Businesses across the world have been affected by the Covid-19 pandemic. The impact of the pandemic was largely taken by the commercial contracts. Though the force majeure clause was seen incorporated in most of the contracts, the real question to contemplate would be how far the said clause was capable of protecting the interests of the client. Another example to quote is regarding the changes incorporated to the consumer existing consumer policies which possibly lead to the risk of unnecessary exposure of being targeted for class action suits.
The below article provides more insight into the Preventive Law practise and reducing the risks and cost arising from legal issues which could have been resolved/prevented.
What is Preventive Law?
Preventive Law is a combination of legal and practical principles for anticipating and avoiding legal issues. Preventive Law practise avoids the common approach of relying litigation but focuses on planning and collaboration to prevent any legal issues. There are no businesses not affected by legislation, regulation, and legal complications. A corporate legal person undergoes risk management from its inception and as it grows eventually it identifies and evaluates how to mitigate such risks and losses. Presently, the businesses have become more complex and so does the risks both legal and financial. Speaking of risks, its usually the corporate legal teams which handles risk management, legal governance, and compliances issues. Before moving on stated below are some of the common legal risks a business usually confront.
This is one of the risks which arises due to the non-compliance with statues, policies and practises applicable for the business organisation. The non-compliance of which will result in legal penalties and financial loss. To quote an example, the failure to file annual returns would land the business in huge debt to government.
Contractual risks arises from failure in performance/fulfilment of contractual obligations. Some of the examples to quote are the breach of terms of contract, failure to perform /provide goods or service as required in the contract or failure to include risk mitigation clause in the contract.
The non-contractual obligations include damages or tortious claims arising out of negligence, misrepresentation or claims for unjust enrichment while conducting business.
Dispute risks arise when there is a disruption stakeholders, consumers and partners to the business which may often result in litigation.
Reputational risks is the loss of good name or goodwill of the business due to malpractices, lack of good governance and transparency towards social responsibility.
Having discussed about the potential legal risks, identifying the same assumes would be the crucial step. Legal risk management starts with the identification of possible threats which could cause loss or disruption to the business. Once identified, analyse how it can impact the business thereby prioritization of risk is done.
The practise of Preventive Law
The impact of the above stated risk can be minimalised if the business can systematically assess the legal status and make corresponding provisions for actions that will reduce their risks of liability. The primary tool for preventive law practise in business setting are legal audits and compliance programs.
The systematic legal audits provides a clear picture of liabilities, liability risks and beneficial legal rights. The said legal audits involve taking inventory of legal constraints and liability standards applicable to the business operation. Conducting a factual investigation of those operations to determine if the identified constraints link to the source of liability.
Compliance programmes are another important tool for preventing a legal liability. A compliance programme would include a group of management practises which has been designed, implemented and enforced in the business organisation which will effectively prevent liability. The said compliance programme should include both prospective and retrospective elements. The prospective components will aim at finding and monitoring activities of employees and persons related with the organisation and regularly providing job orientation and training to make sure that they comprehend/foresee a potential legal liability before it hits the business. The retrospective element of the Compliance will aim at detecting illegal actions or activities raising substantial risk of liability and put a closure to such activities at the earliest. The retrospective inspection can provide a information base for the organisation to formulate compensatory remedies for injured parties and business reforms.
The above part focuses mostly on the internal measures that may be employed by the organisation with or without the help of a lawyer. However, the rest of the part will focus on how business organisations and lawyers/law firms put in efforts to practise Preventive Law.
The aim of Preventive Law practise is to focus on crisis management to planning. The lawyer will work more like a counsellor working closely with the client to discover the reasons behind a legal issue before it manifests. The organisations should have a paradigm shift in their mindset, ie the organisations should have a legal advisory at all time and not only at the time issues crop up. Collaboration involves an approach of involvement of a lawyer at the time of decision making thereby future risk can be mitigated to a large extent.
The Preventive Law postulates lawyer as a proactive problem solver and not as a litigation lawyer. The lawyer should be a part of not just legal issues but non legal issues. It helps the lawyers to use their ability to understand the psychology of the client management for solving the issues.
The above points are not conclusive for an organisation in adopting a preventive law approach. However, the said approach can substantially benefit an organisation to focus more on business rather than breaking head over legal issues/liabilities.
We at Skylegal follow the above principles to provide our client with preventive legal measures to identify, cure and mitigate their legal issues especially during these unprecedented times. The said approach has applauded by our clients not just because it is cost effective but ensures a smooth running of their business without the worry of future legal risks and compliances.
If you would like find out more by contacting us, please feel free to write to firstname.lastname@example.org
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