Six issues to consider before taking legal action

Taking legal action is a serious step for any small business.

Before taking legal action there are a number of matters that you should consider:

1. Is legal action necessary?

Taking legal action should be a last resort. Many disputes can be resolved without taking legal action, whereas in others legal action is almost inevitable.

Before taking legal action you could send a letter to the other party to make it clear that you intend to commence legal action if your dispute is not resolved. Although you may be able to undertake this step without the assistance of the solicitor, generally speaking, if such a notice is given by a solicitor then it is likely to be taken more seriously by the other party.

If you send such a notice then make sure that the other party is given sufficient time to respond. The response time will depend on the nature of the dispute, but should generally be between seven to 28 days.

An alternative to a notice of the kind described above is to suggest that the parties participate in alternative dispute resolution (ADR), which includes mediation, conciliation and arbitration. ADR is a cost effective means of resolving a dispute.

It can generally be undertaken in a timely manner with a view to resolving the dispute quickly and potentially salvaging the relationship between the parties. If a matter proceeds to court then in many cases alternative dispute resolution is compulsory.

2. Will taking legal action damage your reputation?

Damage to the reputation of a business can often be an unexpected cost of legal action. The reputation of a business takes years to build but can be instantly destroyed if you receive bad publicity or if you take legal action against one of your key clients or suppliers.

This means that you must carefully consider whether potential legal action could damage the reputation of your business, regardless of whether you win or lose.

3. What’s the cost?

Taking legal action can be expensive. Sometimes the cost of taking legal action exceeds the value of what you are seeking. If this is the case then you should carefully consider whether legal action is sensible as the other party may have similar concerns and could therefore be willing to participate in ADR or otherwise negotiate to resolve the dispute without legal action.

If you take legal action and win then there is still a risk that you will not recover your costs and will be left out of pocket. That being the case, if you seek legal advice then you should request at the earliest possible opportunity an estimate of the likely legal costs of taking legal action.

4. Legal action takes time. Can you wait?

Taking legal action is time consuming and can take a long time. In many cases, disputes are not resolved for months or years. This is a long time to wait for an outcome. If you need an outcome by a certain time then this cannot be guaranteed if you take legal action so you may have to consider other options.

5. Are you prepared to lose?

It is impossible for a legal adviser to say with any certainty whether legal action will be successful. You must therefore consider before taking legal action whether you are prepared to lose. There is not only a risk that you will lose the first time a dispute goes before the court; there is also a risk that if the other party loses the first time the matter goes to court, then they may appeal the court’s decision to a higher court. This appeal could be successful. If this occurs, then you will need to consider whether you will appeal that decision.

Remember, there are both financial risks and emotional costs to be considered when deciding on whether to take legal action.

6. If I win, will I still lose?

There is a risk that the other party to your dispute will not be in a financial position to satisfy a judgment in your favour. In such a situation, although you may win the case, you could still “lose” as you will have incurred costs in trying to resolve the dispute and those costs may not be recoverable from the other party.

It is therefore important for you to assess the financial position of the other party before taking legal action in order to determine whether you will actually win if the dispute is resolved in your favour.

To conclude

Taking legal action is hard work. It can be time consuming, a waste of money and emotionally draining for those involved. You must therefore prepare thoroughly and consider the matters raised in this article before moving forward. If you do decide to move forward with legal action, the LegalVision team can help!