HomeOpinion & AnalysisAvoiding courts and risks of corporate litigations

Avoiding courts and risks of corporate litigations

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By Emmanuel Zvada

LAWSUITS are unavoidable when you are running a successful business. Ask any business executive and they will tell you that there are appropriate situations where litigation is necessary. Properly managing disputes in corporates is an excellent way to avoid the risk of litigation. In every business, there are transactions that have their set of conditions that parties involved must conform to. Failure to comply may result in horrendous costs due to lawsuits. Litigation can have a devastating effect on productivity and profitability, hence it should be avoided at all costs.

Business litigation can be a huge problem because the process of taking a case to court, or being dragged to court by another party, can be costly. More so, it complicates a problem which could have been solved amicably outside the court. It is crucial to remember that it is not only the direct expenses involved when a litigation takes place but it is also time consuming considering the enormous amounts of wasted time that a legal battle involves.

What is corporate litigation?

Corporate litigation encompasses a lot more than one business suing another. In fact, corporate litigation includes any type of legal proceeding having anything to do with a business or corporation, and can include steps taken to avoid litigation as well as actually litigating and managing business disputes. While litigation is sometimes necessary, if you can find a way to defuse a situation before it goes to court, you are better off because litigation can drain the business of funds. Litigation directly and indirectly affects business relationships.

Why avoid business litigation?

When you are running a successful business, you are in the public eye. While you can control how you handle your employees, you cannot control the actions of customers and other stakeholders. At some point, someone will try to sue your business.

We live in a highly litigious society, so when you are running a financially viable company, it becomes more of a target.

If you ask any business owner who has been running a company, they will tell you that there are appropriate situations where you must litigate. Many business owners would agree that it’s just a matter of time before your business is sued.

It is the duty of a business owner to identify risks and mitigate them as much as possible.

Another factor that many executives fail to consider is the fact that litigation is stressful and takes employees’ attention away from doing their duties.

A single lawsuit can have a ripple effect and impact on current and future business.

Litigation can also damage a company’s reputation within its industry, among consumers, and even industry leaders.

If you end up in court with a major player in your industry, other players will take note.

Ways of avoiding litigation in business

Before legal troubles and court dramas become the norm in every business transaction, consider a few reminders to reduce the chances of being in court:

Put everything in writing

One key thing in every business transaction is to document everything.

Even though some verbal contracts might often be found to be legally binding by a court of law, it is best to put everything in writing.

Having things in writing allows all parties to refer to the original agreement which allows them to keep to the terms specified in the agreement.

Likewise, having things in writing might also deter parties to a business transaction from departing from the terms of that transaction, since there will be a binding document in black and white.

Backing up everything should also be practised to ensure that a document that might prove to be vital to your business in a lawsuit does not get lost or destroyed.

Have proper contract documents

A contract not only makes things formal, but also signifies that parties involved are assumed to have understood whatever agreements are contained in it, and are legally bound to conform to them.

Having a clear, written agreement is key to avoiding litigation because all parties know what to expect from the relationship and what happens if something goes wrong.

Normally it is uncertainty that usually drives litigation.

Many businesses cut corners trying to save costs or relationships by not having proper business relationship contract documents prepared.

Inadequate, unclear or incomplete documentation often leads to litigation.

Take time to have a lawyer to properly prepare your contract documents before you enter into a relationship with a client.

Please also note that spending a little money to engage an attorney in drafting agreements can save tens of thousands of dollars in litigation costs if a dispute arises.

Deal only with reputable people or clients

If you are embarking on a new business relationship, do due diligence and find out as much about your potential partner as you can.

Before anything else, it is a must that you know the character of the person you are dealing with.

No matter how spicy an opportunity is, it is rarely worth the risk to deal with someone likely to act in bad faith, hence due diligence is necessary.

For example, when the client you want to deal with has filed several lawsuits and is litigious by nature, this should be a warning not to do business with him or her.

It is usually easier to undertake your research and due diligence at the beginning and get into a good relationship than attempt to extricate yourself from a poor one that includes possible litigation.

Choose mediation over litigation

Before going to courts or resorting to litigations, as a company it is a good idea to use mediation and arbitration to settle business or personal disputes.

Mediation is an informal process that gets the two parties together with a mediator, whereas arbitration is a formal process, usually binding on the parties.

An arbitrator hears the arguments of both sides and makes a decision that’s usually binding (both parties must act as the decision requires).

Another reason why arbitration is better than litigation is because generally, arbitrations are resolved quicker than litigations.

Many business owners are averse to litigation.

Months spent in court, devastating costs, negative news can tarnish the image of the company.

If you own a business, you certainly know that going to court is something you want to avoid, hence it’s better to avoid courts and litigations by any means possible.

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