Litigation is an unpleasant and stressful experience for a small business to go through. Most small business owners prefer to focus on what actually makes their business grow and operate, rather than dwelling on past mistakes or analysing small administrative details. Unfortunately, being sued can often be about very little details that happened in the heat of the moment.
Knowing when to defend proceedings or when to settle can be a hard decision, but part of a lawyer's job is to help give you the facts and their legal opinion about your prospects for success.
When things begin to go wrong and litigation begins to look like a possibility, it is time to go and get legal advice. There can be a strong tendency to resist the inevitable and hope that things will simply resolve themselves. In addition, some people can be quite adverse about spending time and money in seeking legal advice when they see themselves as having done no wrong. Unfortunately, this optimism can be misplaced, as your business cannot “bury its head in the sand” and hope the matter simply disappears.
A logical first step is examining the possibility of resolving matters outside of court. This does not necessarily mean caving in to every demand, but should be about an assessment of your business' exposure to risk. Just as you would take out insurance against the possibility of theft or fire, you should make an assessment of how likely it would be that an adverse finding could be made against you if the matter did end up in court.
Commercial disputes are rarely one-sided and a lawyer can help you analyse the plaintiff's perspective. Many claims are often settled out of court, as the parties acknowledge that even though one can be completely legally “right”, the court is only obliged to assess the likelihood of events “on the balance of probabilities”. Unlike criminal trails (where the charge must be proved “beyond reasonable doubt”) the judge need only be convinced that a particular party's account of events was more persuasive. This results in almost all commercial litigation carrying some degree of risk.
There are also matters of resources to consider. Defending proceedings can be an exceedingly time-consuming and expensive process. Although there are processes available in the courts to attempt to have the plaintiff provide security for your costs in defending the claim, this may not always be appropriate in every case.
In addition, some legal claims may allow the plaintiff to seek a court order to prevent you from doing something (or requiring you to take a particular action) before the matter is finalised. This is court order is known as an “injunction” and it can be a very serious matter to ignore or breach an injunction. Although the court is unlikely to grant an injunction that will have a crippling impact on your business (such as preventing your business from spending any money), the court often looks to preserve the balance of matters until the dispute can be completely resolved. At the very least, an injunction will be a considerable inconvenience to your business.
Putting it into Perspective
When defending proceedings, it is always important to keep the bigger picture in mind. Litigation can drag on for years and in some instances it is unavoidable (in the sense that settling would involve too high a cost for the business). However, if spending that time and effort results in a far higher cost than quickly settling at the outset, this is hardly a good result for your business.
When speaking to a lawyer, try to keep a level head about what the plaintiff is demanding. While the business relationship with the claimant is probably beyond salvaging, the best thing you can do is seek to minimise your risk by getting advice. It is then your choice to defend a claim or to weigh your settlement options.