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The decision to take legal action is a serious step for any small business. Nevertheless, neither the personal frustration with a longstanding dispute nor the sensation of being done wrong by another party are the best drivers for deciding whether this is the right next step to resolve the issues. This article outlines the key considerations before taking legal action, including:

  • the alternatives to taking legal action;
  • the costs of taking legal action;
  • whether the outcome will be ‘commercial’ and how will this affect the reputation of your business;
  • how long it will take; and
  • what the worst-case scenario is. 

Understand the Alternatives to Legal Action

Taking legal action is not always necessary, and more often than not, it should be a last resort measure. Many disputes can be resolved without taking legal action. 

Negotiations or Letter of Demand

A practical step you can take is to communicate to the other party your intention to seek legal advice and take legal action if you do not resolve the dispute. You may be able to undertake this step without the assistance of a solicitor. However, suppose a solicitor gives notice that legal proceedings may be imminent. In this situation, it is more likely for the other party to take it seriously. You might want to consider issuing a letter of demand. Alternatively, you can consider if negotiations with the other party can resolve your dispute.

Alternative Dispute Resolution

An alternative, or in some situations, a next step, to a letter of demand is to suggest that the parties participate in alternative dispute resolution (ADR). This may involve either the process of: 

  • mediation; 
  • conciliation; or 
  • 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, ADR is compulsory. Therefore, it is worthwhile seriously considering this option as a first measure.

Consider Whether the Outcome will be Commercially Sound

Taking legal action can sometimes lead to an outcome that is not commercially sound and does not truly protect the future interests of your business. In many cases, business owners have not considered the negative impacts that relationship fallout and reputational damage can have on the future of the business. The reputation of a business takes years to build but can be instantly destroyed if you: 

  • receive bad publicity; or
  • 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 the financial outcome and whether you win or lose.

Understand the Costs of Taking Legal Action

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. The other party may have similar concerns and could therefore be willing to participate in ADR or otherwise negotiating to resolve the dispute without legal action.

It is important to consider that there remains a risk that you will not recover your legal costs. This is even if the court enters a judgement in your favour. It can be impossible to estimate the ‘total’ legal costs to resolve a dispute. However, you should be aware of the ‘minimum’ or baseline legal costs you may incur before you take legal action. 

Disbursements

As a minimum, be aware that the cost of seeking legal advice is separate from the cost of ‘disbursements’. Disbursements relate to administrative or procedural tasks and should be considered as external processing fees rather than as legal fees. If you decide to have your matter heard before a court or tribunal, when you file some documents either online or in person at a court registry, you will be required to pay a filing fee. These fees can be quite substantial. 

For example, you may commence a legal action through the NSW Civil and Administrative Tribunal. For resolving a general consumer or commercial claim over $30,000, you can expect the filing fee will be $554. Separate from this, if your dispute needs to be resolved through the NSW Supreme Court jurisdiction, the filing fee will be upwards of $3,000. Additionally, if your case proceeds to a formal hearing before a Judge or Associate Judge, you will be charged a ‘hearing allocation fee’ of $5,000.

In addition to the filing fees you will be required to pay, you may require legal representation or need to obtain expert reports to substantiate your claim. Even if you are successful, you may not recover all your legal costs.

Speaking with a lawyer at the earliest opportunity can help you to understand the financial considerations for taking legal action before you decide whether to pursue the matter further.

Understand the Time Frame for Taking Action

In addition to the emotional and financial costs involved with taking legal action to resolve a dispute, the process cannot be rushed. It may take months, if not years, for parties to reach a resolution. This is a long time to wait for an outcome, and for this reason, it can be a drain on your business resources. It is important to weigh up the time for resolving disputes against alternative dispute resolution avenues, which may yield quicker outcomes. 

If your situation requires an outcome by a specific date or within a certain deadline, be aware that your legal adviser cannot provide this guarantee. Therefore, you may have to consider other options.

Consider the Worst-Case Scenario

It is impossible for a legal adviser to say with any certainty whether legal action will be successful. Therefore, a useful reality check is to consider whether you can accept the worst-case scenario, should this arise. Before taking legal action, you should ask yourself whether you are prepared to lose.

There is a risk that you will lose the first time a dispute goes before the court. However, 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, you will need to consider whether it is worthwhile to appeal that further decision.

Additionally, there is a further 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. 

Therefore, it is important for you to assess the other party’s financial position before taking legal action to determine whether you will actually win if the dispute is resolved in your favour.

Key Takeaways

Taking legal action can be time-consuming and draining, both emotionally and financially, for those involved. You must therefore anticipate that you have the time and financial resources to commit before proceeding. Otherwise, it may be that alternative dispute resolution processes are more appropriate to your goals. If you would like legal advice to help you come to an informed decision about whether taking legal action is right for you, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What are the benefits of alternative dispute resolution?

Alternative dispute resolution (ADR) is a cost-effective means of resolving a dispute. It is beneficial as it can usually be undertaken with a view to resolving a dispute quickly. It also focuses on potentially salvaging the relationship between the parties.

What are disbursements?

Disbursements relate to administrative or procedural tasks. They are considered as external processing fees rather than legal fees.

Is there a way to guarantee a successful outcome in court?

No, it is impossible for a legal adviser to say whether legal action will be successful. There is always a risk that you will lose the first time a dispute goes before the court or on appeal of the decision.

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