When proceedings have been issued, most company directors are likely to share the view of the American social commentator Ambrose Bierce who said that ‘Litigation is a machine which you go into as a pig and come out of as a sausage.’
An increasingly large percentage of UK companies will at some stage in their lifetime be served with a Claim Form relating to a cause of action - breach of contract, debt recovery or the like. How a company immediately reacts and the steps it takes at an early stage can often be critical to whether it survives the ‘litigation machine’ in one piece.
Since 1999 court procedure has been governed by the Civil Procedure Rules. The ‘overriding objective’ enshrines the CPR spirit and aims to ensure that the court and parties deal with a case justly, fairly and expeditiously so that parties are on an equal footing and the case is allotted an appropriate share of the court’s resources.
Consequently, there is an obligation upon parties to litigate in a way which is consistent with these objectives. The issuing of a Claim Form should be a measure of last resort. A court will expect to see pre-action correspondence where the parties have tried to resolve the dispute without recourse to the courts. There are potential cost consequences for a party which does not make a genuine attempt to reach an early resolution.
Inevitably in some cases, due to the nature of the dispute, or where the parties’ positions are irreconcilable, proceedings will be issued. This should not necessarily be alarming to the defendant, provided it has conducted pre-action correspondence in the spirit of the CPR. Nonetheless, a sealed Claim Form through the company letter box can be an anxiety-inducing event.
There are two important questions your company should be asking at such a time: What are the next key dates with which, as the defendant, my company must comply? What early considerations arise and what practical steps can be taken?
The Litigation Timetable
Service
The time in which a Defendant must respond to a claim does not start to run until a Claim Form and Particulars of Claim have been served upon your company. The Particulars of Claim should set out the legal grounds for the claim itself, the facts and should also detail the remedy being sought. The Particulars of Claim may be attached to the Claim Form or they may follow at a later date.
Deemed service (or when the court is satisfied that the company has formally received the Particulars of Claim) is another important consideration. The rules relating to the deemed date of service differ depending on the way the papers have been served. Most commonly service will be effected by first class post. Here the deemed date of service is the second day after it was posted. However service may also be conducted personally by the claimant upon your company or, if agreed, by fax or even email.
If there is any uncertainty and/or if the Claim Form has been served upon you by the court, it is often a good practical step to confirm with the Court the date of deemed service and when a response is due. If the Claim Form has been served upon you personally by the claimant, you should write, acknowledging receipt of the claim and stating the date of service. If they do not agree with you, they should write and tell you so. If they do not do so and subsequently they seek to take tactical advantage on the basis that your dates were wrong, your letter and the lack of reply may afford you some protection.
Response
A defendant has 14 days from the date of deemed service to do one of the following:
• File or serve an Admission Form - where a Defendant admits the claim or the amount claimed.
• File a Defence - where some or all of the claim is denied.
• File an Acknowledgment of Service - where a defendant is unable to file a defence within the 14 days or if he wishes to dispute the court’s jurisdiction. By filing an Acknowledgment of Service this gives the defendant a further 14 days within which to file a defence - 28 days in total from service of the Claim Form and Particulars of Claim.
Compliance with these deadlines is paramount. If your company fails to file an Acknowledgment of Service or a Defence within the requisite time period then the claimant can usually obtain a default judgment in its favour. Only by application will the court even consider overturning the judgment.
Key issues to consider and practical steps to take
Liability - Is your company liable for the loss suffered/damages claimed? If you accept liability and also the figure claimed by way of loss/damages then the claim is admitted. In most cases however there will be elements of the claim which are admitted and others which are denied. Internal investigations may be required to get to the bottom of the allegations.
Value - Can the sums in dispute be easily calculated or estimated? The real issue in a case may not be liability. It may be the level of loss which is being claimed or the figures claimed by way of compensation that are calculated incorrectly. Sometimes this can be easily assessed ie the cost of a replacement motor part. In other instances the amount may be harder to quantify, the loss related to an inadequate holiday or wedding venue being a good example. Examine how the loss has been described on the Claim Form or Particulars of Claim. Do you require more information or evidence?
Commercial context - Is the dispute with a valued customer or supplier? Is there a commercial relationship to maintain? Does it relate to a core area of the business? If so, it may be commercially sensible not to resist the claim. On the other hand, where there is no relationship to preserve or where the nature of the dispute is unlikely to attract negative publicity, you may be more prepared to robustly defend it. You should consider resources: the management time required and the likely legal costs. Depending on the size of case and the possible outcomes, you may not even be able to recover costs and if you lose may also have to pay your own and some to your opponent.
Outcome - To determine the appropriate tactics a good question to ask yourself is - ‘what is the best commercial outcome for this company in this situation?’. Is some kind of commercial settlement the best way forward? Is the prospect of winning the case worth taking the litigation risk of potentially losing at trial? The best outcome is often not trying to win a case in court. The CPR actively promote other forms of dispute resolution eg mediation.
Practical Steps
Insurance - You need to check immediately if your company has an insurance policy which covers legal disputes. If so, the policy may require that the insurance company’s own panel-appointed solicitors handle the matter on your behalf. Ideally the company should not take any steps until it has notified its insurers.
Instruct solicitors - In instances where a company has no legal expertise of its own and the dispute is complex, most will seek to instruct solicitors. This should be done as early as possible, especially if the company wishes to defend part or all of the claim.
Preservation of documents - Disclosure of documents (including emails) relevant to the case held by both parties will at some stage be required. Consequently there is an obligation to preserve documents for future inspection.
Creation of new documents - Certain documents attract legal confidentiality, known as ‘privilege’. Documents relating to legal advice usually do. Any internal documents produced once proceedings have been commenced and which are not primarily for use on the proceedings will generally not be privileged and are therefore potentially disclosable to the other side. It is important that documents detrimental to your case are not created. Relevant employees and company directors should be made aware of this.
Key people - Are people who have direct knowledge about the matters in dispute still with your business? Would they be willing to give evidence on the company’s behalf? If they leave or have left acrimoniously they may be unwilling or their evidence may be of questionable quality. Both these scenarios may damage your case. Try to ensure an ongoing post-employment duty to co-operate.
Settlement - If settling out of court, record in writing the settlement reached. Ensure that the settlement terms are clear and in full and final settlement of the dispute. This will help to try to make sure that it is not re-opened in the future.
Of course, the commercial circumstances in every case differ and consequently a bespoke approach must be taken. Litigation, whilst unwelcome to any company, does not have to resemble the process characterised by Mr Bierce.
Whatever you do, if a dispute is imminent, seek proper legal advice as every case is different.
Richard Booth is a solicitor at International law firm Eversheds, in Commercial Litigation.
No comments yet