Lawyers at 10 paces: The bitter battle you can avoid

There is no more bitter a legal dispute than intra-family litigation. Take Gina Rinehart’s long running feud with her children – John Hancock and Bianca Rinehart – over the allegations of misconduct against Rinehart as head of the family trust. Or consider tyre king Bob Jane’s court battle with his son Rodney over the rival venture set up by Bob following his bitter exit from the family business that he created using company names, domain names and trademarks containing the “Bob Jane” or “Jane” name.

Rinehart’s multi-billion dollar battle continues. As for Bob Jane, the Federal Court in the end restrained him from using his own name to sell wheels, tyres and other car related parts. It was a sad end to what was once a great business success story.

Darren Somers, a partner at Melbourne based law firm Meerkin & Appel says these cases can be worse than family law disputes between husbands and wives.

“It’s like family law but in some ways it’s more bitter,” Somers says.

“Breakdowns between brothers or uncles and nephews can get bitter and you have issues spilling over from 20 years (prior) and they end up fighting over assets.”

Lawyers agree that the best way to avoid these disputes is for the first generation to take charge and ensure all the potential issues are dealt with before they blow up.

Judy Choate, a partner at Adelaide law firm Piper Alderman agrees that intra-family disputes are the most harrowing and emotionally draining. She has managed one case that ran for five years in the South Australian Supreme Court with 14 separate actions. It turned out to the biggest suite of litigation since the Beach Petroleum case in 1990. “It was cousins in the third generation,’’ Choate says. “They were suing each other right left and centre, it was horrendous. It never went to trial; we settled it and we had plenty of time in court.”

Ideally, a family constitution setting out the values and principles and rules behind the business could reduce the likelihood of litigation, or at least provide some way of managing the litigation when it happens.

But the reality is that few family businesses have these documents. The 2013 KPMG and Family Business Australia survey found that only 16 per cent of family businesses have a constitution.

Choate says a constitution might help prevent a dispute and it often makes the dispute easier to resolve, but it’s no guarantee. It does not necessarily resolve the tensions.

She says lawyers can use other tools and procedures to prevent or manage disputes. These would include shareholder agreements or the family developing a charter of rights.

“They help to minimise the likelihood of a dispute and if one arises, it maximises the ability for the dispute to be dealt with sensibly without going to the court,” she says.

Another option, she says, would be mediation. But the important part is that the family needs to be proactive and think ahead, preferably before a dispute erupts.

“That would be greatly assisted if long before the dispute arose, the family had turned their minds to the potential for conflict and worked out between themselves what the family thinks should happen if there is a dispute,” she says. “The timing is best when there is no dispute. It’s a bit like having a fire evacuation policy in your building before there’s a fire.”

Paul Kordic from Perth based law firm Talbot Olivier concurs and says it really comes down to the founders of the family business taking steps to ensure there will be no litigation after they have gone.

“It’s irresponsible stewardship by the first generation to allow these things to occur," he says.

He says other options could include family wills, family trusts and amendments to the trust deed, or unit holders’ agreements.

Clas Einberg from Parramatta-based Coleman & Greig says his firm organises intense family discussions tackling the politics and tensions. These sessions can sometime last for months, even a year. The cost is about $15,000.

“What we try to do is get all of the players together,” Einberg says. “We then try to sit down individually with all of them and try to get an understanding from all of them. We talk individually with each member of the family, what are the good things about the business, what are the bad things about the business, what’s wrong with management, whether they’re satisfied with their share of the action, whether they respect and trust parents and siblings and where they see the business going in the long term.

“We get a snap shot of everyone’s separate view of what the elephant looks like. We get a pretty clear picture of where everyone is coming from, once we have that picture, we do a report and give it to the whole family.

“Once we have given them that report, we hold a series of meetings where we talk through all these issues and we try to get them to the stage where they are sorting out where the business is going.”

He says it’s a process that helps reduce the likelihood of disputes because people see where everyone else is coming from.

Einberg believes litigation will become even more of an issue with baby boomers retiring. He says disputes could also see more family businesses being put on the market. And because there will be so many being sold, the children of the owners won’t be getting that good a price.

The only way to resolve these problems, he says, is to act now. “There are a million good reasons for family businesses to get their act together and do everything they can to minimise this,” he says.