

A business’s response to a potential claim can materially affect the eventual outcome.

Early decisions about notification, preservation of documents, communications with counterparties and insurers, and the management of evidence can become important if a dispute later develops.

We can advise businesses on appropriate legal responses when a potential claim or dispute first emerges.

This may include:

• identifying contractual obligations;
• reviewing insurance notification requirements;
• preserving relevant documents and evidence;
• communicating with insurers;
• assessing potential liability;
• considering settlement opportunities;
• protecting legal rights; and
• developing a strategy for resolving the matter.

Early legal advice can sometimes prevent a manageable issue from becoming significant litigation.

Business Interruption and Continuity Risk

Business interruption can expose an organisation to substantial financial loss.

Risk management may involve considering:

• dependence upon particular premises;
• key suppliers;
• critical equipment;
• major customers;
• information systems;
• contractual obligations;
• insurance arrangements;
• business interruption cover;
• alternative trading arrangements; and
• recovery and continuity procedures.

Where a business interruption event occurs, legal and insurance issues may arise simultaneously.

Lee Lawyers’ experience in insurance disputes and commercial litigation enables these issues to be considered in the context of the broader commercial position.

Property Risk Management

Property can represent a substantial proportion of a business’s assets and obligations.

Legal risks may arise from:

• ownership structures;
• leases;
• development arrangements;
• easements;
• access;
• building works;
• defects;
• maintenance obligations;
• property damage;
• insurance;
• environmental obligations; and
• disputes with neighbouring owners, landlords or tenants.

We can assist with identifying legal issues affecting commercial, retail and residential property arrangements.

Building and Construction Risk

Building and construction projects can involve significant contractual and financial risks.

Risk management may include reviewing:

• construction contracts;
• scope of works;
• variations;
• payment provisions;
• warranties;
• indemnities;
• insurance requirements;
• defects obligations;
• delay provisions;
• termination rights;
• dispute-resolution provisions; and
• responsibility between owners, builders, contractors and consultants.

The objective is to identify potential disputes before they become entrenched.

Where a dispute does arise, early legal involvement can help determine whether negotiation, mediation, QCAT proceedings or court proceedings are appropriate.

Corporate and Director Risk

Directors and business owners can face personal and corporate risks arising from decisions made in the course of operating a business.

Depending upon the circumstances, risk management may involve consideration of:

• directors’ duties;
• conflicts of interest;
• related-party transactions;
• shareholder arrangements;
• corporate authority;
• guarantees;
• solvency issues;
• company assets;
• confidentiality;
• business opportunities; and
• governance procedures.

Appropriate advice can help directors and businesses understand their legal obligations and manage potential exposure.

Estate and Succession Risk

For privately owned businesses, succession planning can also involve significant legal risk.

The death, incapacity or retirement of an owner can create uncertainty concerning:

• ownership;
• management;
• shareholder interests;
• partnership interests;
• business assets;
• insurance;
• guarantees;
• succession arrangements; and
• disputes between family members or business owners.

Legal risk management should therefore be considered as part of broader business and succession planning.

Dispute Prevention

One of the most effective forms of litigation management is preventing the dispute from arising in the first place.

That does not mean every disagreement can or should be avoided.

Rather, a business can often improve its position by:

Identifying risk early
Recognising potential legal problems before they become disputes.

Documenting agreements clearly
Ensuring important commercial arrangements are properly recorded.

Understanding contractual obligations
Knowing what the business has agreed to do—and what the other party has agreed to do.

Maintaining appropriate insurance
Ensuring insurance arrangements are reviewed as the business changes.

Preserving evidence
Maintaining appropriate records and documents.

Responding promptly
Obtaining advice when a significant issue first arises.

Having a dispute-resolution strategy
Considering negotiation and mediation before disputes become entrenched.

Legal Risk Audits

Lee Lawyers can undertake a targeted legal risk review for a business or organisation.

The scope can be tailored to the client’s circumstances and may include a review of:

1. Corporate structure
2. Commercial contracts
3. Insurance arrangements
4. Property and leases
5. Building and construction
6. Business relationships
7. Dispute exposure
8. Governance and directors’ obligations
9. Risk allocation and indemnities
10. Existing or emerging claims

The outcome can be a practical risk register identifying areas requiring attention and prioritising those issues according to their potential significance.

Risk Management for Professional Referrers

Legal risk management can also be valuable for professional advisers who identify potential legal exposure in a client’s affairs.

Lee Lawyers can work alongside:

• accountants;
• financial advisers;
• insurance brokers;
• business advisers;
• property professionals;
• building consultants;
• other lawyers; and
• professional service providers.

Where an issue falls outside the referrer’s area of expertise, early referral can allow the legal issue to be considered before it develops into a dispute.

From Risk Management to Dispute Resolution

Sometimes, despite appropriate risk management, a dispute will arise.

When that occurs, Lee Lawyers’ litigation and dispute-resolution experience means that the firm can continue to assist.

Our broader practice includes:

• insurance disputes;
• business interruption;
• TPD and income protection;
• compensation claims;
• estate disputes;
• family provision applications;
• commercial litigation;
• property disputes; and
• building and construction disputes.

This provides continuity between preventing disputes, managing emerging risks and resolving disputes when they occur.