Newsletter

By Philippe Legrez, former Michelin General Counsel

Arguments in favor of litigation

The bad reputation of litigation:

Let’s face it: judicial disputes, administrative or otherwise, don’t generally get a good press within companies. It is most often seen as uncertain, and can even backfire on the plaintiff. For example, through the effect of counterclaims by the company being sued. It can be costly in terms of lawyers’ fees, experts’ fees and so on. Companies sometimes mobilize teams to build the case before the court. These teams are responsible for collecting documents and evidence, and for providing oral and written testimony. These time-consuming tasks take them away from their normal activities. Litigation can result in embarrassing media coverage for the company concerned, damaging its image and reputation.

But litigation is not all bad news!

Despite the various arguments against litigation, it is possible to reverse it. A good knowledge of laws and case law can minimize the risk. In fact, it reinforces the legal solidity of the case. Unlike other countries, such as the United States or The United Kingdom, the costs of a lawsuit are relatively low in France. Lawyers’ fees and legal costs are lower than in other countries. You can outsource some of the work involved in putting together the case presented to the courts by hiring a law firm. As for media coverage, this is not very common in business-to-business disputes. Unless you want to provoke it to publicize a favorable court decision.

Given  these arguments, why not take legal action against those who harm the company’s interests?

Here are a few examples to illustrate the point:

– Is it an option to sue for payment a debtor who is late in settling his debt, thereby jeopardizing the creditor company’s cash flow?

– Why not sue for unfair competition a company that denigrates a competitor by spreading a false rumor about its products or services, thereby reducing sales?

– Is it conceivable to challenge before the French competition authorities a proposed takeover of one company by another, thereby risking the creation or reinforcement of a dominant position that would penalize competing companies?

– Would it be appropriate to challenge before the competent courts a regulatory or legal text which has the effect of restricting the company’s sales in an activity which the administration or parliament wishes to regulate severely?

In all the situations described above, taken from real-life business situations, it is legitimate to ask whether the company’s management, which refrains from taking legal action to defend its interests, is committing a management error? Would shareholders then have the right to criticize management and demand compensation?

It’s not a question of turning company management into “warmonger” (although some do adopt an aggressive policy). However, there are cases where, after the failure of settlement negotiations or mediation, the company has no choice but to take legal action to protect its interests, provided the “feasibility” conditions have been met.