What happens if you face being sued?

By Julian Harlow

Being sued is an ordeal for anyone unfortunate enough to have it happen to them. So what can you do in order to protect your small business?

Being sued is an ordeal for anyone unfortunate enough to have it happen to them, but for a small business owner the process of being taken to court can also place a severe strain on the resources that your business depends on to survive. Not only does the business face legal costs and potential payouts, but the time and mental effort that will be demanded of you as the owner can also hurt the performance of your enterprise.

If faced with the threat of legal action, your prime concern should be to reduce any impact on your business to the greatest degree possible. The best practicable outcome for your business and yourself may be starkly different from the outcome you would ideally like, so the very first task is to take a deep breath and try to base decisions on reason rather than emotion.

Get advice, don't delay

The first opportunity to practise putting reason above emotion is at the very start of any possible legal dispute. This will often arrive in the form of a letter making a demand or claim against your business. The temptation to ignore such a letter can be strong, particularly if you consider the claim to be baseless or trivial. However, the time and money you spend on obtaining professional legal advice at this point could be repaid many times over in the future if it allows you to avoid a protracted dispute in court. A lawyer will provide advice on your situation, but they should also be able to provide a more objective view on why the person or business is considering taking legal action against you.

Discussing with a lawyer as soon as possible how you should respond to a claim will also provide you with the widest range of options. You may need to bring together documentation in order to respond within a set time, or even just time to consider your options with a clear head.

Putting the interests of your business first

If you react promptly to any claim against your business, you will have at least some opportunity for negotiation or an alternative dispute resolution process that could provide a better financial outcome for your business than going to court. In most cases, Australian courts expect, and may require, that legal disputes have undergone some attempt at resolution before reaching court.

While it may grate that you are required to negotiate with and make concessions to somebody who is attempting to sue you or your business, alternative dispute resolution processes save you the costs associated with going court and could provide the best possible outcome for your business.

If you are unable to avoid court

Once a dispute has reached court, there are three potential outcomes. Firstly, you can still reach an agreement with the other party. The other options are that the court will either dismiss the case or make a judgement. While the breadth of possible judgements makes any generalisation impossible, courts can certainly issue orders to enforce their decisions if necessary.

The best approach to being sued is to avoid it. Unfortunately that is not always an option, with over 480,000 cases lodged in Australian civil courts in 2011-12. The best course for any small business owner faced with a legal dispute is to be proactive and seek advice from a professional. Dismissing a legal threat as baseless can easily see a bothersome yet minor problem turn into an expensive mistake.


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