How to Handle Lawsuits Against Your Business

The following is an edited transcript of an interview on The Simi Sara show on CKNW 980. 

One of the unfortunate aspects of being a business owner is that is you may, at some point, find yourself having to deal with legal issues, or maybe even a lawsuit that entangles your business. It can get messy. It could be anything from a commercial dispute over contracts or disputes between owners, or perhaps a business could find itself sued and be liable for actions that are said to cause harm to others.

This happens more often than you think, and it’s the topic of today’s conversation with Heather Craig, a Securities Litigation lawyer with Boughton Law.


Heather, thanks so much for being here.

Heather Craig: Thank you.


I take it business disputes keep you pretty busy?

Heather: It does, unfortunately.


What is the most common type of commercial dispute?

Heather: Common claims occur when you’ve caused damage to someone through the operation of your business. There are, as you mentioned, disputes that involve business owners, there’s shareholder disputes, and we’re not going to talk about those types of claims today. The claims that typically get brought are against a business for something that the business has either done or not done, obviously.


Like unhappy customers or unhappy clients?

Heather: Absolutely. Both of those things. There’s really endless examples of the kinds of claims that can be brought against a business. Now the majority of them involve an active business that’s doing harm or has caused some damage or loss to a third party. I can give you an example. Where through your business, you’re interacting with the world. If you’re building something, if you’re selling things that people use. These are circumstances where your company might be liable.


… Because you’re putting yourself out there, whatever the impact of your product or your business is.

Heather: That’s right. If you’re excavating, it’s construction, it’s retail, manufacturing and sales, really anything where you’re as you say putting yourself out there. You could be liable as the owner of the business.


When do you know, if you’re the business owner, to take those seriously? How do you know when it’s frivolous or not?

Heather: It’s difficult to judge that. I think that you have to take them seriously right at the front and make sure that you are protecting yourself. We’ll talk about it a little bit later, but there are steps that you could take as a business owner to ensure that you can mitigate the risk that you’re facing. If something comes across your desk as a business owner, and it’s involving someone that’s alleging that there has been harm done to them as a result of your business or one of your employees, then it’s something to take very seriously.


Procrastination is not your friend in this circumstance.


Are there rules around what we consider to be harm?

Heather: No, not necessarily. It would be things that would result in damages suffered. Losses and damages suffered by another party. When we talk about harm, that’s typically what we’re thinking about.


… Any kind of a loss.

Heather: Any kind of a loss, that’s right. We talked about, where I said the act of business has done things or has caused things that have caused harm to people. There are also circumstances where a business also might be liable as the owner of the property. For instance, for things that occur on your property. There’s laws related to something called occupier’s liability for that. The business also may have obligations under a lease document. These are all circumstances where the business may end up being liable and you need to think carefully and take seriously any allegations that are brought.


I know it says that for some claims you get to a point where no choice, this is going to be a legal matter. There’s going to be litigation involved. That can be really, really scary. If you were put in that position, what can you expect? What happens?

Heather: In terms of litigation, it’s fraught with peril.


That’s not reassuring.

Heather: I don’t mean to be treating it lightly. What happens when you’re sued, well, you’re going to be served with a document that sets out a claim that a party has against you for a harm that they’re alleging as we discussed. First and foremost, again, you need to seek legal advice. Get a lawyer to take a look at it. If you’re insured, you need to get your insurer involved, which you’re probably going to also have to hire a lawyer to provide advice on the insurance coverage. There’s time limits involved with respect to responding, so the rules are very strict and people need to adhere to those time limits or default could be taken against your business, for instance.


And that’s before you even do anything, right?

Heather: Yeah, so it’s not something to be ignored. Again, when you talked about taking things seriously and when do you know to take things seriously. Obviously when you’re served with a legal document like that is a time to take things seriously.


Don’t just throw it on a desk and think, “I’ll deal with this later.”

Heather: Yes. Procrastination is not your friend in this circumstance.

The next stage in litigation is called the discovery process, which involves two aspects. One is documents discovery, so the parties have to list all of the documents that might be relevant to the claim. Both parties do this, that’s a time consuming process. Then there are examinations for discovery, which are when parties are examined under oath before a court reporter and they give evidence relating to the claim. These are steps that are extremely time consuming for owners. You can expect to be dragged out of your office or away from running your business for a considerable period of time. When you think about that, that’s something to take in consideration in litigation.


You can take preventative steps, too. Is that right?

Heather: Yes, absolutely. As a business owner you should really try and anticipate what are the reasonable claims that people could bring against you. That sounds perhaps something that would be hard to do.


Is that like playing devil’s advocate, and …?

Heather: Absolutely. I mean, what are the possible claims that others would have against you in your business. It’s very sort of business focused. A key would be practice effective management. You should identify what the potential problems and pitfalls are that can occur during the ordinary course of your business, that might pose a hazard to a third party or to another person. Once those are identified, then you need to manage that risk. Have policies and procedures in place is a good way to start.

You should give some thought in terms of what your business is, what the necessary policies and procedures should look like to minimize the potential of a claim like that. If you’re a catering company, for instance, your staff must adhere to food safety requirements or somebody’s going to get poisoned. Proper systems in place where everybody does things properly in order to minimize the risk of mistakes, and then the procedures to make sure that you’re going some distance towards minimizing and reducing your potential liability. That also shows the courts that you’ve done your upmost to manage.


Right, okay. The insurance thing is really important, isn’t it. I bet people really underestimate what they need.

Heather: Absolutely. Everybody knows about car insurance.


Yeah, and even then we underestimate that, even when it’s mandatory.

Heather: That’s right, that’s right. Everyone knows about that, but your business needs to have insurance as well. You’ve got to make sure that it covers what your business is doing. That’s the particular risk that’s undertaken by your business. Whatever that is, whatever kind of business that you have. First and foremost, obviously, you’ve got to consult with an insurance broker to deal with that. To make sure that the policy is correct and that the policy limit’s high enough. In a serious case, going to court, the costs can be high. If combined damages, for instance, in a litigation case, exceed your insurance, you could wind up with a shortfall, and that’s a real problem. If the business doesn’t have sufficient insurance, then it could wipe out all of the assets of the business, and you could end up having to pay for that.


It sounds, Heather, from everything that you’re saying, that in this particular case, if you’re a business owner, it’s way better to be a bit paranoid and err on the side of caution.

Heather: Absolutely. I would say that’s absolutely the case.


Heather Craig specialises in commercial, civil and estate litigation, as well as securities risk management and compliance at Boughton Law.