Practical Guidance for Manufacturers Facing Litigation

Litigation typically involves a party taking legal action to enforce a right or a claim, for example:

• Say Company A supplies goods to Company B under a written contract, but Company B withholds payment. In the circumstances, Company A may have the right to bring a claim against Company B for breach of contract to recover monies owed to it.
• But there might be a good reason why Company B is withholding payment, for example, where the goods supplied are defective. In that scenario, Company B may have a legitimate defence to Company A’s claim or even a counterclaim to bring against Company A if Company B has suffered loss.
• Company A and Company B might exchange pre-action correspondence setting out their positions. Neither party is willing to back down. Faced with the prospect of not getting paid, Company A issues formal court proceedings against Company B, which Company B must then defend.

The above example illustrates how a relatively straightforward contract dispute can result in full-blown litigation. Neither party intended to fall out, but their positions became polarised, and court proceedings were required to break the impasse.  

The key point is that disputes can and do have a way of escalating. However, there are ways to manage them in order to minimise disruption to your business and to protect your position. Here are some practical steps you can take:   

Evidence is key in litigation, and having access to contemporary written documents can mean the difference between winning and losing a case.

Therefore, it’s vital to preserve documents, and any future communications regarding the dispute should be tightly controlled.

There are strict court rules regarding the preservation of documents. All litigants are required to disclose any documents which are relevant to the dispute including documents which are detrimental.

Therefore:

• As soon as litigation is threatened or expected, take immediate steps to preserve relevant documents. This includes emails, reports, attendance notes and other records.
• Avoid deleting anything even if you think there are documents which are detrimental to your case. Even routine housekeeping can lead to allegations of destroying evidence which was otherwise disclosable, which can undermine credibility.

• Internal communications about the dispute should be limited and controlled. Instruct staff not to speculate or discuss sensitive matters via email or messaging apps.

• Resist the urge to draft emails or memos opining on what went wrong or how things could have been handled differently. These documents, unless protected by legal privilege, may be disclosable and could prejudice your case.

It’s generally advisable to avoid knee-jerk reactions when responding to opponents. Aggressive or overly defensive responses can backfire, particularly if they include statements made prior without knowledge of the full facts, and such statements can be referred to later in court proceedings.

On the other hand, an overly passive or conciliatory approach can also be detrimental. Your opponent might think your position is weak (even if that is incorrect) and try to take advantage, or you might inadvertently make admissions or concessions which could undermine your position.

Often, the best strategy is to adopt a professional and measured approach. You do not have to respond immediately to every allegation raised by your opponent, and you should take time to investigate matters fully before responding.  

When engaging with an opponent, consider whether your communications are being sent on an “open” basis or a “without prejudice” / “without prejudice save as to costs” basis.

The distinction is important:

1. Open correspondence is not privileged and can be referred to (and relied upon) at any time during court proceedings.
2. Without prejudice correspondence containing genuine attempts to settle the dispute (such as settlement offers) are usually privileged. This means it cannot be referred at any time during court proceedings. If it is marked “save as to costs” it can only be referred only in relation to legal costs that the court may award once proceedings are concluded.

In summary, if you are attempting to settle the dispute with your opponent, the safest course is to mark these communications “without prejudice”.

The court rules require the parties to communicate with each other about the dispute to narrow the issues and to possibly settle it without the need for court proceedings. This is known as the “pre-action stage” and all litigants are required to conduct themselves in accordance with the pre-action conduct and protocols. Not complying with the protocols can lead to costs sanctions.

Accordingly:

1. Before issuing court proceedings, the Claimant must set out their claim in sufficient detail to allow the Defendant to understand the case which is being brought against it.
2. The Defendant must then respond to the letter of claim setting out whether the claim is defended and on what grounds.

You should never ignore a letter of claim. If you do your opponent may commence proceedings without further notice, and not only will you be exposed to cost sanctions for not complying with the protocols, but you may have wasted an opportunity to resolve matters at the pre-action stage.

The court imposes very strict deadlines to respond to claims.

The consequences of failing to meet those deadlines can be severe.

For example, if you receive a claim form you must respond to it in time. If you do not your opponent can apply for default judgment against your business which can affect your credit score, borrowing costs, cash flow and reputation with your suppliers and customers.

Litigation can be overwhelming, especially if your opponent has instructed solicitors.  

Instructing your own solicitors is often a good idea because they can help assess the strengths and weaknesses of your position and respond appropriately.

At the very least, the issues in dispute can be ventilated in pre-action correspondence, which can help reduce costs, and generally solicitors will be mindful that the court expects parties to conduct litigation proportionately and to explore alternative dispute resolution wherever possible. 

Litigation is obviously a risk for manufacturers, but it does not have to be a disruptive or damaging experience for your business.

With a better understanding of the litigation process and by adopting the guidance above, you’ll hopefully be in a much better position to deal with disputes when they arise.