Five issues to consider before commencing a legal action

Has your business ever faced a dispute with a customer or another business? If you are contemplating issuing court proceedings, are not sure what to do best when a dispute arises or if you simply want to prepare yourself in advance before any disputes arise then take a look at our top tips.

 

1. Consider the risks

Litigation does not come without risks - therefore it is essential to consider these before embarking on a litigation route. Potential risks include:

• Unpredictability - All litigation comes with an element of risk.  Key documents, which may affect the prospects of success of the claim, may not be disclosed until after proceedings have been issued. Witness evidence may also no longer be available and/or may be affected by failing memories.  Witnesses can also be unpredictable as to the evidence they give at trial.  
• Costs - Always bear in mind that if you lose you will be liable to pay your opponent(s)’ costs as well as your own. 
• Time - Remember that extensive management time is likely to be spent in dealing with litigation, including liaising with your solicitors about the matter, providing instructions, gathering information and documents, and potentially attending a trial and other hearings.  Management time is usually not recoverable but it is also important to bear in mind that various members of your staff will be prevented from carrying out their normal duties whilst they divert time to these tasks.
• Reputation - Depending on the type of the claim, litigation can sometimes attract publicity which you may prefer to avoid and which should, therefore, be borne in mind when considering whether to pursue the claim.  
• Relationships - Litigation often results in the breakdown of relations between the parties.  If you wish to try to retain your ongoing business relationship consideration should, therefore, be given to other forms of settlement other than court proceedings.
• Settlement - Having regard to the above, consideration should always be given to the question of settlement – see our further comments below.  

 

2. Remember limitation and don't miss a date 

As soon as the dispute arises, or as soon as you become aware of an issue, it is important to keep limitation in mind in case the necessity to issue court proceedings arises at a later date.  Missing a limitation date is likely to result in an inability to pursue your claim, regardless of its prospects of success. In the UK, the limitation period for claims brought in simple contracts and certain actions in tort (excluding personal injury and latent damage) broadly speaking is six years. However, there are some cases where the limitation period is longer and others where it is shorter. If in doubt you should ensure legal advice is obtained sooner rather than later. 

 

3. Proving your claim

• Contract - Is the contract in writing?  If so, do I have a copy and what are the terms?   If the agreement is not in writing, what are the terms of the agreement?  On what basis do we maintain those are the terms?
• Other documents - What other documents will I need to support my claim? What about documents which are adverse to our claim?  Where are these documents held?  Who is responsible for ensuring that they are retained?  What are my obligations to retain the same?
• Witnesses - Who will provide witness evidence to support our claim and explain the supporting documentation? Do they remain employed by us?  If not, have we got up to date contact details?

 

4. Try to settle

Court proceedings can be a costly and lengthy process, so should be a last resort. It is also worth bearing in mind that the Civil Procedure Rules 1998 (which govern all civil claims in our court system) encourage parties to enter into ADR (alternative dispute resolution) in order to try to settle a claim prior to the issue of proceedings. ADR comprises many forms from a formal mediation at one end of the spectrum to a simply settlement offer letter at the other. It is worth noting that issuing court proceedings prematurely may result in costs sanctions against you (i.e. having to pay the party’s costs) or a reduction of the costs awarded to you.

 

5. Work out how you are going to fund your claim

If you do decide to proceed with court action, it is also important to consider how you are going to fund your claim. The most common ways of funding are:

• Private funding – you pay the costs of the claim as the matter proceeds from your own private funds. 
• Before the Event Insurance (BTE) – legal expenses insurance may be included with some insurance policies (particularly household and car insurance policies) which cover not only your own costs but also those of your opponent(s). 
• After the Event Insurance (ATE) – as the name suggests, this type of insurance is usually taken out after the event or a dispute has occurred.  As such it is usually more comprehensive providing cover in the case of an unsuccessful claim for your own costs together with those of your opponent(s).  Premiums, particularly in civil claims, can be very high but may, in some cases, be deferred until the conclusion of the claim.
• Conditional Fee Agreements (CFA) – also known as ‘No Win – No Fee’ (although not strictly true) this type of funding is very popular for personal injury claims if the matter is not privately funded.  Normally, the CFA will defer payment of your costs until the conclusion of the claim with (if your claim is successful) an additional fee (known as a success fee) being payable at that stage.    No fees are payable if your claim is unsuccessful.  ATE insurance is usually taken out at the same time to provide cover for your opponent(s)’ costs. Success fees are no longer recoverable from the opposing parties.  As such, many solicitors no longer offer these as an available form of funding for civil claims (other than personal injury claims).
• Damages Based Agreements (DBA) – DBAs provide for the payment of costs in the event of a successful claim from a client’s damages payment based on an agreement percentage payment.  As such they are only applicable to monetary claims.  They have found little favour with solicitors and many firms do not offer these as available forms of funding.
• Third Party Funding (TPF) – TPF is funding offered by a person not connected with the litigation. Usually, the funder will accept responsibility for payment of all costs in return for an agreed share in the damages recovered. TPF may be used in conjunction with other funding options. A risk assessment/analysis of the claim will be carried out by the TPF before funding is agreed.

 

Key considerations

Early consideration in relation to the above matters is crucial to the success, or failure, of any claim in litigation.

There is little point in bringing a claim where an oral contract is alleged if the person responsible for entering into the contract on your behalf is no longer employed by you and is not willing to assist by providing witness evidence in support of your claim. Equally, if the contract is in writing but no signed version (or evidence of signature) can be found then even a successful claim may prove difficult.  It is always important therefore to ensure that these matters are reviewed as early as possible and once all relevant documents are located and identified, steps are put in place to make sure the same is retained.