theAustraliancorporatelawyer
WHAT ARE THE NECESSARY INGREDIENTS
FOR THE EFFECTIVE AND EFFICIENT
MANAGEMENT OF A DISPUTE IN-HOUSE?
A
nyone who has watched a TV drama
would be familiar with the immediate
response to a crime scene – up
with the police tape, isolate the scene and
identify the players and events surrounding
the incident. All of this facilitates the later
analysis to understand the true circumstances,
unsullied by subsequent events or hindsight.
Robyn McKern
Robyn is a foundation Partner of McGrathNicol and
leads the Forensic team in Melbourne. Robyn has
extensive experience in dispute resolution, forensic
investigations and governance matters across a
broad range of industries. Robyn undertakes forensic
financial investigations, and analyses the financial and
commercial consequences of alternative courses of
action, reporting with acuity to drive effective and timely
decision making.
Whilst rarely do we think of the emergence
of a major dispute or potential litigation as
a crime scene, applying this kind of thinking
and approach in these circumstances can
be instructive. In this article we explore ideas
to maximise a successful outcome through
early dispute actions and strategic planning,
factoring in the business impacts which
surround a dispute and some ideas around
effective capture and analysis of evidence.
Key elements to successful dispute
management and resolution
Whether defending or pursuing a claim,
some early and focussed actions are key to
managing costs and minimising risk and
disruption to ongoing business.
In our experience, effective dispute
management encompasses the
following elements:
•Clear strategic objectives. What is
the strategic objective of the claim or
defence? Is it about money, reputation, a
quick return to business as usual, matters
of principle/precedent or a combination?
Being clear as to what really matters to
your business is crucial to assessing the
cost/benefit of the options for every major
decision - from when and which external
advisers to use, to determining
the appetite for settlement.
Cameron Gray
Cameron is a Senior Manager of McGrathNicol Forensic
and specialises in dispute advisory and forensic
investigations. Cameron has worked on a range of
dispute advisory and investigation engagements over
the past 13 years involving economic loss, insurance
claim disputes, contractual disputes, and
the investigation of fraudulent and other inappropriate
behaviour in business including breaches in the
Foreign Corrupt Practices Act (FCPA) both in Australia
and overseas.
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VOLUME 26, ISSUE 4 – SUMMER 2016
•Defined accountability and
responsibility for managing the
dispute. In a crime, it is unthinkable to
have the victim or relatives undertake the
investigation. This task calls for impartiality
and objectivity, and typically falls to the
General Counsel to manage. In larger
matters a team may be required to handle
different work-streams; in such cases
project and team management and clear
accountability is paramount.
•Identification of the stakeholders.
Beyond the victim and the perpetrator
there will be a range of others impacted by
a dispute. In a commercial environment,
it is helpful to identify all the key business
stakeholders and consider if and how
the dispute may impact them and
their relationship with the organisation.
Potential stakeholders may include the
board, management, insurers, employees,
customers, suppliers - even competitors
and the general public. Furthermore,
“perpetrator profiling” (as the crime shows
would have it), or counter-party analysis
in a commercial setting, is a task worth
starting on early and building upon as
the investigation develops. Who are the
counterparties? What is their commercial
worth and what are their commercial
imperatives which may suggest
opportunities for leveraging
early resolution?
•Early input from external advisers.
Input from trusted and experienced
external legal and accounting advisers
at an early stage offers a number of
advantages including securing privilege,
insight from experience in similar disputes,
insight into funding options and, insight
into quantification approaches to inform
effective evidence capture. In addition,
external advisors provide the practical
benefits of objectivity and additional
capacity if required. Seek out advisers who
will work with you to define a scope which
provides sufficient information to de-risk
key decisions, without undue polishing
(which can be done later if required) and
is prepared to quote the work in phases
for fixed fees. An investment in
professional advice early on can save
additional costs later.
•Timely capture of evidence. Analogous
to the establishment of a “crime scene”,
the timely capture of data, activities and
first-hand accounts of relevant events
is invaluable to evidencing a claim or
establishing a counter-factual defence. We
consider below some of the complexities
involved in capturing commercial evidence
which is forensically sound.
With these elements forming a framework, the
dispute management plan can be more fully
developed to include:
•Identified issues and the workstreams
required to investigate them together with
trigger points for reviewing progress.
acla.acc.com
So, don’t hesitate to call in the CSI team! The
cost of bringing in external experienced
forensic IT specialists can be moderated by
using a co-source approach so as to limit
the external experts’ work to aspects where
expertise and independence really counts. In
such a model the internal team would:
•Identify key people who may have been
exposed to relevant information.
•Identify the systems and devices in place,
the software they run (including versions,
locations, storage locations, and size of
storage of each) and the data held in
each system.
•Identify the systems in place at critical
times and their current state – e.g. retired,
archived, or migrated into the
current environment.
•Identify or implement email archiving
systems and enable ‘litigation hold’
features, which prevent deletion of current
or historical data.
•Detail the backup regime for each system,
facilitate access and ensure backups are
“held” so that they are not at risk of being
overwritten or destroyed.
•Key risks and the actions to be taken
in mitigation.
•A timeline for actions and reporting.
•Articulation of:
− Expected costs (and contingencies).
− Potential returns (and contingencies).
− Key trigger points for escalation or deescalation of the dispute.
Looking beyond the legal issues
For General Counsel, the identification of the
wrongdoing in a commercial dispute may
be straightforward e.g. breach of contract
or warranty, misleading and deceptive
conduct. However, as a key member of the
management team, General Counsel also has
a key role in ensuring requisite attention is
given to surrounding issues including:
•Identifying the heads of claim and
quantification issues.
•Identifying loss mitigation avenues
– to both minimise impact and avert
potential defences.
•Managing the risk of distracting
management attention from the
ongoing business.
•Understanding and managing the financial
impact of the dispute:
− Impact on financial results and ratios
and any flow on to financial reporting,
disclosure obligations, audit issues and
banking covenants.
− Funding of legal costs and potential
adverse costs.
•Securing requisite skills and capability to
manage the dispute and its impacts, which
may not reside in the business.
•Retention of corporate memory –
continuity is a particular difficulty for longwinded and complex matters.
•Capture and retention of evidence.
Effect dispute management factors in
attention to these surrounding issues.
Forensic capture of evidence
and analysis
In commerce, as in crime, successful
outcomes turn on evidence and the quality
of that evidence. In the commercial world this
typically requires the collection of information
from various sources including electronic
information. As with a crime scene, the most
critical factor in data collection for potential
litigation is ensuring that data evidence is not
compromised through mishandling.
Collecting data from corporate environments
for use in litigation is a complex task with
many subtle nuances. Whilst it may be
tempting to manage data collection in-house
for cost reasons, this is fraught with danger.
The risks in using internal IT resources to
source evidence include:
•Limited capacity – IT already has a day job.
•Potential lack of independence
and objectivity.
•The risk of requiring staff to perform
a high stakes task for which they are
inexperienced and for which they may
be required to attest to the Court and be
scrutinised (e.g. in cross examination).
•Ascertain the status of devices and domain
accounts for key former employees.
•Assist with the logistics of undertaking the
data capture processes.
With the exponential proliferation of
electronic data, even modest disputes can
now give rise to “big data”. Fortunately, the
tools and know-how for efficient analysis of
electronic data have also come a long way
and self ‘discovery’ to enable early assessment
of the potential of a claim or defence is now
both possible and increasingly cost-effective.
Getting to grips with the quantum and
nature of the evidence and using analytical
techniques at an early stage can, in
conjunction with legal advice, enable parties
to get a good sense of their position and
the size and complexity (and therefore
the cost) that a dispute may bring. Whilst
its improbable that this will yield a tearful
confession, followed by a wry remark from
the investigators and the closing credits…
such early effort can deliver better informed
decisions regarding the dispute strategy and
early identification of resolution opportunities.
Unlike TV crime, where the crime is typically
self-evident (just follow the blood!) and
the hard bit is identifying the culprit, in a
commercial dispute, the culprit is usually
known and it’s the nature and extent of the
crime that calls for work. When faced with the
task of defending or pursuing a commercial
dispute, maybe a keen devotion to CSI, Law &
Order and Midsomer Murders can be justified
CPD after all!
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