Litigation health check feature by Stephanie Bonnello
Whether you’re pursuing a claim or defending one, litigation can be a costly and time-consuming exercise and it is generally best avoided. This article provides a general overview of what litigation is and contains some useful tips for individuals and businesses in the fitness industry who may find themselves involved in a dispute, as well as advice on how to avoid getting involved in a dispute in the first place.
There has been a lot of focus in recent years on gym customer terms and conditions, with many gym goers having successfully challenged their termination rights, arguing that lengthy minimum contract terms with no or unfavourable break provisions are unfair.
Given how valuable a business’ brand or other intellectual property (IP) can be, it’s not surprising that there are often IP-related disputes in the fitness industry. Whether it’s preventing a competitor from infringing a trade mark or protecting the copyright in a special fitness program, it’s important to protect a business’ IP.
Similarly, personal injury claims are not uncommon in the fitness industry, with the contractual status of personal trainers often coming under legal scrutiny – are they classed as employees or independent contractors? This can have implications on whether the gym or the personal trainer is liable if a client is injured, and whose insurance policy ought to cover the claim.
Whether it’s protecting your brand from an intellectual property perspective, making sure you’ve got the right set of customer terms and conditions in place, reviewing the key provisions in your contracts with the people who work for you or properly structuring any other commercial arrangements, it’s essential to keep all areas of your business under review to minimise the risk of becoming involved in a legal dispute.
The general rule in litigation is that the unsuccessful party will be ordered to pay the costs incurred by the successful party. However, a successful party shouldn’t expect to recover all of their costs; even in the absence of any unreasonable conduct which has led to increased costs, a successful party can only expect to recover around 60 – 65% of their legal costs.
But if a party has breached the Civil Procedure Rules (CPR), for example by unreasonably refusing an opponent’s offer to attend a meeting to try to settle the claim, the court has discretion to impose costs penalties against that ‘offending’ party and could order them to pay a proportion of their opponent’s costs, even if they go on to win the claim.
Similarly, if a party rejects an offer to settle the claim made by their opponent but doesn’t go on to beat that offer at trial, they could face severe costs sanctions and end up having to pay some of the other side’s costs and/or not being reimbursed for their own costs.
The costs of pursuing a claim through the courts should always be considered carefully at the outset of any dispute, before legal proceedings are commenced.
If you have a claim against another party, there are various different methods of funding that claim. Some lawyers are prepared to enter into conditional fee agreements (CFAs) with their clients. A CFA allows a lawyer to charge a success fee on top of their normal fee if the claim is successful, and they will charge either a reduced fee or no fee at all (often referred to as a ‘no win no fee’ agreement) if the claim fails. Other funding options include legal expenses insurance, after the event (ATE) insurance and third party funding.
The CPR requires parties to communicate to try to resolve their dispute before legal proceedings are issued and sets out a procedure which parties ought to follow before any claim is commenced. If a party fails to comply properly with these pre-action requirements, the court has discretion to award costs against them.
Settlement and alternative dispute resolution
The courts strongly encourage litigants to try to settle their disputes. Parties should consider what methods of alternative dispute resolution (ADR), for example, mediation or arbitration, might be used to try to resolve their dispute.
An offer to settle can be made by either party at any time. Settlement discussions often take place on a ‘without prejudice’ basis, meaning that they are ‘off the record’ communications that generally must not be shown to the court. For communications to be ‘without prejudice’, they must be clearly marked as ‘without prejudice’, although the inclusion of these words alone will not necessarily make the communication ‘without prejudice’ if it is not made in a genuine attempt to settle a dispute.
Another issue that all claimants should think about before issuing legal proceedings is the prospect of being able to enforce any judgment they may obtain. Being awarded a sum of money by a court is a hollow victory if the opponent does not pay. If a claimant wins their case, can and will their opponent honour the court’s judgment? If the defendant won’t pay voluntarily, the claimant will have to take steps to enforce the judgment, which can involve arranging for the defendant’s assets to be seized and sold, or obtaining a charge over its property, and which will inevitably involve further legal costs.
The English legal system adopts an ‘all the cards on the table’ approach when it comes to litigation. Save for certain types of documents, litigants are required to disclose to the other side all documents in their control that either harm or assist either party involved in the dispute.
The definition of ‘document’ is very wide and it includes all media (not just paper) in which information is held e.g. text messages, tweets, videos, audio, equipment etc. Given that most business is now done electronically, even a relatively straightforward dispute can generate a large number of disclosable documents.
Depending on their content, communications with lawyers will usually carry “legal advice” privilege and so won’t have to be disclosed to the other side.
As soon as litigation becomes a possibility, parties are required under the CPR to ensure that all documents relevant to the dispute are preserved (including ones that may harm their case). This includes documents that might otherwise be destroyed if there’s a general policy in place to destroy documents periodically.
General points to note
If you find yourself involved in a dispute, it’s wise to act quickly. Make sure you properly understand the details relating to the dispute and address the key legal issues at an early stage.
Be clear on your objectives and what you are trying to achieve. It’s sensible to seek legal advice on the merits of the claim and ascertain which course of action will best protect your interests.
As a claimant, if you decide to go ahead and start court proceedings, make sure your claim is filed in the correct court (and in the correct country if the dispute has an international element). If your claim is over an undisputed debt, then issuing a claim in the courts is not necessarily the right option and you may well be better off commencing insolvency proceedings against the debtor.
If you are a defendant, there will be a strict timeframe within which you must respond to any claim issued against you. Failure to file your defence in time will allow the claimant to win the case by default.
Prevention is better than cure
Protect your business by reviewing your commercial contracts and other business arrangements regularly and making sure they properly reflect how your business should operate. Make sure that any agreement you enter into clearly sets out the contracting parties’ rights and responsibilities so that everyone is clear what they have to do to satisfy their obligations. In particular, review your termination rights, as well as those of the parties you’re contracting with.
It may sound simple but consider who you’re contracting with. If a company uses a trading name, ensure its full name and company number is included in the contract.
It’s best to get all agreements properly documented in writing. An oral agreement is still legally binding, but if a dispute arises it’s much more difficult to prove what terms were agreed.
Make sure your staff are fully trained to handle any issues that may arise that could lead to a dispute and that there is a proper procedure in place for ensuring that these are dealt with on a timely basis and by someone at an appropriate level.
Whilst not every dispute can be avoided, it’s better to prevent a dispute arising than having to resolve one once it has arisen.
This article featured in Gym Owner Monthly Magazine (at pages 62 - 63):