Litigation is the formal legal process of resolving disputes through court proceedings, encompassing everything from initial filings and evidence discovery to trial and potential appeals in civil matters like contract breaches or intellectual property conflicts.
Litigation is the formal process of resolving legal disputes through the court system, typically involving civil matters rather than criminal cases. When you engage in litigation, you are essentially asking a judge or jury to decide a conflict that you and another party cannot resolve through negotiation or alternative dispute resolution methods like mediation.
In the business context, litigation often involves commercial disputes such as contract breaches, intellectual property infringement, employment disagreements, or shareholder conflicts. The process is highly structured, following strict procedural rules that govern everything from how documents are filed to how evidence is presented. For founders, understanding litigation is crucial because it represents both a tool for protecting your company's interests and a significant risk that can consume substantial time and resources.
The litigation journey typically begins with a "pleading" phase where each side outlines their claims and defences in formal documents. This is followed by "discovery," where parties exchange evidence and take sworn statements. If the case isn't settled during these stages, it proceeds to trial, where each side presents their arguments before a judge or jury, who then delivers a binding decision.
Litigation differs fundamentally from alternative dispute resolution (ADR) methods like mediation or arbitration in several key ways. Litigation occurs in public courts, follows strict procedural rules, and results in a binding decision made by a judge or jury. ADR methods are generally private, more flexible in procedure, and often rely on a mutually agreed-upon mediator or arbitrator to facilitate a settlement or make a decision.
Perhaps the most significant difference is control over the outcome. In litigation, you surrender decision-making power to the court, whereas in mediation you retain control over whether to accept a settlement. Arbitration sits somewhere in between, offering a private binding decision without the full formality of court proceedings. Many commercial contracts, including joint venture agreements, include clauses specifying which dispute resolution method must be used, often requiring mediation attempts before litigation can commence.
Cost and time are also major differentiators. Litigation tends to be more expensive and time-consuming due to its formal procedures, court fees, and the potential for appeals. For startups and small businesses, these factors make litigation a particularly daunting prospect, which is why many founders seek to resolve disputes through negotiation or ADR whenever possible.
The litigation process follows a standard sequence of stages, beginning with "pleadings" where the plaintiff files a statement of claim and the defendant responds with a defence. These documents frame the legal issues and establish what each party must prove. During this phase, parties may also file preliminary motions asking the court to make early decisions on specific legal questions.
Next comes "discovery," which is often the most time-consuming and expensive phase. Both sides exchange relevant documents, submit written questions (interrogatories), and take sworn testimony from witnesses (depositions). The goal is to eliminate surprises at trial and encourage settlement by revealing the strengths and weaknesses of each case. For business disputes, discovery can involve reviewing thousands of emails, contracts, and financial records.
If the case proceeds to trial, both sides present their evidence and arguments, followed by a verdict and judgment. The losing party may then appeal to a higher court, arguing that legal errors were made during the trial. Throughout this entire process, settlement remains possible at any point, and many commercial cases are resolved before reaching a courtroom.
A business should consider initiating litigation when other dispute resolution methods have failed and the matter involves a significant legal right, substantial financial amount, or important principle worth defending. For example, if a former employee has stolen trade secrets and is using them to compete with your company, obtaining an injunction through litigation may be the only way to prevent irreparable harm.
Before commencing litigation, conduct a thorough cost-benefit analysis. Consider not just the potential monetary recovery, but also the time commitment from management, the distraction from core business activities, and the potential impact on your company's reputation. Many businesses find that even when they have a strong legal case, the indirect costs of litigation outweigh the benefits, making settlement the more pragmatic choice.
You should also assess the defendant's ability to pay any judgment. There is little point in winning a costly lawsuit if the other party is insolvent or has no assets against which you can enforce the judgment. This financial reality check is particularly important for startups considering litigation against larger, well-resourced competitors.
Contract disputes are among the most common triggers for commercial litigation. These occur when one party alleges that the other has failed to fulfil their obligations under an agreement, whether it's a supply contract, service agreement, or partnership arrangement. The interpretation of specific clauses, delivery timelines, or payment terms often forms the core of these disputes.
Intellectual property conflicts represent another major category. If a competitor infringes your trademark, patent, or copyright, litigation may be necessary to stop the infringement and seek damages. Similarly, employment disputes involving wrongful termination, discrimination, or breach of restrictive covenants frequently result in litigation, particularly as companies grow and their workforce expands.
Shareholder and director disputes can also escalate to litigation, especially in closely-held companies where personal relationships intersect with business decisions. These cases often involve allegations of breach of fiduciary duty, minority shareholder oppression, or disputes over company valuation during a buyout. Such internal conflicts can be particularly damaging because they divert attention from business operations and may become public.
Litigation imposes direct financial costs including solicitor's fees, barrister's fees, court costs, and expert witness expenses. These can accumulate rapidly, particularly during the discovery phase when extensive document review is required. Many businesses underestimate these costs, which can easily reach tens or hundreds of thousands of euros even for relatively straightforward commercial disputes.
Beyond direct expenses, litigation creates significant opportunity costs. Management time spent preparing for depositions, reviewing documents, and meeting with legal counsel represents time not spent growing the business. The distraction effect can be particularly damaging for startups during critical growth phases or when seeking equity financing, as investors conducting due diligence will closely examine any ongoing or potential litigation.
The uncertainty created by pending litigation can also impact business operations. Suppliers may become hesitant to extend credit, customers may delay purchases, and potential employees might reconsider joining a company embroiled in legal battles. These indirect effects can sometimes cause more harm than the actual legal dispute itself, which is why many businesses opt for early settlement even when confident in their legal position.
The primary risk of pursuing litigation is the possibility of losing and being ordered to pay not only your own legal costs but also a portion of the winner's costs. In many jurisdictions, including Ireland, the general rule is that "costs follow the event," meaning the losing party pays a significant portion of the winner's legal expenses. This creates substantial financial risk, particularly when both sides have strong arguments.
Even if you win, litigation carries the risk of damaging business relationships beyond repair. A court victory may feel satisfying, but if it destroys a valuable supplier relationship or creates lasting animosity with a former business partner, the long-term business consequences may outweigh the legal victory. This is particularly true in industries with tight-knit professional communities where reputation matters.
There is also the risk of creating unfavourable legal precedents. If your case addresses an area of law with little existing case law, a court decision against you could establish a precedent that harms not just your company but your entire industry. Sophisticated businesses often consider this broader impact when deciding whether to litigate or settle a novel legal issue.
Proactive legal risk management is the most effective way to minimise litigation exposure. This begins with well-drafted contracts that clearly define rights, obligations, and dispute resolution mechanisms. Regular legal reviews of business practices, particularly in areas like employment, intellectual property, and data protection, can identify potential issues before they escalate into disputes.
Maintaining accurate and organised business records is also crucial. During litigation, your company's documentation will be scrutinised, and inconsistent or missing records can weaken your position. Implement proper document retention policies and ensure that key communications and decisions are properly recorded, particularly for matters that could become contentious later.
Finally, consider incorporating alternative dispute resolution clauses into your contracts. Requiring mediation or arbitration before litigation can allow disputes to be resolved more quickly, privately, and cost-effectively. These clauses don't prevent litigation entirely, but they create a structured path toward resolution that often preserves business relationships better than immediate court action.
