When caught up in a business dispute, your instinct may be to pursue legal action against the other party. Here, Grid Law founder David Walker explains the essential considerations you should take before you decide to take someone to court.
When someone owes you money, has breached your contract, poached an employee or perhaps stolen your idea, emotions will be running high. You will want to fight back and get even. Your first thought may even be to sue them.
But should you?
Taking legal action is a serious step and whilst you often have to think and act fast, you shouldn’t make any rash decisions or you could make the situation worse.
So, how do you know if taking legal action is the best decision for you and more importantly for your business?
Answering the following questions will help you decide.
You need to decide what outcome you’re looking for and whether this is something the court has the power to give. In most cases, there are three possible outcomes a court can order. These are:
Compensation (often referred to as damages)
In the vast majority of cases, there will be a monetary award. The court will order that the other party (the defendant) pays you a sum of money to compensate you for the losses you have suffered, or to take away the profits they have unfairly gained.
This is an order to stop or prevent the defendant from doing something. For example, injunctions can be used to prevent a competitor from releasing a product or using a brand that would infringe your intellectual property rights.
A court generally won’t grant an injunction if compensation is an adequate remedy. There has to be a real chance of your business suffering irreparable harm before the court will grant an injunction.
This is an order compelling the defendant to do something. However, the court will not always force someone to do something against their will, especially if personal relationships are involved.
For example, you may be concerned about an employee leaving your business and going to work for a competitor. You may be worried about their knowledge of your business and the clients they could potentially take with them. You may desperately want them to stay and work for you, but the court won’t order this. The employee can’t be made to work for you against their will.
However, if the employee leaving is likely to damage your business, you may get an injunction to stop them working for the competitor for a short period of time. You may also be able to claim compensation if they breach any of the restrictive covenants in their employment contract and you lose business as a result.
If one of these outcomes will solve your problem, then great, taking legal action may be the right course of action for you.
If the outcome you’re looking for is to punish the other party, legal action may not be the best option. The courts will only punish someone if they have committed a crime and the vast majority of business disputes are civil disputes, rather than criminal disputes.
Are you confident you will win any legal action you start?
The outcome of any legal action is never guaranteed so you won’t want to start a claim unless you are confident of winning. In theory, to win a civil claim, you only need to have a slightly better case than your opponent. The judge will look at all the evidence and decide whose version of events is more likely to be correct.
In practice, you want your case to be as strong as possible. That means having as much evidence as you can find to back up your version of events. Ideally you will have documents and written records as these are the strongest forms of evidence.
If you only have witness evidence the outcome will be less certain. Memories fading or suffering from nerves on the day of the trial can dramatically affect the strength of your case.
So, even though you may know the defendant has done something wrong you won’t want to start legal action unless you have the evidence to prove it.
Is the defendant solvent?
In my experience, there’s nothing worse than an empty victory. You don’t want to go through all of the time and expense of legal action, win your claim and then find out that the defendant doesn’t have the resources to pay the compensation ordered by the court.
Before starting legal action, you should find out as much information you can about the defendant’s financial health.
If they’re a company, carry out a company search to see if they’re profitable or have any charges registered against them. If your legal action pushes them into insolvency and the company is wound up, any secured creditors will be paid first and this could leave nothing for you.
Do you have the time and resources to commit to legal action?
Assuming the court can give you the remedy you want, you have a strong case and the defendant is solvent, you still need to think carefully about the commitment in time and resources you will have to make.
The simplest debt recovery claims can take up hours of management time and more complex cases will require even more commitment, even when you have a solicitor representing you. You will need to gather evidence, attend meetings and make decisions about the case and this will divert your attention from other, more important tasks.
You have to decide whether this is the best use of the company’s resources.
As you can see, starting legal action is a serious decision. It should always be a last resort and only started for sound commercial reasons. Having said that, you shouldn’t be afraid of starting legal action if it’s the right action for you to take.
There are plenty of tactics you can use to keep the risks to a minimum and give you the best chance of reaching a commercial settlement before you reach trial.
If you’re involved in a commercial dispute and you’re not sure whether or not to start legal action, please feel free to get in touch. Email me at email@example.com and I’ll happily talk through your options with you.
If you’ve decided to pursue legal action, find out how to win a court case without a lawyer
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