Corporate

Cost, time key to deciding whether to settle business lawsuit

By AdvocateDaily.com Staff

There is no such thing as a ‘sure win’ in any dispute — and while it does make sense to litigate to a conclusion in some cases, in other situations, businesses should consider why it might be a good idea to settle, says Toronto business lawyer Inga Andriessen.

“I tell clients to be very cautious when they think they have a slam-dunk case, and I make it clear there is no such thing,” says Andriessen, principal of Andriessen & Associates.

“There are cases that are stronger than others,” she tells AdvocateDaily.com. “There are also cases you are going to lose, and you need to assess how to contain that liability, but there is no guarantee of success — and a good lawyer is able to communicate that to the client and then have them look at the business reality of ‘How are we going to settle this?’”

Although each situation is different, Andriessen says there are rules of thumb on both the plaintiff and defence side that can help guide business owners as to whether to settle or proceed with a lawsuit. The first is cost.

“You need to consider, and this is only within the context of a lawsuit, what it’s going to cost you. And so, depending on how complicated it is, you may need to retain an expert in order to successfully litigate or defend against the claim, and that’s likely going to cost a significant amount of money,” she says.

“So, the first factor to consider is what is the cost to take this case all the way to trial, and sometimes you want to make a monetary offer to settle based on that or something less than that because you were going to spend that amount of money anyway.”

In a defence situation, in particular, says Andriessen, a good lawyer “will look at the facts of the situation and the evidence available, and encourage the client to give them instructions to make an offer to settle very early on, if possible, even before filing the statement of defence.”

“If there’s a reasonable offer to settle in a case that you can beat at trial, then that cost clock is ticking in your client’s favour from a very early stage in the proceeding,” she says.

The second consideration, says Andriessen, is the time cost to your business.

“In a business litigation — and it could be an employment or contractual dispute, it could be a shareholder’s dispute — you’ve got to think about how much downtime it’s going to create for either the entire business if you’re a one-person shop, or for a section of your business if there’s an allegation that a certain department didn’t take steps it should have done to execute a contract,” she says.

“Are you going to be losing the productivity of that department on the day of trial or the days of trial, because people physically aren’t there, and of course, then there’s preparation time as well, so you need to decide from a business perspective, can you afford the downtime?”

Litigation also has an emotional factor that needs to be taken into account, Andriessen adds.

“There is also the emotional component of it, and that impacts your employees who are witnesses — they’re going to be nervous, which likely will make them more distracted in their work and less productive. It’s also an uncomfortable situation to put your employees in,” she says. “Sometimes you have no choice but to do it, but it’s something to think about in terms of workplace morale.

“There’s also the issue of you as a business owner — do you have the type of disposition that can withstand going to trial or would you rather not be spending a lot of time with lawyers preparing for trial and then actually attending a trial? So those are some of the big issues to consider.”

When considering an offer to settle, says Andriessen, a business lawyer will help clients emotionally detach from the situation so they can clearly see the path ahead.

“It’s got to be dealt with with a cool head of business, and I make that clear to the clients that they need to put on their business hat when they’re dealing with legal issues,” she says.

“For example, if we have made an offer to settle of $50,000 and the other side comes back, and they said no, they want $65,000 but are open to a counter offer — you’re looking at probably meeting somewhere in the middle at that point.”

With a client who is emotionally invested in the matter, Andriessen says she will send the information by email, telling them what she thinks the consideration should be and where they would likely be successful in settling the lawsuit.

“I give them time to read it over, usually a week, and then I want to have a phone call with them, because dealing with the emotional client requires giving them time to absorb information, to cool down and then have an opportunity to Q&A with the lawyer so that they are feeling comfortable in the decision that they eventually arrive at,” she says.

Ultimately, says Andriessen, certain matters must be litigated — for example, if someone is infringing your trademark, or you are owed money and the other party is refusing to pay.

“You do need to litigate to the point of conclusion to set a tone for other people who you may have a similar lawsuit against. For example, if you have a cluster of people who are not paying you — you pick one who has assets, you go after them, and it sends a message.”

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