"Stop The Case, I Want To Get Off": Dealing With Large And Complex Claims (That Didn’t Start Out That Way)

Introduction

Commercial Litigation is often viewed, especially by your clients, as open warfare. The pattern in which most litigation is conducted resembles something like what is known as Second Generation Warfare¹:

• both sides having clear battle lines drawn,

• positions fortified,

• the troops well dug in,

• initial thrusts and counter thrusts to ascertain the strength of the enemy; and

• A final offensive involving all out attack on the battle group of the opposing side.

However, not all litigation is conducted along traditional lines. The following definition of Fourth Generation Warfare bears an uncanny resemblance to how some litigious matters inevitably are conducted:

This paper will attempt to provide a hands on analysis of ways in which commercial litigators can develop their practice so as to avoid allowing a file under their control to develop into "Fourth Generation Litigation".

Matters to Consider Before Litigation Commences:

a. Step 1 – The Initial Contact

The action taken by you prior to litigation commencing is, in most instances, crucial to a controlled litigation, which can minimise the potential to become lost in the myriad of facts and interlocutory skirmishes which can quickly turn a simple piece of litigation into a complex one.

While it should go without saying, one of the most important aspects to any litigation is obtaining a clear, comprehensive set of instructions from your client. This will take longer than the half hour or hour of face to face time that you will have initially set aside for your client. Ask probing questions of your client at the initial interview. This is the time in which your client will feel that s/he has been wronged and has suffered irreparable damage as a result, which must be recompensed no matter the cost. In the absence of asking the right questions of fact, which the client would be more than happy to turn a blind eye to, you will not be able to form a sound judgement as to the clients’ chances of success.

Be sure that you do not proffer an opinion on a case until you have the facts that you require to do so. It is often that first verbal advice that the client will remember, and that is the one which will lead them to decide on embarking on a lengthy and costly litigation. Review any relevant documents. This is another fundamental, but do not simply take your client’s verbal instructions on what documents exist, but ensure that you call for the documents to be produced and examine them carefully, as this will ensure your advice is as comprehensive as it can be at this early stage. Keep your focus at this time not simply on whether the facts of the matter establish a cause of action, but equally on whether that cause of action, if proved, will result in a claim for damages, and if so, in what estimated amount.

Division 1 of Part 4 of the Legal Practice Act 1996 governs the type of information 3 that a practitioner must give to a client with respect to legal costs. It is critical to advise the client, as soon as you are able to after forming a view on the merits of the proposed litigation and the estimated damages, of the costs that could be expected to be incurred through to trial, and the recoverability of those costs in the event of a successful result. Time should be taken at this stage to reflect on the type of dispute, what is known of the opposing side (how will they contest the litigation) and what factors could be envisaged that will possibly extend the time and ultimate cost to the client of the litigation. Whilst there may be a natural inclination to "sugar coat" the costs estimate, this must be avoided. There will be few greater detrimental issues to you as a practitioner, and to your firm’s goodwill, than the litigation in which a low estimate of costs is given, the client instructs you to proceed and a pyrrhic victory is achieved for the client, with any award of damages going to meet the legal costs that have been incurred.

d. Step 4 – Consider expert assistance

Assuming that time allows, and the matter warrants it, consider the use of experts before commencing a litigation.

The use of accountants is a perfect example here:

The facts seem simple, the client does not wish to spend much money and is impatient to have proceedings commenced immediately. A decision needs to be made by you as the controller of the litigation as to whether Counsel should be engaged.

In the event that you feel that the issues are not sufficiently clear for you to proceed or, the estimated quantum is enough to warrant a closer examination, seek instructions to obtain an advice from counsel.

In several cases, it is worth advising your client to spend the money initially to have counsel draft the statement of claim. This could simplify the issues in the pleading and the manner in how it is pleaded, saving a great deal of time and expense in dealing with interlocutory applications over matters to do with the pleading and the provision of particulars.

One need look no further than the ANZAC landing at Gallipolli to understand how the best laid plans can come unstuck, with horrendous consequences:

Once the litigation has commenced, there is a certain rhythm to the way in which it is conducted. The best strategy to employ is to ensure that you are the one that is controlling the litigation as much as you are able to. Always be in a position to understand when things occur to alter the rhythm, so that you can react and adapt appropriately.

That motherhood statement aside, there are a number of specific matters which, while seemingly commonsense, require reinforcement in the way in which you conduct a piece of litigation.

a. The Interlocutory Timetable

The way in which the litigation is conducted varies depending on the jurisdiction of the dispute.

The Magistrates’ Court has rules⁵ which provide a framework for the timing of interlocutory steps such as provision of particulars, discovery, joinder and interrogatories. At all times a practitioner should be familiar with the time limits placed, so as to avoid unnecessary applications to the Court for the purposes of seeking leave to take steps when you are out of time to do so.

In the County Court, proceedings are provided with a directions hearing which gives the parties to the litigation the opportunity to enter into a timetable with respect to interlocutory matters.⁶ The date for the directions hearing is generally 6 months from the time in which a Notice of Appearance is filed by the Defendant to a proceeding.⁷ That 6 months is often "dead time" when no steps are taken in the litigation.

Assuming that you are confident in your abilities to conduct the litigation as expeditiously as possible (so as to get to a position to either settle the litigation or proceed to an early trial), a proposed timetable should be drafted and forwarded to your opponent at the earliest possible time. By entering into consent orders with respect to a timetable, the overall length of the litigation can be shortened by at least 6 months. This is a practice that the County Court encourages.⁸

Careful note should be taken of Order 34A.17 of the County Court Rules of Civil Procedure, which provides:

Almost every commercial litigation that is conducted will require some form of discovery. Be sure to include in the consent orders a schedule of documents which you seek the other side to discover. The Judge in charge of the directions list has to review the schedule and approve it before an order with regard to discovery will be made.

The Supreme Court has for many years operated under a case management system which will provide a directions hearing and a suggested timetable to the parties for the purposes of their consent⁹.

In any jurisdiction, care should be taken to make reasonable estimates of the time that should be taken to complete interlocutory steps (reference can be made to the time prescribed by the various Rules of Court as a guideline).

It is of great importance to being in control of a piece of litigation to set the timetable and then ensure that those steps are completed by you within the time provided. To not do so exposes your client (and you) to applications arising out of the default adverse, costs orders and can easily result in a feeling that the case is slipping away from your control.

Hopefully, assuming the steps mentioned in the pre litigation stage above have been handled, issues such as particulars, discovery and interrogatories should be easily dealt with.

Of all the interlocutory steps, perhaps discovery is the one which has the greatest potential to transform a simple piece of litigation into the runaway train. Be sure to advise your client at the earliest possible stage of the requirements of discovery¹⁰ and the types of documents which the client will or should have which would be discoverable. It is an unfortunate case when a client produces a document on the morning of a trial, which is of relevance to the case, and which necessitates an adjournment of the trial, with a costs order made against the client, who properly advised, would have produced the document much earlier.

It is also important to ask your client about the types of documents which the opposing side will have in their possession, custody or power so that you are in an informed position to analyse the sufficiency of the opposing affidavit of documents.

The size and volume of the discoverable documents are issues which require careful attention. The Supreme Court of Victoria has issued a Practice Note concerning Guidelines for the Use of Technology in Litigation in Any Civil Matter¹¹ which provides that electronic exchange of discovery lists, data and images should be considered in any case where the total of discovered documents (Plaintiff and Defendant) exceeds 500 documents12. Importantly the decision regarding electronic discovery and any protocol to be applied should be made before discovery.

Particular reference should be made to paragraph 14 of the Practice Note:

In order to be in a position to make sensible submissions regarding the use of technology in a litigious matter, as a practitioner the fundamentals of ascertaining the size of the discovery, subject to any direction of the Court, is a fundamental precursor.

Obviously the commerciality of electronic discovery, and the subsequent use of technology at the trial of a proceeding, needs be carefully considered when advising a client whether it is appropriate. The cost of discovery may be a lot higher initially, however, significant savings are possible, in terms of shortening the length of the trial as well as reducing what can become a vast expense of photocopying (for the requisite number of Court Books). For example, in the litigation involving the failed Estate Mortgage Trusts, discovery was performed electronically at a cost of $20,000 (for producing a CD Rom), which covered 1.7 million discoverable documents.¹⁴

It is all too easy to become bogged down in the various interlocutory steps described above without undertaking a strategic review of the initial advice given to the client and whether it need be altered.

One of the most appropriate times to take stock of the litigation is once discovery has been completed and the opposing parties’ documents inspected. By this stage, the pleadings ought be closed, which allows the lines of battle to be delineated. A through review of the documents which both sides will rely on (to make out the matters contained within their pleadings or which are injurious to their case) should serve the function of endorsing your initial advice. Importantly, it gives you the opportunity to alter your advice on the basis of new matters or documents which have come to light since the initial advice was given.

This analysis is critical to controlling the course in which the litigation takes. For example, the Defence may simply be one of non admission and denials. If, after all the discoverable documents have been inspected, you form the view that many of the matters which are not admitted in the Defence are matters which the evidence will prove, then the Notice to Admit procedure should be seriously considered.¹⁵ This can serve to narrow the issues in dispute between the parties, sometimes considerably, so that valuable time can be spent on the issues in dispute, instead of letting a multitude of issues remain in the realm of non admission.

Any time you review your advice care should be taken on the initial estimate of costs, compared to what has occurred. If the battle has degenerated into something resembling Fourth Generation Warfare, it is rare that your initial estimate would have allowed for the events that transpired. Explain to your client why the costs have increased from your estimate (if that is relevant) and give updated estimates of the various stages as you are conducting each battle. This will serve to give both you and your client some perspective as to the litigation, and the commerciality of the way in which it has been conducted.

Alternative Dispute Resolution has become an entrenched part of all litigious processes, with much success.¹⁶ The mediation process can be one of the best weapons available to a litigator to achieve the optimum outcome for the client.

In order for that weapon to be used effectively, the process must be taken seriously. It is always extremely disappointing to attend a mediation where the opposing party has not prepared themselves adequately to assess the risks and advise their clients of this, which is a critical part of working towards an out of court settlement .

The preparation for mediation should include the completion of discovery, subsequent review of the client’s position and the updating of the advice to the client.

Speak to key witnesses before the mediation, if not for the purpose of proofing them and drafting witness statements, at least so as to be in a better position to assess the strengths and weaknesses of your client’s case.

In the event that you are conducting the mediation on behalf of your client without counsel, draft a position paper, which summarises:

• The issues in dispute (as contained by the pleadings);

• The evidence which supports your client’s allegations on contested issues;

• A critique of the allegations made by the opposing party; and

• An analysis of what you estimate your client’s case is worth to the point of mediation (calculate the claim, costs and interest).

The position paper, even if not a mandatory part of the mediation process, serves as a method by which you focus your energy on the real issues in dispute, which can be difficult to identify when in a complex claim. It is also invaluable to focus the attention of your client, who will often be prone at this time to see the emotional aspects of the dispute, which ultimately acts as a deterrent to the ability to settle the matter at the mediation.

Have prepared for your client a calculation of the solicitor client costs that have been incurred to date, compared to an estimate of how much would be recoverable on a party-party basis.

Another tool which assists to focus the mind of your client, when there has been a simple claim that has blown out into a complex one, is to explain to your client the various outcomes that can be achieved at a final trial. For example:

It is surprising how often this makes the client realise that the reasons for continuing what has become a messy, complex litigation have become removed from what the client sought when the proceedings commenced - $100,000 in the example. This exercise can assist in procuring a settlement which would provide a better result that what could be expected in running the case to trial (and by removing the risk of an adverse result).

Mediation does not resolve all litigation.

As soon as the mediation has proved unsuccessful, and assuming that the parties are so far apart that further negotiation is unlikely to produce a settled outcome, then the astute litigant needs to once again focus on the steps leading up to the final battle.

Strategically, this is a time to review your advice that has been given to the client. Often things will be revealed at a mediation which may cause your assessment of risk regarding liability, or your quantum estimate, to change.

Such changes should be explained to the client at the earliest possible stage.

It is useful to consider recommending to your client a Strategic Offer of Compromise.¹⁷ It is now possible for both Plaintiffs and Defendants to serve on the other an Offer of Compromise¹⁸.

Careful consideration need be given to the circumstances of the case, as well as the result that is expected, so as to advise your client on the quantum of any Offer made. For example, as a Defendant, if you know that the Plaintiff will not accept an offer below a certain level, which is higher than your estimate of the damages the Plaintiff would receive if successful, consider increasing the quantum of your offer to give your client the maximum protection that it affords. Similarly, as a Plaintiff, if the parties are entrenched and no offer will be accepted, serving an Offer of Compromise in a sum lower than what your expected outcome is could make the difference in a judge exercising the discretion to award solicitor client costs in your client’s favour; that is it is simpler to demonstrate to a Court that your client has made a more than genuine attempt to resolve the litigation.

This exercise (second guessing your opponent) should not be undertaken unless you have a solid grounding in the battle to date, and can predict with reasonable sureness how the offer will be received. Your client should always be made aware that there is the risk that a "cute" offer will be accepted by the opposing side.

As this is the topic of separate presentations at the seminar, it is not proposed to go through the elements of pre trial preparation in any great detail. The following checklist is a convenient one to consider, especially when the battle is raging all around you:

The open warfare that is Commercial Litigation can be controlled by the practitioner who has the battle experience necessary to impart a cool head onto a client, and a strategic manoeuvre on an opponent.

Certain disciplines should be adhered to, which will result in better outcomes and a more efficient practice overall; remember you will have many files that will require your attention at any one time in your practice!

By reinforcing the methods by which an efficient operator practices commercial litigation, the runaway train can be halted or indeed its path moulded. The overriding principles of thorough preparation, before litigation has commenced, together with a preparedness to continually review and advise will help to put you, and your client at an advantage over the opposing party.

The words of one of histories greatest military writers, Sun Tzu, are an appropriate way of concluding a paper on dealing with large matters, that didn’t start out that way: