Litigation

Advice On How To Avoid Litigation

This information is taken from the Australian version of The Business Legal Lifecycle Book written by Jeremy Streten.
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Phase 10 – Litigation and Dispute Resolution

Litigation is the term that is given to the process that involves either commencing proceedings in a court to sue someone or defending an action in a court. Dispute resolution is the term given to the efforts made to reach a resolution to a dispute before it gets to litigation.

The Litigation and Dispute Resolution phase is positioned at this point of the Business Legal Lifecycle due to the fact that no matter how successful your business is, it is likely you will encounter some form of litigation during the Lifecycle.

Different types of litigation that could threaten a business include:

In the Litigation phase, I will go through the basics of litigation, some tips on avoiding litigation, some tips on debt recovery, and matters to consider if you are being sued. Going to court is not a pleasant experience for any business owner. It means that something has gone terribly wrong in a business relationship that cannot be resolved by negotiation or discussion. Statistically speaking, only one in every thousand disputes results in litigation and, of these, less than five percent will proceed as far as a trial. Even though only a miniscule amount of disputes actually end up in court, it is important that you understand the process, as avoiding it will save a great deal of time and money.

Important considerations during litigation are:

Dangerous considerations during litigation are:

What is Litigation?

Litigation is the term used to describe the court process to resolve disputes. Generally, litigation involves the following (summarised) at:

There are other steps that a successful party can take to enforce their judgement but these are the most useful that I have seen to enforce a judgement for a debt. As can be seen from this short explanation, the process of litigation is a lengthy one that will incur significant costs. It is critically important that any person engaging in litigation ascertain from their lawyer what the implications, consequences and costs are likely to be before making a decision whether the action is worth pursuing or defending. They also need to be aware that, if they lose, they will likely be liable for a lot of additional costs from the successful party.

From the Case Files

An example of where a client did not understand the process was when they were using another solicitor for litigation. The client was a franchisor of a large franchise business that sold various food products to the public in a large number of stores Australia-wide. The business had not had any disputes with their franchisees for many years; 20 in fact, that they had been operating a franchise business. However, at one point the client entered into a dispute with a franchisee. The client did not have the process explained to them or the likely costs of entering into the litigation. An assumption was made by the lawyer that the client understood the process and the likely costs and timing. This was made worse by the fact that the client had been in business for a long period of time so the lawyer presumed that they had been through the litigation process before. Unfortunately, the client did not understand the process and at mediation had the opportunity to resolve the dispute and pay the franchisee $50,000.00. As the franchisor did not understand the process and the fact that they could lose, they went to trial and were forced to pay $600,000.00. Had the process been explained to them clearly they would have resolved the matter much earlier and for far less money. In the end the franchisor paid the money and was able to continue trading but after suffering a significant loss as a result of not understanding either the process or the risks involved.

Summary of Litigation Law Services

Litigation is a very important phase in the Business Legal Lifecycle and can have enormous ramifications on the future of your business. If litigation is not handled properly, it could potentially lead to the premature end of your business.

Failing this phase may force you to sell your business for much less than it is worth or, worse still, may result in seeing the next two phases (Sale of the Business and Retirement) skipped entirely, leading straight to the Insolvency/ Winding up phase. It is critical that you seek legal advice on all of these matters to ensure that you properly and safely navigate your way through it.

It is also important that you deal with all disputes in a commercial manner. Making sure that you are aware of the process, likely costs, and risks inherent in litigation will ensure that you make decisions on a financial, not emotional, basis. Remember that in every dispute, there are always two sides and the truth usually lies somewhere in the middle.

Tackling debts head on is the best way for you to protect your business as you can find solutions that you can accept rather than having solutions imposed upon you by a court.

Questions to ask before you progress to the next phase of starting your business:

1

Have you paid all your debts that are due and owing?

2

If not, can you enter into a payment plan?

3

Is there anything that you can do to avoid going to court?

4

Do you have a strong case to go to court?

5

Do you understand the court process and the issues with going to court?

6

What are your rights?

7

How much is it going to cost to go to court?

8

Do you need to recover any debts owed to you?

9

Have you put debt collection procedures in place?

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