#120 What actually happens if you're sued?
As a small business owner, the idea of being sued can be daunting. The legal process is complex and overwhelming, and the potential consequences can be significant. That's why it's important to understand what actually happens when you're sued, and how to minimise the risk of ending up in court.
In my previous career as a litigation lawyer, I’ve seen firsthand the devastating impact legal disputes can have on businesses. In this episode, I emphasise the importance of prevention over cure, and urge you to ensure your legal documentation and processes are best set up to avoid facing any future damaging legal proceedings.
While I do believe that all businesses should do their best to minimise the risk of being sued, we cannot control the actions of others. That means that in some cases, being taken to court comes at a surprise. Today I take you through the different stages of litigation, what you are obliged to do, and how long you can expect proceedings to take.
Bringing a dispute to court is not only emotionally draining, but comes at a cost to everyone involved. I talk about legal fees, who pays what, and how you may have to pay a percentage of the other party’s costs when being sued.
The consequences of litigation are significant and can have a lasting impact on a business's finances, reputation and relationships. I encourage you to reach out to your legal representative for advice on creating a strategy that will best support you in the event of a legal dispute.
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Hello everyone. Welcome back to another episode of the Rise Up in Business podcast. Thank you for joining me for another episode. Today I'm gonna be talking you through what happens if you are actually sued. So I talk a lot on the podcast about prevention being better than cure in business. I've shared my background in my legal practice career, and that is the first 12 or so years were spent in litigation and dispute resolution.
So for me, it's second nature to understand all of the ramifications and consequences of what happens when you get sued and what can go wrong. But of course I haven't shared that [00:01:00] on here, and I've been asked what actually happens when you get sued? If I wanna talk you through it, the first thing to say is it is one of the most awful experiences for a business owner or a client to be sued and have to go through the court process.
That is why I have harnessed this business in helping business owners set themselves up to avoid it, helping business owners set themselves up to be in a position of strength with solid foundational documents and solid strategies in place to grow a sustainable business and significantly minimise the risk of ending up in dispute and ending up in court.
Trust me. From a litigation lawyer's perspective, you want to stay as far away from court and litigation as you possibly can. Now, you would've heard the saying, I'm sure at one time or other, possibly more, the only ones that win when you go to court are the lawyers, and that's true. I'm here to tell you that is true because the lawyers get paid no matter what the outcome, they get paid [00:02:00] along the way, win, lose or draw.
When you are sued, what happens? This process starts, when you are sued, that means you're served with a claim or some type of legal proceeding, and this can be in different courts or tribunals in different jurisdictions. So depending on which state or territory you live or the contract was formed or or the relevant state or territory, the legal proceedings will be filed there.
So, for example, you could be in Perth, but you might've entered into a contract with a service provider based out of Melbourne, and their service agreement might say in the jurisdiction clause, if there's a dispute, Victoria is the relevant jurisdiction. And what that means is, Victoria is gonna be the jurisdiction that you need to fight in.
It doesn't matter that you are located in Perth. Yes, it will cost you a ton more money. That's the reality of it. So when you receive or you're served with a claim or some form of legal proceedings, that's [00:03:00] the start of it for you. But it's important to note here, it's not the start of it for the other party that's actually suing you because they've had to do a fair bit of legwork to get to the point where they've been able to get their claim or their legal proceedings filed.
If they're working with a lawyer, the lawyer will run them through the ringer. Trust me, to get to this point, because there's a lot of work and preparation that needs to be done so the lawyer can be satisfied there's a legitimate claim here to be answered. There's a lot of work being done by the other side already by the time you get served with the claim. Sometimes it comes as a surprise to you. Sometimes it doesn't. There could have been letters of demand or cease and desist letters that have been exchanged. There could have been emails back and forth trying to resolve it. Sometimes there is. Sometimes there isn't.
There's no obligation on someone to do that. So if you're caught by surprise, your defense is not, oh, you can't do this. I didn't know. That's not a defense. So if you're caught by surprise, so be it. You still need to action it. Or if negotiations and discussions have broken down and [00:04:00] someone's gotten to the point where they've chosen to take the next step, which is the legal proceedings, then so be it.
My view is strategically, those preliminary discussions are really important because if you can reach a resolution there and then to avoid this whole court process that I'm about to talk you through, then you should, and after listening to this episode, you'll have a better understanding of why I say that.
So this is the first step. Someone serves you with the claim or the legal proceedings. Timeframes start ticking immediately, my friend, from when you are served. So sticking your head in the sand is a sure fire way to end up on the path to disaster and very quickly, so you must take action immediately when you've been served and in the documents that you're served, it'll tell you what your requirements are, what the timeframes are, whether you've gotta file a defense or a response, or whether you've got an opportunity to seek particulars. There's certain things that [00:05:00] need to happen fairly quickly, so you've gotta take notice. Engage your lawyer really quickly. If it's a small tribunal matter, of course lawyers aren't permitted and you can't be represented by a lawyer always, but you'll need to take steps immediately to get on the front foot and do what you need to do in that tribunal, even if you are being self-represented. And you still get advice from a lawyer, but they can't act for you sometimes.
So the first thing to do is to note the timeframes and work out what your next steps are. If it is the case, and I'm just gonna talk generally here because there's so many variables that it's, oh my gosh. I'd be talking for days to try and take you through all the different permutation and variables, and you don't need to know all that, but there's timeframes that start ticking straight away for you to file your side of things. Can be called a defense. It can be called a response. It can be called different things depending on the court or tribunal that the claims started. You have to do that. Missing deadlines or missing timeframes is really significant when we're talking legal proceedings because serious consequences can [00:06:00] flow from that.
You can't just simply ring the court and ask for more time. It doesn't work like that. Once we're in the court system, firm timeframes apply. If you need to adjust those, it has to be by agreement or sometimes by order of the court or by permission of the court. So it's serious stuff.
Once you've gotten to a point where you have filed your defense, your side of things, money has been spent, significant money's been spent by this point, because for you going to see your lawyer, or jump online to, to have a Zoom session with your lawyer, whatever the case may be.
But you have to provide them with everything they need so that they can give you advice on whether you actually have a defense. Just because you think you do, doesn't mean you do. Similarly with the person who's commenced the proceedings, just because they think they have a valid claim, it doesn't mean they do.
There's all sorts of legal tests that need to be applied, and as soon as we get into this legal realm of the legal tests and the legal definitions and what we have to prove and what we have to do, it is expensive. [00:07:00] The dollar signs start racking up really quickly because it's serious, and because you are now bound by the rules of the court.
So it's serious and it's stressful, and I've seen livelihoods destroyed throughout these litigation processes. And trust me, hand on heart, it is just not worth it. Now, once you've got your defense on the court will then set a timetable for things to happen. And depending on the type of claim and the court or tribunal you are in, you can have orders from the court to do things like file evidence, file affidavits, file statements. You can be met with applications by the other side, by your opponent. So whether you are the person bringing the claim or the person defending it, there's lots of different applications that can be made throughout this whole process, which cause further delay.
Require more time and money to be spent. So [00:08:00] it's not just a matter of filing a claim, filing a defense, bang, I'm at hearing and I get my day in court. It's not uncommon and in fact, it's frequent, where to get to that final day in court and get a resolution is no less than 12 months. and that's if you're lucky, most of the time. It's not uncommon for these things to drag on for years.
And once you're in this pipeline, there's nothing you can do about that. So having it hanging over your head, the stress and the uncertainty and the toll that it takes on you and your business doesn't matter for the purposes of these proceedings in court. It'll just keep ticking along in the system.
Once you're in the system, you're in the system. You can't just decide to opt out. Anything you wanna do from that point, you have to do by agreement. So you can see how stressful and hard that it gets, but when you're going through this process, there's lots of little applications can be that can be made.
They're called interlocutory applications and they can be made in relation to lots of different things. I won't go through them, but it's important to note. My point is the level of uncertainty that comes because you don't know what your opponent's going to do, [00:09:00] and then with that uncertainty comes further time and more money, and that's how things can drag on.
Once you get through those processes and both parties and the court have a really clear idea of what the claim is, what the defense is, what the evidence is, because evidence has been filed by way of statements or affidavits, for example, then the court can make orders that you go to mediation. Most courts and tribunals have the power to do that because they know the inherent risks and cost attached to going to final hearing as well.
So the court too is interested in exploring a resolution. Now my very firm view is, we should be exploring negotiation and mediation well before we end up here in court, well before we've been sued, because to resolve a matter by negotiation or mediation means we don't have to end up here in this stressful, uncertain, time consuming, and expensive process.
Now, let's just say we've been to mediation and there's more costs attached to that, [00:10:00] mediation being an informal structured form of negotiation. For those that don't know. It's where you go along, you sit around a table with or without your lawyers, with a mediator who controls the dialogue to keep people focused and civil and polite and to give some firm advice and to share the cold, harsh realities of the risks if we don't settle this matter, if we don't reach an agreement. That's what mediation's all about. Some mediations can take half a day, some can take a week. It just depends on the issues involved and the attitude of the parties. But let's just say we've reached this point, mediation's been unsuccessful for whatever reason, and we now have a final hearing date.
That means that's the time where you and/or your legal team turn up to the court or tribunal to put your case. And there'll be, more often than not, there'll be witnesses. There'll be examination in chief, there'll be cross-examination, there'll be submissions, all sorts of things. And [00:11:00] again, this process can take half a day, a week, more, depending on the issues.
And every minute you're in court with your legal team, again, the dollars are racking up as is the uncertainty because going to a final hearing is not like what we see on our favorite American TV shows. It's not Suits. It's not The Good Wife, it's not Ally McBeal. It's none of that, sadly. I've broken many a junior lawyer's heart when they come in to do work, well they used to come in to do work experience, and I'd have to shatter their little dreams because I'd have to share with them that the cold, harsh reality is not fun and sexy and cool, like what we see on TV.
It's really not, particularly when you are sitting there and this is you and your business being sued. Or even being the one suing because of the amount of money you've racked up and the amount of time you've invested in this process to get to this final hearing. And then the judge, or magistrate or member, whoever's hearing it most of the time, reserves their decision and doesn't hand down the decision on the day.
They'll [00:12:00] reserve and go away, sometimes for a short period, sometimes for much longer, and come back and deliver a judgment later. Once you are in a position where you're in court, you're in that courtroom and you're putting your case or your legal team's putting your case, you don't know which way it's gonna go.
So the advice I would always give to my clients is, the minute we walk through these doors, we're on a 50 50 chance of winning and losing. There's just too many variables and we have no way of knowing. We've put the best case forward for you that we can, but a lot's gonna turn on the evidence and the submissions and the way things fall on the day at the hearing.
So there's a lot of uncertainty attached. And again, the risk attached to this is significant because more often than not, generally speaking, if you are not successful, you are likely to receive a cost order where you've gotta pay a fairly significant percentage of the other party's legal costs. And similarly, if you're successful, you will more than likely receive an order in your favour where they pay a percentage of your legal costs. It's never a hundred [00:13:00] percent. You never get to a point in court where you've been to the end, you won a hearing, and you recover all your costs. Never, ever. Doesn't happen. It's almost like I explain it in simple terms. It's like when you go to see your GP and you pay, and then you put your card in and they give you, they process your Medicare rebate for you.
So there's that out-of-pocket component. That's what it's like with your lawyer. You'll pay your lawyer along the way. If you're successful, you'll get an order and you'll be reimbursed for some of it. But there'll always be that gap, that out-of-pocket component that you're spending. So that's in a nutshell.
Very generally speaking, very high level what it looks like when you're sued and when you go through to court. But what I wanna say here as well is that if you don't meet timeframes, if you are sued and you don't realise it, if addresses aren't up to date, if just haven't opened your mail or you forgot about it, you can be receiving a judgment or an order against you much earlier on, for the full [00:14:00] amount of the claim plus costs. So that's the significance of failing to meet deadlines or do what you're supposed to do throughout that process after legal proceedings have commenced. Legal proceedings can be commenced for anything from a thousand dollars to a million dollars or more.
Okay? So just because you're a small business, the amount of money involved with you and your clients is not significant, has no bearing whatsoever on whether or not you will be sued, because you can be sued for things that extend well beyond the amount of money that you've engaged or exchanged with your client.
So if your retainer for your services is, let's say you're an interior designer or stylist, or you're a web designer or you're a coach and the whole job from go to woe, or the whole project or the whole coaching container has been, let's say $5,000, $10,000. That doesn't mean that if somebody is feeling disgruntled or they've received advice that you've breached your contractual obligations and [00:15:00] that as a result they've suffered loss and damage, they can sue you for as much money as they can establish their loss and damage equates to. Could be equivalent, could be double three, four times.
You don't know because everybody's circumstances are different and somebody can receive advice that actually, as a result of your breach and your failure to do what you said you were gonna do, not only do I want a refund, but I also want this big chunky sum in addition to that. Plus, I want you to pay my legal costs, plus I want interest. And these figures rack up really quickly. And so the risk here is the uncertainty attached to being involved in these legal proceedings and attached to you being sued and the time and money you're gonna have to spend dealing with it.
Because once it's started, you have to deal with it. You have no choice if you've been sued. So it is awful. I said at the beginning, it's horrible. I think that honestly, hand on heart, in my experience acting as a litigation lawyer [00:16:00] for so many years and acting for small business owners for for 20 years now, it is one of the most awful experiences that you are likely to have in your business life.
And it is something that should be avoided at all costs, and it's something that can be avoided. This is the thing. Most of what I saw in my years of my litigation career could have been avoided. I kid you not. It could have been avoided if the business owners had known how to do things, the importance of documentation, the importance of getting legal advice before they signed things, or the importance of a strategy before taking action later when things go wrong.
Strategy in business is your friend, and I think we ought have a strategy for just about everything. In fact, I talk to people about strategy every day, and you'll hear me talk about it a lot here on the podcast and, and over on my Instagram. But if you have a solid strategy in your business to set you up for success, your risk mitigation strategy will include fundamentally your [00:17:00] legal documents, your foundational legal documents, so that if something goes wrong, you can come along to a lawyer like me and say, hey, Tracey, need your help, this is what's happened. The very first thing I'll say to you is, show me your Ts and Cs, client service agreement, the click wrap, if they signed up and bought online, whatever it is. And if they're done properly and tailored for your business, they'll be very useful and instrumental in informing our next steps and the strategy we put together to best support you.
And that applies both sides, whether you are the one wanting to make a claim against someone or having a claim against someone, or whether you are the one where allegations are made, so the one being sued. So that strategy is vital. My message here is that's in a nutshell, the litigation process.
That's what happens when you're sued. That's why it's so significant and serious and horrible, and that's why you wanna avoid it, and you can avoid it. Prevention is better than cure. That is why .You can avoid it, and whilst we can't control the actions of other people, we [00:18:00] can really make sure you are consistently in a, in a position of strength in your business when you're dealing with any third party. Clients, team members, contractors, service providers, whomever you are dealing with, we can make sure your position is solid and we can make sure your systems and processes are sound, such that they will support you, in the event that you ever need to rely on them. And let's hope that you don't.
That's my insight, friends. That's what I wanted to share with you, to answer the question, what actually happens if you're sued. Now you know, but the takeaway is you don't need to end up there. You shouldn't end up there. Having your day in court is not what we are led to believe it is, based on the TV. And it's something that you really strategically should set your business up for earlier so you can avoid it later.
I hope that helps. If this is resonating or if you've got questions, there's no doubt you will, around what legal documents do I need? Have I got what I need in place? I don't know.[00:19:00] Please jump over to my website and have a look at the prerecorded masterclasses that I have on the website available for you to access, because in those masterclasses I'm answering for you the questions that I get asked almost daily by existing clients and new clients around, what do I need, how do I know, what do I do? It's all there in really short, accessible, bite-sized little chunks for you to actually dive in and get a really good, clear understanding of what you need to have in place, and you can work out very quickly whether you have it.
If you've got questions or if you wanna talk to me about helping you strengthen your business, strengthen your protections, or get in place what you need, well, please reach out, book in a chat, send me a DM. I don't mind. Let's start that conversation because honestly, this type of conversation is not something that you can afford to be putting off if you haven't already had it. Thanks for joining me. I've loved this one. As you can tell. I'll catch you next week. [00:20:00]
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