The word litigation usually strikes fear into the hearts of the business community. Litigation can be time-consuming and expensive and businesses in all areas face increased risks of litigation as customers seek legal remedies and competitors look to find competitive advantage, often through patent, copyright or other IP litigation. Badly-managed litigation is a very painful experience indeed. Managing litigation risk is therefore of huge importance for businesses. But the challenge doesn’t start at the Court door.

Avoiding litigation

There are two parallel strands of litigation risk that the business should be aware of: Compliance Risk and Business Risk.

Compliance Risk relates to the full range of statutory and regulatory regimes that apply to the business, e.g. employment law, health & safety, environmental law, licensing regimes etc. It is vital that businesses manage compliance risk by formulating rules, procedures and training that are effectively enforced and regularly reviewed.

Business Risk relates to the way the business deals with its customers, suppliers and competitors. Regular updates of terms & conditions, checklists and guidance for staff who use such documents are examples of steps that can be taken to reduce the scope for expensive disputes arising.

Being prepared

A major challenge when a dispute arises is cost. Legal costs can quickly spiral, presenting difficulties with managing budgets and cashflow. Putting into place "before the event" (BTE) legal expenses insurance is well worth consideration. Policies can be tailored to meet the business's individual needs.

Putting into place a Crisis Management Plan (CMP) which sets out the initial steps to be taken in the event that a dispute arises can pay dividends in terms of ensuring the litigation runs smoothly and doing everything possible to protect the reputation of the business in the early stages of the dispute.

When a dispute arises

If a CMP is in place for the business, getting to grips with the dispute as soon as it arises will be much easier. A few key steps at the outset can make all the difference to the smooth running of the case, e.g. preventing destruction of evidence by routine email deletion; prompt cascade of information to stakeholders and witnesses; agreeing a communication/decision making protocol.

The approach to legal costs should be decided at the outset of the case. If the business has no BTE insurance, it may be possible to obtain "After the event" (ATE) insurance. If the business is going to meet the legal costs itself, what budget are these going to come out of? How will these be managed? Your legal team should be able to scope out anticipated costs and provide regular updates as the case develops. Regular billing will ensure that issues are flushed out quickly and expectations managed.

Early legal advice should be obtained on liability, the value of the claim, evidential gaps, further investigations and prospects of success. Whilst that assessment will develop over time, obtaining an early view will help identify a strategy and plot the critical path

Thought should be given to the human challenges of litigation. A protectionist approach that does not tolerate adverse views or critical analysis can prevent weak lines of argument being identified. A blame culture can inhibit witnesses and prevent unhelpful evidence arising until the case is underway. Certain personnel may be so involved with the dispute that their judgment is affected, rendering them unsuitable to deal with the lawyers. It is helpful if such issues are identified at the outset. A CMP can assist with this.

Conclusion: Be prepared!

The successful management of litigation risk, like most things, is all about preparation. Strong internal processes and procedures that are enforced and regularly reviewed will help prevent disputes arising in the first place. And when they do arise, a CMP will enable the business to focus immediately upon the task at hand. Finally, prompt assessment of the legal issues, the evidence, the value of the claim and the appropriate strategy can put the business on the front foot going forward.