How many of us would enter into a contract containing the following provision?
“Each party to this agreement acknowledges that the costs to enforce claims seeking to recover damages for any breach of this agreement in excess of ten thousand and less than five hundred thousand dollars, will, in almost all cases, be so disproportionately high, compared to the true value of the claim, that these costs will render the rights, obligations, and promises set out in this Agreement effectively unenforceable.”
The sad fact is that this is an implicit provision of most typical commercial agreements in effect in the United States today and would apply to more than 99 percent of the 2 million typical commercial contract disputes, with claims in excess of ten thousand dollars, that are filed in Court, every year.
This is true notwithstanding the fact that the resolution of almost all typical commercial contract disputes boils down to the interpretation of a few contract provisions and the analysis of a limited body of facts. These disputes are, generally, not very complex.
Costs are the reason why, as one writer put it, “Trial is a disease, not generally fatal, but serious enough to be avoided at any reasonable cost.” Most business people who have had experience with litigation would say that this is not a revelation, at least as it relates to smaller claims.
“For most represented litigants, the costs of litigating a case through trial would greatly exceed the monetary value of the case. In some instances, the costs of even initiating the lawsuit or making an appearance as a defendant would exceed the value of the case.
Litigation costs that routinely exceed the case value explain the low rate of dispositions involving any form of formal adjudication.” (The Landscape of Civil Litigation, Civil Justice Initiative, National Center for State Courts, 2015 p. vi)
With costs of this size, for a defendant, this is truly a lose/lose situation.
If the Courts or government were to formally deny access to the Courts to resolve the millions of disputes with significant claims arising out of typical contract agreements annually, the business community would be up in arms because it would render virtually all rights under valuable agreements, unenforceable. Yet, legal costs give rise to a de-facto denial of access to justice that does just that.
This de-facto denial of access to justice results in billions of dollars in write-offs by business, every year – this is a de-facto denial of justice on a massive scale.