Bulletins | April 29, 2020

Litigation: A shield and a weapon at half the price

There is no doubt that full blown litigation can be expensive and divert the attention of key management staff away from the core of a business.  It is often seen as solely a defensive mechanism.  However, it can also seek to reinforce a company’s rights and seek to obtain a competitive advantage.

The pandemic has led to lots of debate about the impact on ongoing and future contracts; whether they can be terminated for frustration or a force majeure and whether there is any business interruption insurance that can be utilised to address any loss suffered. It is also worth focusing on whether there are strategic actions that could be taken to obtain a competitive advantage.  This may mean enforcing intellectual property rights or bringing forward disputes that may have been on the back burner whilst other core aspects are addressed.

The reality is also that in difficult times, business morality tends to be diluted.  People make desperate decisions to support their company’s (or their own) position that may or may not be lawful.  Those decisions can lead to causes of action and ultimately a financial recovery or prevention of further actions through an injunction.  These claims can include a party inducing another party to breach a contract, conspiracy type claims and bribery / competition actions.

This strategy does also not necessarily have to have an impact on cash flow.  Many solicitors will act on a “no win, no fee” basis (where the solicitor only gets paid in the event of a defined “win”); a partial “no win, no fee” (where the solicitor gets paid, for example, 50% of their normal rates and the rest are “on risk” and are only paid in the event of a defined “win”); or a form of contingency arrangement (where the solicitor gets paid a % from any awarded damages or a settlement).  In addition, litigation funding is available for certain claims and that also can prevent a company dipping into its cash flow for the litigation.

The cash implications of litigation should therefore not prevent companies exploring litigation as a defensive or strategic tool in these difficult times.