Question

what are the positive and negative impacts of increased litigation on society and the accounting profession?

Answer 1

The reputation of a business is fundamental to a company’s survival. The trust and confidence of consumers and partners can have a direct and profound effect on a company’s bottom line. Firms with a robust positive reputation attract better people. They are perceived as providing more value which allows them to stand out from the rest. Customers of these companies are more loyal and buy a broader range of products and services. Moreover, in an economy where 70% to 80% of market value is derived from hard-to-assess intangible assets such as brand equity, goodwill, and intellectual capital, organizations are especially vulnerable to anything that might damage their reputation.

Pros of litigation

Parties are compelled to comply with judgments

Due to the inherent nature of the judicial system, judgments obtained through litigation compel parties to comply or they run the risk of being given certain penalties. These penalties can include the seizure and sale of the property, garnishment of the monies owed, or even possible jail time. As such, the losing party in litigation is likely to comply with the judgment that is pronounced against it.

Right to appeal

Canada’s judicial system allows either party to a lawsuit to ask an appellate court for a review of the trial court’s decision should one of the parties disagree with it. This allows the opportunity for a previous decision to be overturned or for a new trial to be ordered and can be beneficial if you are unsatisfied with the trial court’s decision.

Precedent-setting

The principle of stare decisis in Canadian common law requires judges to follow the previous rulings of higher courts in their province and the Supreme Court of Canada on the same issue. As a result, cases brought to and decided in court are precedent-setting, which can be helpful in discouraging similar suits from being launched against you in the future should the initial one fail.

Discovery

Starting the litigation process will allow you to obtain information from the other side in the form of documents and verbal responses through processes called document discovery and examinations for discovery. These processes allow you to identify the strengths and weaknesses of both your own case as well as the opposing party’s case, and give you access to information that may not have been available through other forms of dispute resolution.

Potential for a predictable outcome

Taking a case to trial may yield a predictable outcome if there have been similar precedent-setting cases decided or if there is clear legislation that dictates the outcome. This can be beneficial if your case against a defendant is a strong one as it may give you more confidence in a positive outcome.

Cons of litigation

Longer time frame

Sometimes, depending on the complexity of the issues, cases can take up to several years to be decided by court. This means that both parties to a lawsuit may have to wait a significant amount of time until a judgment is pronounced, and the matter is concluded. Taking a case to trial is not ideal if the matter needs to be resolved quickly because the litigation process is inherently slower than other dispute resolution methods.

Judgment subject to appeal

Although the right to appeal was mentioned as an advantage of litigation, it can also be a con. There is always the possibility that the decision in a case may be overturned by an appellate court, thus forcing the process to be redone all over again. This becomes a con when you receive a desirable outcome at trial, as this prolongs a final decision and also becomes more costly.

Costly

The litigation process can undoubtedly become quite costly with legal fees and other costs associated with going to trial. The costs of litigation will rise in accordance with the length of the pre-trial period as well as the length of the trial, meaning that the longer it takes to resolve the matter the higher the litigation costs.

Damaging relationship         

One of the downsides of taking a case to trial is that it is almost always damaging to the relationship between the two parties. It can be difficult to overcome the animosity that can occur during the trial process and as a result, it can be very challenging for both parties to preserve any sort of relationship, be it professional or personal, once a judgment has been handed down.

Public forum

A risk of taking a case to trial is the possibility that it will attract public attention as most court documents are available publicly. It may not be in your or your company’s best interest to take a case to court if you are uncomfortable with the matter being publicly accessible.

In the next installment, we will discuss the pros and cons of dispute resolution mechanisms other than litigation. This knowledge will aid you in deciding which process is best for the resolution of your dispute by taking all of the relevant factors into account, including the cost.