Prepare your company for a more-litigious 2009

Out-Law Analysis | 07 Jan 2009 | 11:42 am | 3 min. read

OPINION: Your company faces the likelihood of more disputes this year as the recession bites. My advice is to prepare for that by taking some important steps now, rather than waiting until you sue or get sued.

Recessions have a habit of triggering litigation. For example, corporate failures upset loan repayments and insolvencies spark competing claims among creditors. But other lawsuits are caused simply by a change of heart: cash is more valuable when business is bad. In prosperous times it was easier to ignore transgressors or make problems disappear by writing a cheque.

Here are my suggestions for in-house lawyers, financial directors and company secretaries who want to prepare for more contentious times ahead.

1. Prepare your evidence now

The last time the UK officially entered a recession was in 1990. A key difference today is that almost all information that is likely to be used as evidence in a dispute is stored electronically. However, many organisations cannot marshal effectively their digital information. Disorganised data storage, legacy computer systems, an absence of document management polices and a high turnover of IT staff means that some will be unaware of the 'ticking bombs' or 'silver bullets' they hold. Back-up tapes may languish in fire-proof cabinets, USB memory sticks are everywhere and key commercial information may never have been backed-up to company servers because busy executives saved it only on laptops, mobiles or home PCs.

If disputes reach the courtroom, judges will lean on parties to get to the heart of the case fast, issuing orders that call for the disclosure to an opponent of all data meeting certain criteria. For the unprepared, the cost of searching for information and assessing its relevance within tight court deadlines can be enormous.

Accordingly, it makes good sense to undertake some effective culling and reorganisation before a case arises. Then, when faced with a dispute, your lawyers can use data collection, filtering and review software to identify relevant information and discard the irrelevant. They can move quickly to file evidence and prove or disprove claims.

Data management and retention policies are mundane but essential. We work with companies to prepare such policies, helping them to identify what to keep and for how long. We also help them to make sure that the policy is followed – because it is all too easy to bury such policies in an intranet and forget them.

Good contract management is another important aspect of this housekeeping exercise. Your in-house legal team no doubt manages effectively your company's biggest, highest-risk contracts; but others may fall under the radar and limited budgets may mean that their management cannot be outsourced to external advisers. We've begun working with in-house teams to give them a dashboard view of all contracts in their business, systematising the process to offer at-a-glance information on key performance terms and alerting them in plenty of time to contracts coming up for renewal. There is great value in building and maintaining a database of all your contracts and having an interface that makes reviewing them easy. Our SmartDiligence software aims to provide the means to deliver that value.

2. Identify strategic options before litigation

It is easy to invest significant time and money in dispute management but it is not always necessary. Instruct your lawyers to map out your strategic options for disputes at the outset (there is always more than one option). This will balance the risk/reward factors and the time and cost investment in each option. This is usually best presented as a decision tree, sometimes on a single page. When a dispute arises, it can be mapped to the plan. You are then in control of the process and you decide the route you want to take to your strategic goal.

3. Select a disputes team

When the route and tactics for dispute management are decided, select the disputes management team. Make sure the team is balanced with experience and energy, skills and commitment. When we're part of such teams we include a forensic accountant from the outset – people who are experts in the avoidance of Pyrrhic victories.

4. Prepare a project plan

When the strategy and team are selected, ask your lawyers for a project plan setting out the actions and deliverables, as well as the costs that will be incurred and when they will be payable. This master plan must be tracked and divergences accounted for. The reassurance to be gained from a well-designed project that is on-track is significant.

5. Explore options for funding litigation

Ask about funding alternatives. Insurance is available that can pay the legal costs of disputes that you raise or that are raised against you. Even without insurance, some banks and hedge funds will cover the cost of bringing a strong case that is too expensive for you to pursue in exchange for a cut of the winnings. Your external lawyers might also share risk with you, either through 'no win, no fee' arrangements or, more often, through hybrid arrangements, where fees are discounted substantially on condition of paying a success fee. It is always worth asking.

Now you are set. The decks are clear, you have your evidence marshalled, your team ready, the strategy defined, costs under control and the risks managed. Most companies do not take these steps. If you do, the likelihood is that you will be better prepared than your adversary.

Nigel Kissack is head of dispute resolution and litigation at Pinsent Masons, the law firm behind OUT-LAW.COM. Contact: [email protected] / +44 (0)20 7490 4000.