Some business owners spend a lot of time and money getting legal advice about whether or not they can sue someone for a grievance.
Getting that advice is, of course, a good idea but it doesn’t necessarily answer the bigger question that a lot of people should be asking. That is, not just can you sue someone but should you?
And while it is not always the role of your legal team to give you advice on whether you should be doing something (it’s really your call at the end of the day), we can at least help you think through some of the less obvious factors that aren’t immediately apparent when making the decision to head towards litigation if you’ve not done it before.
Legal costs
Legal costs are a factor that most businesses are aware of. Of course your lawyer is going to give you an estimate of costs for at least the initial stages of litigation before you give them the go-ahead.
But what are you anticipating will happen with those legal costs? Are you anticipating that, upon success, you will be able to recover the costs from the other party? Are you anticipating that if you do secure a favourable decision from the court it will order the other side to pay all of your costs?
There are two things that are fairly important to realise about legal costs going in.
First, it’s not very common for legal costs to form part of a negotiated outcome. While it is technically possible, usually legal costs of the first thing to go when negotiating. Given that most matters resolve through negotiation prior to trial this is pretty relevant to bear in mind both when making the decision to litigate and with decisions throughout the process.
Next, in the vast majority of cases, even if you do secure a favourable decision from the court, the costs order you are likely to get will not cover all of the money you have had to spend on legal fees. Ordinarily it covers a proportion only.
Opportunity cost
What will be the cost to your business if you, your executives, or your key staff members need to spend a considerable amount of time answering questions from your lawyers, giving statements, or generally assisting with the process?
Think not just in terms of the time itself (which might be quite a bit), but also the distraction and interrupted focus on the role they would normally be performing inside your business.
Bearing in mind you will not recover any compensation for that cost, how does that impact on what you genuinely stand to gain or lose through the litigation process? Will that cost outweigh the potential upside of the payment you are trying to recover?
We encourage you to have a frank conversation with your lawyers about how much time commitment is likely to be necessary so that you can make an informed decision about the real impact that litigation is going to have on your business.
Recoverability
The chances are if you are suing someone you are hoping to recover money.
Can a person you are suing actually afford to pay you the money you are trying to sue them for? While there are some searches that your lawyers can help you conduct to get a vague idea, in many cases it is difficult to get accurate information about whether a person or business actually has deep enough pockets to pay what it is you are seeking.
It gets more complicated, of course, because even if they have the resources now that might not be true but the time you get to a negotiation, trial or decision.
Unfortunately, some people have just enough resources to defend a matter but not enough when the time comes to actually pay what they owe you. A “win” can be fairly empty feeling if it doesn’t come with a cheque in your favour.
Business reputation
In truth, being involved in normal, commercial litigation from time to time does not necessarily have a significant impact on your business reputation. There are a few comments about this topic though that we should highlight.
First, many businesses are concerned about letting a debt go because of a perception that the marketplace will decide they are “soft” and they will have difficulty collecting from others. Generally speaking, this doesn’t really happen. While it is true that word could get around if you are willing to repeatedly write off debts without compelling reasons to do so, this should not necessarily be a primary driving force behind the decision to litigate, especially if the business case on the individual matter does not make any sense.
The other issue to consider is that being involved in litigation can affect some types of tender, and potentially due diligence processes if you are looking to sell your business at some point. As litigation is a matter of public record, if you are involved in regular tenders or interested in preparing your business for sale at some point consider what, if any, impact you think the litigation in question might have.
Suing on principle
Many business owners are tempted to get into litigation because of “the principle”.
That is, the degree to which they believe they have been wronged is significant, and it offends the morality of the business owner to let the other person or business get away with that behaviour unscathed.
We certainly understand this perspective.
At the end of the day only you can decide whether the principle you are pursuing is worth the potential costs and risks of litigation.
We can say from experience, however, that many who get involved in litigation on principle at the start tend to find that over time, as costs are incurred and the events in question are further and further in the past, the desire to defend that principle decreases.
Should you Sue?
It is critical before making the decision to litigate to think through, in discussion with your lawyers, the overall upside and potential downside that litigation could have bearing in mind some of the secondary factors we have set out above. If you are looking to get involved in litigation but not sure whether it is wise for your business to do so, we would be happy to talk it through with you.