Keeping it Affordable

Tips from the pros on how to manage litigation costs, before they get out of hand
Keeping it Affordable
COMMERCIAL LITIGATION IS EXPENSIVE, there’s no doubt. Yet there are practical ways for companies to manage costs. Here are a few tips and ideas for corporate managers dealing with the costs of commercial litigation.

ALIGN YOUR GOALS. In order to manage costs, the lawyer has to have a “clear understanding of your goals for the litigation beyond simply winning,” says Jeffrey Leon, a partner and co-chair of the litigation department at Bennett Jones LLP in Toronto. What is your company’s goal? What would be the ideal outcome for your company? What would you consider an acceptable outcome?

Further, says Leon, planning the litigation efficiently requires the lawyer to not only understand the issues in the litigation, but where it fits into your business. How will the litigation impact your organization? Is it a bet-the-company case? Is it a run-of-the-mill case?

It’s important, he says, for clients to have the attitude that this piece of litigation is a partnership between you and your lawyer — you want your goals to align in terms of how it proceeds. Armed with this information, says Leon, together you can work out an effective plan for going forward. This lets your lawyer say, “This is how I’m going to staff the file, this will be the size of my team, and therefore the work can be done at the appropriate lawyer level.”

Jack Fitch, a senior partner and litigator at Hughes Amys LLP, says managing costs in any litigation starts with early investigation and asking yourself, “What is the fight really about?” Lawyers have a tendency to turn over every stone and look under it, and they do so because of the culture they’ve been brought up in, says Fitch, who practises out of Hamilton and Burlington.

To put this into context, he says, consider this: “The business person wants a result, a lawyer wants the best result, but sometimes the best result costs too much.” That’s why identifying and focusing your litigation resources on the key issues and getting a result that is proportional to the issues and the needs of the parties is important.

Consequently, when faced with litigation, there may be valid reasons to sue or defend. For example, he says, “Your company’s reputation may be at stake, you may need to discourage other potential suits, you might even be in the right.” Still, Fitch says companies have to consider whether bringing a suit or defending one — if the problem can be resolved without doing so, even at a considerable expense — is going to be the right thing to do.

At the end of the day, he says, even if you win or pay less than you would have had to do at the beginning, you may be further behind when you consider your legal fees and internal costs of the litigation over several years. “Your decision, with the help of your lawyers, has to make good business sense whatever the legal merits of your position.”

DESIGNATE AN INTERNAL MANAGER. One of the best ways to manage the cost of litigation is to have the client do as much work as they can, says Bill Kenny, a litigator and partner in the Edmonton and Calgary offices of Miller Thomson LLP.

Most clients are sophisticated; they have the capability, says Kenny, to designate an internal project manager — and that person “basically owns the litigation from the client side.” Kenny says the lead person on the client side has access to all the documents that are produced and, further, knows the company’s internal systems better than external counsel. “So when there are undertakings that are given in the discovery, the external lawyer doesn’t have to try and dig out the information one nugget at a time.” This kind of scenario, he adds, makes the litigation a lot more cost effective, and has the potential to reduce the number of external lawyers involved in the file.

INTERNALIZE REPORTING. Laurent Nahmiash, a senior partner and co-chair of the Canadian class action group at Dentons Canada LLP, feels one of the most useful steps he’s undertaken, with certain clients, is getting their legal departments more involved in the file.

One area that can be very cost-intensive is the reporting structure to management and the board, especially when you’re dealing with high-end litigation. “So having the reporting function done at a high hourly rate by external counsel can become very significant over the life of the file,” he says. In contrast, “if you get your legal counsel actively involved and they assume the reporting function, you are already saving a significant budgetary item.”

At the same time, by having your legal department play a significant role in the litigation, says Nahmiash, you’re working as partners from the start to the finish of the file. He’s had some files where the in-house counsel undertakes document review and some research. In turn, the law firm “focuses on the key strategic and specialty areas of the file — the areas for which the client wants to pay the law firm.”

He suggests if clients “identify the areas that can be delegated to the in-house law department or to other staff within a client’s organization, it’s a very intelligent and useful way to reduce costs.”

FIND FRIENDS. Whether your company is the defendant or the plaintiff, figure out who your friends are and work with them, says Fitch, although it may at first sound counterproductive.

Often, he says, hugely expensive litigation is multi-party and involves more than one plaintiff; for example, in class actions. On the other hand, in different types of situations, there are multiple defendants. Yet it is possible that some of the participants may have the same interest in the litigation as does your organization — or on at least some aspects of it, he says.

Even though, as an example, you are the defendant in litigation, says Fitch, “there may be opportunities for you to make friends with the plaintiffs; you don’t have to fight about everything. If you want to get to a resolution, focus on the key issues, give up some of your issues and let the other side know that you’re doing that.

“Draw the opponents into a more cooperative approach to the resolution if you can and save yourself all a lot of grief and money,” says Fitch, who adds that “in business terms, grief and money are synonymous.”

ENSURE THERE’S A DECISION-MAKER. Does your company have a final decision-maker, asks Kenny? Is there someone who, in collaboration with your external counsel, can make decisions on an exit strategy? These are often tough decisions — an efficiency decision is a risk-management decision, too, he says.

There are plenty of considerations that will require an individual’s full attention. Do you need that last report? That last expert witness? Is now the time to think about arbitration or mediation, asks Kenny, noting that there’s no sense having a mediation before it’s time — it’s like drinking wine that hasn’t been sitting on the shelf long enough. “But both of you must have a little bit of backbone to be able to make these decisions, because you could be wrong.”

CONSIDER OUTSIDE FUNDING. Historically, many small and medium-size companies have found the cost of litigation to be out of the realm of possibility. Their cash flow simply won’t support the cost of litigation. Even larger enterprises, for whom litigation may be familiar as part of their ongoing business reality, may find themselves reluctant to divert funds needed to grow the business. Hence, it may be a hard sell internally to fund litigation.

As an example, imagine a medium-size business with a fraud claim, says Monique Jilesen, a commercial litigator and partner at Toronto-based Lenczner Slaght Royce Smith Griffin LLP. “There may be a huge upside in terms of recovery, but there may be a lot of cost to get there — and they don’t want that in their budget; they are not in the business of litigating.”

So how can companies get someone else to fund the litigation and yet reap some of the rewards should the litigation succeed? That’s where exploring the efficacy, and appropriateness, of using a litigation funder might make business sense, says Jilesen. She says the litigation funder “reviews the case to consider if there is value in proceeding, and if so, funds all or part of the litigation. The company will not get all of the recovery, of course, but they are not taking all, or at least some portion, of the risk.”

Jilesen hasn’t used a litigation funder yet, but says it’s a tool in her toolbox she is in the process of offering to clients to consider. She says this type of funding “is frequent in the US, very developed in Australia, but relatively new to Canada, where it’s mostly been done in class actions, but has now crossed over into commercial litigation.”

Looking forward, as a mechanism for managing the cost of potentially onerous litigation, Jilesen feels it “presents a potential new opportunity for all sorts of organizations.”