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Look before you litigate
This article was written by Dan Boxall.
Sooner or later and one way or another, businesses will enter into arrangements and relationships which go wrong. Oftentimes when that happens, the corporate blood boils, the company’s knee jerks, the legal team is scrambled and before you know it the Viscount’s Department has served proceedings.
The issuance of formal legal proceedings is a serious matter, a prima facie show of strength and statement of intent. There might be circumstances where such a step is or becomes the only option. But in every situation, prior to proceedings being instituted businesses should give careful and as-objective-as-possible consideration to the potential costs, monetary and otherwise, associated with so doing. Depending on the circumstances, which are always unfortunate, there may be alternative and hopefully happier means of addressing the dispute.
Plaintiff’s potential costs
Legal
If litigation practitioners ever get boring it is about the uncertainties of litigation. No matter how convinced of its case a company may be and no matter how sage and experienced its advocate, it can never be guaranteed success in court. If a plaintiff company loses, in the ordinary course of events it will bear its own legal costs and those of the defendants. Such costs may be considerable, particularly in the context of financial disputes where in many cases the action is complex and document-heavy and the defendants myriad.
It can be costly to discontinue or withdraw proceedings once they have been issued as defendants will in that case look to the plaintiff company for their costs incurred in dealing with the proceedings up to the date of withdrawal. A business should not think that it can issue and then take no further steps while it waits to see whether its pleading frightens the opponent into writing a large cheque. The courts take a proactive role in the management of civil litigation and will require a case to be prosecuted with due expedition.
Even if the plaintiff company wins at trial, as a result of the law and mechanism governing recovery of legal costs pursuant to a court award, there will inevitably be an element of irrecoverable costs to be borne by the winner. That will in practice eat into any damages or other financial award.
Opportunity cost
Litigating requires not only the energies of the law firm but also those of the instructing institution. Huge amounts of time may be spent by senior management in connection with matters such as obtaining legal advice, giving instructions and the preparation of affidavits and witness statements. In addition, weeks and sometimes months may be spent in court at trial.
Others of the company’s personnel may get caught up in the process, for instance collating roomfuls of paper for the purposes of discovery (which is to say, basically, the exchange of relevant evidence).
Needless to say, the opportunity cost of all of that is time which would otherwise be spent winning business and generating income. As a rule in hostile litigation the cost of a company’s internal time is irrecoverable, even if the company wins at trial.
Corporate image
The principle of open justice forms part of Jersey’s law and will be displaced only if it is necessary to do so in the interests of justice. The vast majority of court cases will therefore be open for all to examine, including the media. Regardless again of the perceived strength of the company’s case, any such court appearance carries with it the very real potential for an embarrassing dropping of the corporate trousers.
A company might well see the sense in limiting the frequency of its visits to Royal Court House in order to avoid, for example, the adverse effect on corporate image and business relationships of any suggestion that it might be a serial litigator.
Exposure to unhelpful publicity might be unavoidable in the event that a company is pursued as defendant but that can only make more clear the sense in limiting, insofar as possible, appearances as plaintiff.
Staff morale
Day-to-day work is bound to pile up on the desks of those managers and personnel who are charged with spending their days assisting the company’s lawyers in connection with the litigation. The inevitable result is increased stress and upset in the workplace.
Managers and personnel may have no choice but to give live evidence at trial and to be subjected thereby to nerve-racking and possibly embarrassing cross-examination.
In extreme cases, the financial consequences of losing a case might be so great as to put at risk the future of a company and the jobs of its staff.
Bearing all of that in mind, a company may wish further to consider the following:
Is the claim worth pursuing at all?
Even though a claim may be strong, the potential costs when viewed overall might outweigh the benefits of pursuing it. Consider, for example, the pursuit of an action against an ex-employee for an alleged breach of a restrictive covenant in a contract of employment. Ignoring whatever may be the legal merits of the claim, businesses should weigh the value which might be recoverable if the claim succeeds against, for instance, the cost of its pursuit in pounds and pence and the potential impact (1) on the morale of the remaining staff and (2) resulting from wider public exposure. Though clearly nobody wants to be seen as a pushover, it cannot be good business to litigate in pursuit of ‘the principle of the thing’.
Could a better result be obtained through negotiation or mediation?
Though some would-be defendants will fight to the bitter end, many will have been advised of the potential costs of defending an action (which are at least as unpleasant as those of prosecuting one) and the sense in seeking to resolve the dispute by other means. They may then be amenable to coming to the table, either with or without a mediator having been appointed, to discuss a pragmatic solution alternative to – and almost certainly less costly than – going to court.
Mediation is a relatively new concept in Jersey. It is recognised that it will not necessarily be appropriate or produce results in every situation. Nevertheless, where appropriate it is encouraged by the judiciary and is proving to be an attractive option for businesses who see the sense in taking a practical approach and want to resolve claims in the most timely and cost-effective way. Lawyers remain involved in the mediation process and the temperature is carefully controlled, providing a climate which engenders flexibility and can provoke resolution of even the most sensitive disputes. The issuance of formal proceedings may well have the effect of entrenching positions and making it more difficult to resolve disputes by alternative means.
Conclusion
Before pursuing a claim a company should formulate a clear and commercial view of what it wants and how far it wants to go to get it. Legal advice on the strength of the claim will inform that view; so will an awareness of the potential for exposure to the costs exemplified above.
THIS ARTICLE IS FOR INFORMATION PURPOSES ONLY AND NOT BY WAY OF LEGAL ADVICE. PROFESSIONAL LEGAL ADVICE SHOULD BE SOUGHT BEFORE ANY ACTION IS TAKEN.