Litigation risk and the risks of litigation
Litigation can be necessary to protect intellectual property rights, solve a long standing contract dispute or recover an unpaid sum. Whilst many go into Court proceedings wanting their “day in Court” and keen to prove their case, there are risks to litigation. Sometimes these risks are obscure and not obvious when a business embarks on making or defending a claim.
“Litigation risk” and the risks of litigation are two different things.
A good case is made up of a number of factors that, when pieced together like a jigsaw, reduce the risk of losing the case. These factors include factual evidence in tangible form, witnesses who can explain their evidence in a clear and concise way, legislation or case law that supports the position and a solicitor or barrister who can knit all elements of the case together to present it in a way that is straight forward and easy to navigate.
When one of these factors is missing, it can adversely impact the prospects of the case succeeding. What happens then when both parties arrive at trial confident that they have all of the pieces of the jigsaw?
This creates a situation where the outcome of the case can be quite finely balanced. In these cases, what is known as “litigation risk” becomes more important than ever.
When solicitors refer to “litigation risk”, they usually mean one or more of the following;
A document or email being interpreted by the Judge in a different way to how it was intended. This can change the direction of the case within minutes.
A witness who is overwhelmed by the experience and cannot give their evidence in any coherent way. Or a witness who is ill or having a bad day after an argument with their spouse that morning, is distracted and simply cannot concentrate on the questions being asked. Often these circumstances can impact how the witness comes across and they may appear less credible to the Court.
A Judge hearing the case who simply doesn’t warm to you or your witnesses.
The production of new evidence that has only just been located. Whilst parties are required to provide all of the documents that make up their evidence months before trial, there is always the risk that new evidence, previously overlooked, may surface during the trial.
The judge, the jury, the advocates and the witnesses in a case are all people. Every person has their own unique mix of experiences and challenges, all of which influence their views and the way they understand information. One person will not see a set of circumstances in exactly the same way as another, and it is this, amongst other things, that create what lawyers refer to as “litigation risk”.
Risks of litigation
Your business is engaged in a long standing dispute with another company. You have been unable to settle the dispute by mediation or settlement discussions and you are heading to trial. What are the risks?
The obvious risk is, of course, that you may lose the case. If this happens, you are likely to be ordered to pay a significant contribution to your opponent’s costs. Are there provisions in place to pay what could be tens of thousands (sometimes hundreds of thousands) of pounds as well as your own legal fees?
Unless there is a compelling reason to prevent it, the general rule is that the Court is an open forum. This means that members of the public and the media can watch trials. This can result in the reporting of the case. This, in turn, can cause reputational damage.
If your business has a judgment against it, this could result in insurances being refused or premiums increasing. Depending on the amount of the judgment, it could cause the business to become insolvent.
If the judgment is in a sum that is not immediately payable for cash flow reasons, your opponent may seek a charge over the business and assets. This can curtail your future plans for the business. Worse still, you could have bailiffs attending the premises of the business to recover assets in payment of the judgment amount.
If you trade as a sole trader and do not have the protection of being a limited company, the stakes could be high. A judgment against you could mean you will be exposed personally. In some circumstances, this has resulted in individuals being declared bankrupt and losing their home.
Whilst some may be determined to go to court and prove they are right, litigation can be a risky exercise and should always be the last resort. The solicitors at Sewell Law have decades of experience in seeking to resolve disputes and protect their clients from the, sometimes, huge risks associated with Court proceedings.