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Home | News & events | Legal updates | In litigation, the biggest risk may not be losing

In litigation, the biggest risk may not be losing

10 August 2010

The decision to bring a claim, or to fight one, can be one of the trickiest problems faced by any business.

It is essential to balance the merits of the case against the potential costs, and not just the financial ones. Even the most solid looking cases can fall apart when they reach court, and any weaknesses will quickly be exploited by opposing counsel at trial. Nothing has demonstrated this to greater effect than the recent BSkyB v EDS ruling.

The case concerned the procurement of a new customer relationship management (CRM) system by BSkyB from EDS. The original contract was worth £48m. The project was not a success and led to BSkyB alleging that it had been induced to enter the contract by the fraudulent, and negligent, representations made by EDS, and presenting a claim for losses in excess of £700m as a result. Perhaps the most talked about aspect of the case was the performance of key witness and former senior EDS employee, Joe Galloway, who headed EDS's CRM practice and was the 'mastermind' behind its bid.

Mr Galloway was the second witness called for EDS and almost single handedly demolished EDS's defence in the Technology and Construction Court. Mr Galloway was found to have falsified evidence and to have promised to deliver aspects of the contract with BSkyB within timescales that were wholly implausible and produced without analysis.

The killer blow to Mr Galloway's credibility, however, came from a dog called Lulu who belongs to Mark Howard QC, barrister for BSkyB. Lulu successfully obtained on the internet an MBA from Concordia College, the same college in the British Virgin Islands as Mr Galloway. In fact, Lulu achieved better grades. Whilst amusing, this would not have been so damaging had Mr Galloway not repeatedly insisted in court, in a manner described by Mr Justice Ramsay as 'palpably dishonest' that the degree was genuine. EDS was forced to accept that their main witness had lied when giving evidence. Mr Galloway may have lost his job as a result, but the case never recovered.

Sky and EDS have subsequently agreed a damages settlement of £318m.

What does this mean?

It is clear that one rogue witness can have a catastrophic impact on a party's chances of success; this has long been known by those involved in the cross-examination process, but few cases demonstrate it with such clarity as this one.

It is, of course, essential to consider the direct financial implications of bringing or defending any claim. Although the winning party may be entitled to recover its legal costs, there is often a substantial shortfall between the amount awarded and the amount actually spent.

Consideration should also be given to the man-hours the case will require - not by the lawyers, but within the business.

Whilst the lawyers can take a certain amount of the strain, they will require documentation and information to be provided to them from within the business. This 'hidden' cost can be substantial, and there is generally no ability to claim from the other party to compensate for the time taken away from the 'day job' in dealing with the litigation. The EDS trial alone involved 109 days of submissions in court, 70 witnesses and more than half a million documents.

It is important to remember that with any litigation there can be unforeseen results, and very often the worst case scenario is not the financial cost of losing at trial, but the resulting publicity and the damage it can do to even the most robust reputation. There is also a danger that confidential business information or trade secrets could be revealed in the course of a trial.

What should you do?

Litigation is not always doom and gloom. It can be highly satisfying to win at trial and the majority of cases are not going to be blighted by a witness quite so damaging as Joe Galloway. There are many ways to reduce the risk - we recommend that when contemplating litigation it is important to:

• Consider who within your organisation will need to give evidence and, if possible, sit down with them as early as possible to talk through their recollection of events with them. Making assumptions about the honesty and reliability of an individual based upon their senior position in an organisation may seem reasonable but could lead to nasty surprises in court. As part of the initial briefing with each witness, take a short history of their background and qualifications and consider carrying out some research or vetting to test whether the information holds up.
• Avoid relying upon the evidence of just one person where possible. If they lack credibility on the stand it may prove fatal to your chances of success.
• Collect together any likely evidence that you will need as soon as possible and take action such as instructing relevant personnel not to delete any potentially relevant emails or discard items such as diaries.
• Most evidence will be exchanged in written witness statements - ensure that careful thought is given to the content and presentation of any statements.
• Be aware of the 'litigation risk' involved in pursuing or defending any claim. If your claim is, for example, highly dependent upon the oral evidence of witnesses rather than documentary evidence, this should be taken into account in determining your strategy and the strength of your case. Try to look at your witnesses and your evidence from an objective position in order to properly assess your prospects of success.
• Finally, remember that settlement, whether by alternative dispute resolution or more traditional without prejudice negotiations, is not a dirty word. It is often far better to negotiate a settlement that all parties are reasonably happy with than to hold out for your 'day in court', with its associated risks.

Case link: BSkyB v EDS [2010] EWHC 86 (TCC)

© Shoosmiths. This page is for general information: it is not legal advice. Please read our full terms and conditions for details of the disclaimers and exclusions which apply.

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Linda Mattingly

Associate
T: 03700 86 8390
I: +44 (0)1908 48 8390
E: linda.mattingly@shoosmiths.co.uk