Should I pursue legal action or is it too expensive?

I’m become entangled in a dispute with another business and am looking to take legal action.

I’m weighing up, however, how much this will cost me.

What are the general legal costs to sort out a relatively small-scale dispute between two SMEs?

The regrettable reality is that this question is not dissimilar to the colloquial ‘how long is a piece of string?’, and accordingly my answer is ‘it depends’.

How much?

The fact is each dispute is different and how much it may cost in legal expenses to resolve will often depend on matters outside of a party’s control – such as the conduct of the other party.

While some disputes are in relation to larger amounts than others, the size of a claim is not indicative of its complexity.

For example, a dispute in relation to a small amount may involve complicated legal or technical issues requiring lengthy argument or sophisticated expert evidence, either or both of which would exponentially increase the legal costs involved in litigating the dispute.

To be frank, the general rule for SMEs is that litigation is inevitably more costly than you would expect or be prepared to pay.

What for?

In terms of the legal costs of litigation, there are the costs your lawyer charges for tasks such as drafting documents and providing advice.

In addition, there are costs known as “disbursements” that might include amounts for court, barrister and expert fees.

The amount of the court fees will depend on which court the dispute is before. There are different types of court, each of which has their own jurisdiction – which may be limited in terms of the types of matters that can be determined or the amounts of money that can be in dispute.

Each court has its own fees for the commencement of various types of proceedings and those fees are revised each year. For example, the filing fee for the commencement by a corporation of particular types of claims in the Federal Court is, at the time of writing, $2,248.00.

It may be that the court orders the unsuccessful party contribute to some of the successful party’s costs and disbursements – known as a “costs order”. This is not always the case and even where a costs order has been granted it usually only allows for recovery of a portion of the costs and disbursements actually incurred.

The outcome of litigation may not be in your favour and, while you may appeal such a decision, failure is a possibility that all parties should be prepared for. This could mean contributing to the other side’s costs too.

Other costs

There are expenses beyond legal costs that need to be considered: Litigation takes time.

There are unavoidable delays in litigation, so that it often takes longer than many parties hope or indeed anticipate to finally sort out the matter.

A significant amount of time also needs to be devoted by the individuals involved to attending to a matter during the course of its conduct.

This might include attending meetings with lawyers, collating documents, providing statements, attending court (representatives of parties are required to attend certain types of hearings) and so on.

This time commitment takes individuals away from their usual work which has flow-on financial consequences, which is particularly significant where one or both of the parties is an SME and they are central to the daily operations of the SME.

In addition, other non-legal considerations, such as market reputation, ongoing commercial relationships and “matters of principle”, can affect the manner in which disputes are chosen to be resolved.

Therefore, there are certainly a range of factors other than legal expense that a party needs to consider when deciding whether to litigate a dispute or not. These will in turn impact on the “costs” of litigation.

Avoiding the fight

In many circumstances, and for various reasons, it would be preferable to avoid litigation of disputes. There are alternative mechanisms for resolution, such as to mediation, arbitration and expert determination.

Where the dispute has already arisen, resolution might be achieved through negotiation or compromise.

Sometimes the inclusion of an alternative dispute resolution clause in the contract governing the relationship could minimise the risk of disputes becoming litigious in future.

In summary, this question is a difficult one to answer. However, the general take away is that more often than not, litigation is going to take longer and cost more than you would expect.

Therefore, the better strategy may be to avoid it and rely on other forms of resolution, or simply negotiate a commercial outcome/compromise that you can reasonably live with.