When times are tough, businesses may look to litigation when feeling threatened. Being on the receiving end of such threats is never a pleasant experience – yet, writes The Legal Director’s Natalia Samodina, by reacting in a calm, considered manner, and considering the options available, it might be possible to salvage the situation – and any business partnership – without turning to the last resort …
In today’s tough economic climate, disputes feel more acute. With squeezed margins and stretched business models, it is conventionally unsurprising that some turn to litigation to recoup losses – be that targeting contractual partners over alleged defaults, insurers with deeper pockets, or professional advisers whose advice is scrutinised after the fact to shift financial liability.
But, as this article shows, when times are tough, litigation is exactly the kind of thing businesses should try to avoid (like the plague).
Litigation is not a fast or frictionless process. On the contrary, in England the backlog in the civil justice system continues to grow, with small claims taking on average 54 weeks to reach trial, and more complex disputes 80 weeks – and that’s just to begin proceedings.
Litigation drains financial and human resources, destroys relationships and reputation. It is as uncertain as it is slow. And those threatening you may or may not know that.
So, what do you do when a legal action is threatened, whether by a verbal ultimatum, an email or a formal letter? Let’s jump into it.
Triaging the threat
Not all litigation threats are created equal. Before picking up the phone or drafting a reply, it pays to pause and diagnose the situation with a cool head. That initial triage can save time, money and missteps later down the line.
Here are some key considerations to guide your early assessment:
- Who is making the threat, and how serious does it seem? Does this smell like a pressure tactic?
- Strip out the emotive language and look at what is really being alleged. Is there a credible contractual breach?
- How economically important is the relationship with the sender to your business?
- Do you agree with the merit of the claim? Are there documents or advice that clearly support your position?
- Consider the practical toll of litigation – time, energy, legal fees and disruption to your business, bearing in mind that the other side will likely be running the same assessment.
- A sharply worded email is not a claim form. Consider whether this is still salvageable through negotiation or other forms of managed engagement.
Getting clarity on these points not only frames your initial response but it will also help shape a broader strategy that reflects your business priorities as much as your legal rights.
Engage with purpose
Once you’ve triaged the threat, the next step is to decide how and when to engage. This stage is about setting the tone, taking control of the dialogue and laying the groundwork for a resolution that protects your interests.
Here are some guiding principles:
- An off-the-cuff reply can haunt you in ‘disclosure’ – that is the formal legal process of exchanging documents and communications to substantiate each side’s position. Take a breath and send an initial holding letter, signalling that you are taking legal advice, giving you a breather before you are ready to engage on merits. This step can be taken before the triage.
- Work closely with legal advisers before putting anything in writing. They’ll help test the validity of the claim and spot tactical issues, like whether to preserve ‘privilege’ (that is your right to keep certain types of information from disclosure) or protect insurance positions.
- ‘Silence is deadly’. Do not ignore the claim or unduly delay your response.
- If there’s a commercial relationship worth saving, let your language reflect that, even as you protect your legal flank. Establish two channels of communication: one protected by a ‘without prejudice’ header for all correspondence related to the dispute; and the second one open, relating to the parallel ongoing commercial relationship (if that exists).
It’s not about playing nice. It’s about playing smart.
Legal positioning
Once you have clarified your legal position, ask your solicitor if a dispute can only be heard by a court (if it comes to it) or if alternative dispute resolution (ADR) is possible.
Do not rush to those formal options, and let me be unequivocal up front – litigation should be your last resort. Instead, do your utmost to resolve the dispute by negotiations with your trusted legal adviser backing you.
If that option ends up being a dead end, consider ADR. Whether it works, and if the dispute ultimately goes to court, the judge would favour a party that engaged in ADR (it’s a public funds-saving thing).
Three key ADR options stand out:
Mediation: The most collaborative of all ADR routes, mediation invites parties into a confidential setting, often the first meaningful exchange since tensions flared. A neutral facilitator, who is usually a very experienced lawyer, guides the dialogue without passing judgment.
Pros: it is flexible, fast, relatively inexpensive, and can begin even before formal claims arise.
Cons: mediation outcomes aren’t binding unless documented in a signed agreement.
Expert determination
When disputes turn technical (regarding product specs or import rules, for example), expert determination is a sharper tool. Parties appoint a neutral industry or subject expert (not a lawyer) to deliver a decision, guided by written submissions and industry benchmarks.
Pros: it is speedy due to a streamlined process; and cost-effective for the same reason; it is private; it can be binding if the parties agree to that in writing; and it offers closure without combative theatrics.
Cons: there’s usually no right to appeal or change the decision; there are no procedural safeguards; and there is no automatic enforcement, and it has to go through the courts, if the parties refuse to abide by the decision voluntarily.
Arbitration
Arbitration mirrors litigation’s structure, with binding enforcement, but offers greater control, privacy and flexibility.
Pros: proceedings are private (subject to institution rules), shielding sensitive commercial information; there will be a faster resolution compared to court trials, reducing disruption and cost; parties choose arbitrators, often with industry insight; and it is less adversarial.
Next steps
If you’ve received a legal threat or expect one soon, don’t let panic dictate your response. To stay ahead of the curve, spot weak points in your contracts before they unravel, and train your staff to ensure that contract compliance is clear and documented.
To discuss a threat of legal action that you have received, email [email protected] for a free 30-minute consultation.
