No business wants to be involved in litigation. Sometimes, however, there is no choice.

In an increasingly complex and dynamic business environment, businesses must often consider preserving or pursuing legal rights. It may that a business has been sued, there is an important legal right at stake that must be strongly pursued, or the interests of the business or key individuals must be protected.

In these situations, deciding how to respond to litigation, or whether to start or continue litigation, is critical decision that must be carefully and properly considered. It is a judgment that must be frequently reviewed as the situation develops and should be made with the benefit of advisors who are practical, realistic and have experience in successfully navigating business litigation.

Developing a litigation strategy is critical to achieving the right outcome for your business. Below we outline a number of key points crucial to any successful litigation strategy.

1. WHAT DOES A `WIN' LOOK LIKE?

No two disputes are the same and you need to consider what a `win' looks like for your business.

This may be:

  • pursuing your case all the way through the court process to seek to win and achieve redress, even if there are significant challenges associated with the process;
  • agreeing to a compromise to avoid the disadvantages of litigation; or
  • accepting the position of the other party to avoid litigation altogether.

The option that is best for your organisation will depend on the circumstances.

However, it is important to think about this from the outset as it must guide the litigation strategy and should be reviewed throughout the process.

2. STRENGTHS AND RISKS OF THE CASE

You need to consider the strength and risks of the case.

You and your legal team must make an initial assessment, but also review that assessment as the case moves forward and further information comes to hand.

Litigation is rarely a `sure thing' situation; and facts are critical to the result.

Having access to the true facts quickly will allow your legal team to make a more accurate assessment of your chances of winning.

3. FUNDING

It's no secret that litigation is expensive. There is no short cut to case preparation and good case preparation is both time-consuming and critical. Gathering the best evidence on the true facts is paramount and can require a significant investment of time and effort. While short cuts may make things cheaper initially, lack of strong evidence usually means your chances of winning are less or your chances of increased costs later on or overall are higher.

Understanding litigation funding is a key factor to be considered prior to commencing litigation.

You need your legal team to put in place a realistic case budget from the start and review that budget on an ongoing basis. Increasingly, there are litigation funding organisations that can assist in certain circumstances and your legal team should investigate this with you as appropriate.

It is also important to keep in mind that legal costs may also depend on the outcome of the case. If the case is successful, the successful party may be entitled to recover some or all of its legal costs. However, if the dispute is unsuccessful, costs may be ordered against the unsuccessful party and so it will be liable for the other party's legal costs, as well as its own.

Although a worst case scenario, the funding requirements of litigation have the potential to drive an organisation into financial difficulty. Businesses need to act quickly when litigation is looming in order to minimise financial impacts and have a clear strategy on how funding issues will be managed.

4. TIME INVESTMENT

Investment of time is critical to winning litigation.

The facts of the case do not come from the legal team, and any organisation contemplating litigation must be prepared to invest time to assist the legal team in assembling and presenting the best evidence for the case.

This will often involve key people in the organisation providing detailed statements and compiling large volumes of documentary material for, and with, the legal team. This will take key people away from their usual duties at various times during the case.

Businesses contemplating involvement in litigation must consider how this time investment will be managed.

5. OPERATIONAL DISRUPTION

A significant factor to be managed (but often overlooked) is the disruption to regular business operations.

Court proceedings can be a frustrating distraction from core business operations, shifting the focus from marketing and development to dealing with external stakeholders, regulatory requirements and reputation management. This can affect both short term and long term business operations, which in turn may create additional financial risks.

Additionally, to balance the financial pressures of litigation, some businesses may feel the need to cut operating expenses, limit existing services or refrain from expanding services or acquiring new customers. Although the cost of operational disruption can be hard to quantify, it is crucial for senior management to have a plan in place to manage such costs if litigation is at hand.

6. BRAND, REPUTATION AND COMMERCIAL RELATIONSHIPS

Businesses must be wary that during litigated proceedings, judgment may not be confined to the decision of the court.

Litigation is conducted in the public domain and social media has allowed information to be even more quickly and easily accessed. Depending on the nature of the case, other parties involved, the media and public interest, litigation has the potential to have extensive and ongoing impacts on your business' brand and reputation.

When contemplating business litigation, it is also essential to consider the importance of your relationship with the other party. Legal proceedings may not only be damaging to your relationship with that party, but other associated businesses and clientele.

Effectively managing these risks is essential to achieve a `win' from business litigation.

7. PEOPLE IMPACTS

Although the prospect of experiencing litigation is a real and increasing one for businesses, it remains unfamiliar territory for many. This unfamiliarity is compounded by the fact that there is often no absolute certainty as to the process, length or outcome of litigation, irrespective of the strength of a case.

The pressures of litigation can therefore cause personal anguish and emotional hardship. This is not limited to senior management who may be more significantly invested in the overall business or outcome, but to all employees who may feel the stressors of pending legal proceedings and organisational disruption.

This factor needs to be considered and managed at all levels to avoid significant disruption and long term impacts to both people and the organisation.

8. A WINNING STRATEGY

Making the right judgment calls in relation to business litigation is a delicate balancing act that requires a clear plan to manage all of the above factors. It should not be entered in to lightly or without careful consideration and assessment.

While there can be considerable gains associated with litigation, businesses need to have a specific strategy in place to deal with the risks and impacts, including time, emotion and financial and organisational resources. An effective litigation strategy can not only manage but mitigate the impacts and risks of litigation.