Being Right is Not Always Enough - Why taking a commercial approach to litigation from the outset is crucial

Hadi Boustani

If you feel you have been "ripped off" or ill-done by in a commercial matter, beware!  This emotive response can sometimes lead to poor judgement when deciding whether or not to litigate in certain situations.  Simply being "right" is not always synonymous with being commercial.  Time and time again a litigator is required to ensure that his or her client understands the commercial realities of pursuing their principles.

The Harsh Reality

Unfortunately, when litigating commercial matters, even if you are guaranteed a 'win' in the Court, you may end up losing considerable money and time in the process.

The Local Court of New South Wales has a monetary jurisdictional limit of $100,000 or $120,000 by consent.  However, there is a further separation between the small claims division (up to $10,000) and the general division ($10,001 to $100,000, or $120,000 by consent).  This division has a major effect on the amount of costs that can be awarded to a successful litigant.

For example, as at April 2014, the maximum amount of costs that can be awarded to a successful plaintiff for a liquidated claim in the sum of $9,000 is $697.60. 

The reason for the relatively low limit of costs that can be awarded is that the Court wants to encourage litigants in the small claims division to represent themselves, as opposed to appointing lawyers.  The small claims division is a less formal division with hearings being conducted by Assessors as opposed to Magistrates.

This is not to say that all matters in the small claims division should not be litigated by a lawyer.  However, parties should be aware of all of the circumstances before rushing off in the heat of the moment, retaining a lawyer, litigating, and then being unable to recover the cost of the legal proceeding - which may end up being more than the claim amount.

What About Larger Scale Debts?

This principle is also applicable to larger scale debts which may fall in other court jurisdictions.  Generally speaking legal costs are awarded to a successful litigant on the basis of any of the following:

Adopt a Rational Approach

Commencing litigation should be seen as a potential investment as opposed to a witch hunt.  Parties should ask themselves one simple question; is it worth spending $X and Y months in the pursuit of $Z? 

In answering this question a general action plan should be drawn up to determine the various steps involved in litigation.  Once a larger picture is painted it is easier to calm the frustration of feeling 'ripped off' and make a pragmatic decision as to how to pursue a legal entitlement.

Parties should ensure they have a full and frank discussion with their legal practitioner as to what the potential cost of litigating a matter could be.  This may end up being the deciding factor in whether the better commercial approach would be to negotiate or litigate.

If you have an issue with a commercial legal matter and are unsure as to the best way forward, contact our experienced team for commercially practical, and realistic, advice.

Caroline Hutchinson, Principal
Phone: +61 2 9895 9200

Hadi Boustani, Associate
Phone: +61 2 9895 9202