'See you in court' might be an easy way to resolve disputes in your favourite legal series – but the reality of legal proceedings is much more complicated, expensive and potentially stressful for small business owners.
Whether you’re handling a dispute with another business, your landlord, or an individual or organisation, it’s always worth exploring resolutions where you can avoid going to court.
Here’s your guide to what might happen if you take a business dispute to court – and how to avoid it if possible.
Court proceedings are expensive
If a dispute ends up in court proceedings, the legal fees are likely to be costly for your business, regardless of the outcome. You may find there are significant costs to lodge your claim correctly, including lawyer representation fees, court filing fees, technical reports, expert witness expenses and further costs if the case goes to trial. Even if a case is settled before judgement is made, you may still have to pay costs for mediation or dispute resolution processes ordered by the court.
There are other costs to consider too, including the loss of income or extra staff hours you might need to cover if you had to spend a lot of time away from your business while involved in legal proceedings. It may be a juggle to balance your business, home life and court proceedings.
Not all court costs are financial
Apart from the high financial costs, other costs to consider include the emotional stress of court proceedings, which could have an impact on your physical and mental health. There’s also a high likelihood that court proceedings could damage your relationship with the other business and might even cause damage to your reputation. Court listings and judgments are generally publicly available.
Depending on the court involved, without legal advice, technicalities in wording your claim and following the process can be challenging. Some courts provide easier access but there are still rules to follow the process correctly and strict requirements from you and the other business. It is advisable to consult a lawyer to ascertain the strength of your case and make sure your claim is worded correctly even if they do not represent you in proceedings.
Court judgements, especially monetary ones, can be recorded with credit reporting agencies and may affect you or your business’s creditworthiness. This might impact your ability to apply for a loan or service for your business at some point in the future.
Things don’t always go to plan
In any legal proceedings, delays can mean you might need even more time and money to invest in resolving the dispute. Once a court process has begun, it can be difficult for you and the other party to withdraw from. Here are some examples of unexpected issues you might face in court:
- If a dispute does not settle early and goes to trial, the outcome is determined by the court and is generally outside your control. The longer and more complex the case becomes, the greater the legal costs for everyone, which makes this a key consideration in settling or proceeding to trial.
- The business you’re taking to court can file counter claims against your business greater than the original amount, as typically they will have a different view of the dispute.
- If your case is dismissed by the court because it does not have legal merit or is unreasonable, the other business may seek reimbursement of their legal costs, which could add to your financial burden.
- If you are served with court documents and do not respond in time, the court may enter a default judgement against you without your evidence being considered. This means the other party can enforce the judgement with limited options for you to appeal.
Even if you win in court, things can get complicated
Even being successful in court proceedings is not necessarily a win for your business. If your case is successful, the court may order the other party to pay some or all of your legal costs and other fees, though this is not guaranteed and often only partial recovery is allowed.
Sometimes, the other business is unable to pay the order made by the court. Checks can be done before starting your claim to check the other business has the ability to pay you, otherwise your business may be worse off financially.
If the other business does not follow the judgement, you may need to take further steps to seek enforcement through the court. This can involve even more costs for your business.
You have a range of dispute resolution options
Whether you’re chasing an unpaid invoice, disputing the quality of work or a product, dealing with a disagreement with a business partner, or questioning a contract clause, there are several ways to resolve the issue without going to court.
In the event of a dispute:
- Keep clear records of all communication, invoices and attempts to resolve the dispute. These documents will help if formal proceedings become necessary.
- Even if a compromise cannot be achieved, early dispute resolution will help to clarify the issues from both perspectives, explore other ways to resolve the dispute and help you think about the outcome you want. You can also let the court know you have attempted to settle the dispute before requesting an order.
Before going to court, you may be able to resolve your dispute through our SBDC dispute resolution service which is a confidential and affordable dispute resolution service designed for small businesses here in WA. There may be options through Consumer Protection or industry ombudsman schemes, which are free or low cost.
Here are some helpful resources to use as a guide:
- Business.gov.au – a guide to help prevent, manage and resolve disputes
- Our tips on resolving a business dispute
- Types of disputes the SBDC can help with
- SBDC dispute resolution service
If going to court appears to be the only option available, you might like to read about recovering a debt through the Magistrates Court or choosing a lawyer.
