Commercial litigation strategy – applying pressure without a trial
Litigation in commercial disputes is a powerful tool and a legitimate means of forcing your opponent to co-operate. However, a full trial can be expensive, time consuming and carries the risk of uncertainty.
Located in the heart of London's legal district, Saunders Law is a full-service litigation and dispute resolution law firm, that prides itself on results and service.
For those that are in-the-know, there are some useful tactics both before and after litigation has started, by which claimants can potentially avoid a full trial, whilst still keeping substantial pressure on the other side to come to the table and consider settlement.
Our commercial litigation lawyers set out an overview below.
Solicitors letter of claim
A strongly worded formal letter of claim sent by solicitors to the other side can often result in an early positive outcome, without the need to litigate.
The psychological pressure put on the other side alone, knowing the claimant is willing to invest time and money in instructing solicitors to create a well-crafted letter, can imply the claimant has a strong belief in their claim, and may be willing to go the course, whether or not they do.
The letter of claim helps to summarise and condense key legal and factual issues, and is the first step towards bringing proceedings against the other side, so it provides a good platform to litigate from. Even if the defendant does not settle immediately, it may begin to cause real doubt in their mind.
Effective letters of claim are not cheap, straightforward one line letters, however. They are required to contain key technical points and outline a summary of key legal and factual issues, which may need carefully tailoring.
It can be more time consuming than clients realise to evidence what has happened over a period of many months, especially if key areas were arranged orally, and an effective letter of claim might take a solicitor several hours to complete with instructions. A well thought out letter of claim tends to have greater impact, but can be more expensive.
It is important however not to underestimate the potential value a well drafted and timed letter of claim can have, if it results in early payment. Even if it costs several hundred pounds, it can still be a cost effective way of settling disputes and can potentially avoid the need for litigation altogether.
Alternative Dispute Resolution - ADR
The court encourages both parties to consider and attempt other means of resolving disputes known as Alternative Dispute Resolution measures (ADR).
Common ADR methods include mediation, which is an early round table discussion, conducted off the record, to narrow down areas of dispute, and to see if both sides can reach amicable settlement and can be very effective.
Although not strictly mandatory, if parties do not attempt ADR, the court may penalise them financially and so in practice some form of ADR is sensible.
There are various other means of ADR available which can either produce non-binding or binding results. Early legal advice can help you clarify which is most suitable and when it should take place.
The advantage to both sides of ADR is that it can result in resolution much more cost effectively and quickly than full scale litigation and can help to keep commercial relations intact.
There are various types of offers both sides can make before and during litigation which might result in early settlement and avoid the need for full scale litigation.
Some offers can carry expensive costs risks if they are not accepted and if the other side fails to obtain a result which is more favourable. Some offers can be made to be time sensitive or can be withdrawn tactically and unexpectedly after some new key evidence comes to light.
Parties' approach to offers is often dealt with behind the scenes, but details can later be referred to the judge at the end of litigation when he or she decides what financial awards to make to the winning party on their legal costs. If the judge sees that sensible offers have been made, this can help with recovery of costs.
Disclosing legal advice
Documents in a litigated dispute are either disclosable to the other side or are protected from being disclosed, which is known as "privilege". A contract between the parties that is in dispute is disclosable as a material document to the dispute, but legal advice obtained by the claimant from solicitors and barristers as to whether either side has breached the contract is privileged, and actively prevents the other side from seeing what the advice is.
However, if a claimant obtains legal advice which is overwhelmingly supportive of their position and condemns the other side absolutely, it can sometimes be an effective tactic to waive privilege and forward a copy to the other side, to cause them doubt on the merits of fighting things out.
Waiving privilege of legal documents should not be done without legal advice, as it can have some unanticipated complications. For example the instructions and documents that were sent to the adviser in order to first obtain the advice might also become disclosable and which might betray some weaknesses in the case not previously known by the other side.
However, if disclosing legal advice to the other side causes real doubt in the other side's mind, and gives a clear cut position of the law, it may help to encourage early settlement and avoid full litigation.
Similarly, an early expert report which sets out clearly the claimant has a strong case, all the blame attaches to the other side, and which sets out a high value, can be sent to the other side early on to encourage early settlement. Some types of cases positively encourage or require some degree of expert involvement early on.
Technically, experts' duties and reports are for the court's benefit to help a judge decide the case, and the court's permission may be required to adduce it, so early legal advice is sensible, towards tactical handling, but if early expert's input helps to iron out doubts or grey areas technically, it may help avoid a full trial.
Early determination by judge
Some courts, such as the Technology and Construction Court, which determines construction and technically complex claims, including some negligence claims, offers Early Neutral Evaluation of a claim, where an expert judge can review both sides' position early on and produce non-binding guidance what they think the likely outcome of the case would be, at an early stage.
The judge's early evaluation can be limited to a particular point if desirable. The involvement of a judge in making an early assessment will likely prevent this same judge being involved in the case subsequently, but this can provide real insight at a relatively early stage into the merits of the claim and might help both sides assess whether or not to settle early on.
Even if settlement is not possible afterwards, it can help to narrow the scope of key issues and potentially streamline litigation in any event.
Judgment in default
If the defendant does not respond to the litigation at all, it may be possible for the claimant to apply to the court for "judgment in default", which effectively means the defendant is liable to compensate the claimant automatically.
If judgment in default is available, it can allow claimants to obtain judgment much more quickly and cost effectively than a full trial. However, it will not be awarded unless the claimant has done everything correctly, and all the delay and fault rests with the defendant.
In deciding whether initially to award judgment in default, the court tends to focus on procedural failure by the defendant, rather than the merits of the case, but if the defendant later appeals, the court may assess the merits of why the defendant didn't reply, and whether the defendant has prospects of being able to defend the claim.
If the defendant alleges and can prove they did not receive the documents, the court may set judgment aside, and the case may carry on.
Judgment in default may require the claimant to swear an oath that they have served the defendant correctly. For some cases, for example, relating to goods, judgment in default may not be possible automatically and may require a hearing.
If it is possible to obtain judgment in default and it remains unchallenged, it can be a very cost effective way of winning a litigated case early on.
Whereas judgment in default is usually sought on account of the defendant's procedural failure in litigation, summary judgment is another, but separate means of potentially obtaining a swift decision, which deals more with the prospects of potential merits or quality of evidence.
Summary judgment, does not mean "in summary" but rather the decision is made "summarily" i.e. quickly and without the need potentially for a full trial.
If the court and both parties already have substantially all the evidence to the court that they are likely to adduce, at a relatively early stage, and which is not likely to change, and if the court considers the other party's case, with reference to limited or spurious evidence, has no real prospect of succeeding, it may award summary judgment to the other side, without the need for a full trial.
Both the claimant and defendant can apply for it, but it is more likely to be awarded in straight forward debt matters, rather than if the matter is genuinely very complex, or where a substantial amount of evidence is yet to come, or where fraud is alleged, as this requires care and detailed assessment.
Summary judgment can result in a much quicker and cost effective result.
Strike out application
Another process which may help reduce costs and complexity of litigation for a claimant, is an application for "strike out", which is often sought in the alternative to an application for summary judgment, but remains a distinct process.
Either side can apply to have the other side's formally pleaded case, such as its particulars of claim or defence, or perhaps more commonly a distinct part of it, struck out if the statement of its case appears entirely hopeless and insupportable in fact or law.
The court may be disinclined to strike out all of the other side's case, where the evidence is simply badly presented with some degree of merit, but a particularly weak or unsubstantiated part of a party's case might be struck out altogether and can help streamline litigation.
An application to strike out might be particularly appropriate, if either party adopts a "kitchen sink" approach and throws everything they can into the mix speculatively. The court can whittle things down to key points and get rid of those elements that are purely a smoke screen.
In commercial disputes, issues can sometimes be clearly split between issues of liability, i.e. who is at fault, and to quantum, i.e. what the value of the claim is.
Especially in partnership disputes, or where complex business assets and intellectual property rights need to be valued, but which may be difficult to do, such as valuation of "goodwill", much of the complexity and cost of a case might actually factor around valuation and require specialist expert determination at significant cost.
The liability aspect, i.e. is the defendant liable to compensate the claimant, can therefore be treated by the court as the first test issue that needs to be determined, the result of which may or may not merit expensive assessment of value.
If the defendant is found to be not liable, that can avoid the need for both parties to have to incur expensive valuation evidence and which fits into the court's increased focus on limiting costs in litigation to only those that are proportionate.
If the defendant is found to be liable, the court can then make directions how parties can approach assessing value. If the defendant is brought into the spotlight, they might make much more sensible settlement offers shortly afterwards.
In short, there are various tactics which can be used in litigation to help facilitate early settlement, without the need for a final hearing, but these approaches requires careful consideration and early legal advice is essential. There are right and wrong ways of doing so. For further information, read our Guide to Litigation.