When a company is involved in litigation, one of the most significant costs is the disruption to its ordinary business. Executives and in-house counsel devote considerable time and resources to instructing solicitors as well as dealing with reputational risks, external stakeholders and regulatory requirements.
Yet these disruption costs are rarely quantified and often overlooked, even though they are costs that cannot be recovered – win, lose or draw. How then can litigants best manage and minimise disruption costs?
Business needs quick, efficient, affordable and predictable outcomes from litigation. While there has been a push in Australia’s court systems to resolve disputes faster and with less expense, companies often forget the hidden cost of litigation to their business.
When a company is involved in litigation it necessarily means executives will spend considerable time dealing with lawyers, media and other litigation-related issues. This opportunity cost of time is largely hidden and takes management’s attention away from core business issues.
There is also the cost of potential reputation damage from litigation which can be extensive and long-lasting.
While these ‘disruption to business’ costs are sometimes seen as part of the price of transacting, the fact is they are significant and not recoverable. Thus, it makes sense for litigants to have a plan in place to manage these costs as far as possible.
Through our experience, there are five strategies that will help:
- From the outset, be conscious of costs such as management time and resources spent on litigation-related issues. Actively ask questions such as: how will reputational risk be addressed and by whom? what role will management play in reviewing or explaining key documents? who will be required to give evidence and when? what activities will they be diverted from? when will the case actually finish?
- Ensure lawyers are aware of key commercial drivers, reputational and relationship issues and internal resourcing. Lawyers should take these matters into account when formulating a litigation strategy, with particular attention give to traditionally time consuming tasks, such as collating documents for discovery, or sensitive issues, such as dealings with financiers or the media.
- Consider alternative settlement options with an open mind and be willing to do things differently. Estimate the cost of disruption to your business and put a price on it. It may be difficult to quantify precisely, but a ‘ball park’ estimate should be attempted. Too many settlement discussions are dominated by the lawyers’ views of the case, rather than the commercial realities for the participants. As disruption costs cut both ways, consideration should also be given as to whether one’s opponent is likely to suffer from more disruption and whether this presents a bargaining advantage.
- Educate internal stakeholders of the expected disruptions to business before they occur. Surprises are always best avoided, particularly in the pressured (and often highly emotive) environment of litigation. We often see impasses in settlement discussions resolved in the weeks leading up to trial, with previously resolute parties suddenly willing to compromise, when the business disruption of trial is more fully appreciated.
- Acknowledge that litigation is uncertain and can change direction very quickly. Even the best laid plans need to and should be reassessed on an ongoing basis.
In recent years, both the States and Commonwealth have heeded calls to reduce the costs of disputes for litigation parties with a range of welcome initiatives. For example, in the Federal Court of Australia:
- Discovery is no longer ordered as a matter of course and when it is ordered, the court will fashion the orders to suit the issues in the particular case (including whether discovery should be given electronically or limited to specific issues).
- The court will actively look for opportunities for the parties to participate in alternative dispute resolution, primarily mediation, in the early stages of the case.
The imperatives of speed and cost effectiveness are now very much at the forefront of modern commercial litigation. However, the cost to companies of their business being disrupted as a result of litigation, remains largely hidden.
Companies need to take it on themselves to manage these costs. The cold reality is litigation processes have little sympathy for the pressures placed on executives as they try to simultaneously navigate through litigation and run a business.
Alternative dispute resolution processes (such as expert determination and early mediation) can also greatly reduce the demand placed on business by offering a faster and more commercially focussed resolution than traditional litigation.