Calculating damages in business disputes

Businesses often end up in conflict with each other and begin to contemplate litigation.  One of the very first questions to be addressed is “How serious are the damages?”. When businesses litigate against each other, the damages must be of a sufficient amount so as to warrant the costs involved. Due to the expensive nature of litigation, it is usually bad business to argue purely over principle. 

However, that would seem to indicate that claims involving low-dollar damages are not worth pursuing. Such is the complete opposite. Alternative dispute resolution, including arbitration and mediation, become prime vehicles for resolving these smaller disputes because the costs involved are less substantial.

That being said, when a business is calculating its damages, it may have a tendency to throw everything under the sun in its damages calculation. While such is permissible, and, at times, necessary, (such as going to trial), is that really the best practice for ADR? Is the other side more apt to listen to the damages claim when it is quantifiable and reasonable?

When prepping for a mediation, it is not always the best course of action to present a damage claim that is so specious as to cause the mediator not to believe your client’s willingness to resolve the dispute. In an arbitration, where the focus is on protecting the parties’ rights while working efficiently, a questionable damage claim will be discounted quickly. It is a risk that such a quick negative reaction by an arbitrator could also result in an inadvertent credibility question. Lastly, an inflated damages claim may unnecessarily persuade a party to believe that the case has higher worth than it really does. 

On the defendant’s side, an excessive discounting of a damage claim is just as nonproductive.

In ADR for business disputes, it is important for counsel to be able to separate the wheat from the chaff and be realistic in damages claims. That will go a long way toward a favorable resolution.