The Pitfalls of Litigation and Counter-claims

//The Pitfalls of Litigation and Counter-claims

The Pitfalls of Litigation and Counter-claims

legal updateHave you ever been involved in a dispute over a contract? Even if you’ve never been to court, chances are you will have had issues that can be tracked back to a contractual dispute, whether it be as a business owner, employee or in your personal life. As consumers, we have become accustomed to an environment of strong consumer protections and massive choice giving rise to very high-levels of customer care. However, our rights and reasonable expectations in the commercial contract world are very different.

At Devant, we often find that commercial disputes will arise as a result of mis-matched expectations, rather than one party necessarily being in the wrong. This can arise in many ways – a poorly drafted contract, working practices differing from the written procedure, or even simply differences in work cultures between the parties. All three of these examples can definitely leave each party feeling aggrieved, but none are likely to give rise to a concrete solution in favour of one or the other.

Is litigation the right answer?

If you feel like you’re the victim in a dispute, chances are you’ll be looking to use the contract, or your legal team, as a weapon in retaliation. At the very least, you may want to sever your connection with the offending party and stop providing the benefits you deliver under the contract (products, services, payment etc.). Whilst either course of action might seem reasonable, they both carry a great deal of, often unforeseen, risk.

“But they haven’t done X, Y and Z, why wouldn’t we want to threaten them with, or even actually make, a claim?”

We’re not going to pretend that litigation is never the answer – sometimes you might have done everything right and the other party just refuses to do their part in any way. But it’s rare. Mostly, if you’re coming up against resistance it’s because the other party will genuinely believe that they’re in the right and you have done something wrong.

This is where our experiences as consumers don’t help us. As a consumer, your role is passive, the value of whatever you’re buying is generally much higher to you than it is the retailer and your responsibilities rarely extend further than an upfront payment. If something goes wrong, it’s probably not your fault. In a commercial relationship, this is often far from the truth.

See the dispute from the other side

After establishing that you might have a claim, your first question should be: “what have we done (or not done) that might give them a right to counter-claim?” We have seen clients in the past who, on the face of it, have had strong claims against a counterparty. Further down the line, though, certain aspects of their relationship haven’t shown them in the most positive light.

The purpose of damages awarded by a court is to put the aggrieved party in the position they would have been in had the wrong not occurred. If both parties have claims against each other, then it’s unlikely this result would be achieved. Not because of a weird law, or the court not passing judgement, but because of something far more mundane – litigation costs money!

You might have a rock-solid claim for £10,000, but if the event that caused your £10,000 loss meant that you stopped delivering without authorisation, then your opposite might have an equally strong £15,000 claim against you. Similarly, you might have been delayed in your last few deliveries, but the other party let it slide at the time. Or perhaps you provided a more junior member of staff than the contract promised. There could be a number of seemingly trivial breaches along the way that your counterparty now wishes to dredge up because you’ve issued a claim against them.

The damages awarded to a counterparty for these acts will eat away at what you think you deserve. If litigation results in a judge finding a balancing out of wrongs, or you only receive a fraction of what’s awarded for the loss that started it all, then you will inevitably be worse off. Both you and your counterparty will walk away with notable losses in the form of court costs, lost time, a lost business partner and maybe even a damaged reputation.

Where to focus your energies

If you’re faced with a potential dispute in your commercial relationships, you should try and find out what has caused the perceived problem and try and work towards a commercially beneficial solution for both of you. Getting caught up in a mind-set of litigation early on carries greater risks than might be apparent, especially if you’re focused on the other party’s flaws and not your own.

As your in-house contract support, we can create contracts that will support strong business relationships for your company or help you seek a solution when a dispute occurs.

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Fraser Gleave
Junior Commercial Contracts Consultant

2017-12-12T15:28:18+00:00

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