What it means
Every civil lawsuit has two main sides. The plaintiff says that the defendant has caused harm or broken an agreement, and the defendant responds.
The plaintiff generally carries the burden of proof, which means it must persuade the court that its version of events is more likely than not to be correct. Businesses end up as plaintiffs when they sue customers who have not paid, partners who have broken contracts, suppliers who delivered faulty goods or competitors who have infringed intellectual property.
They can also be defendants when others sue them. In either role, a lawsuit has financial consequences that go beyond the final judgment.
The costs include legal fees, management time, expert reports and the risk of losing. Even a strong case can take years, and the money recovered is not guaranteed because a defendant may lack the funds to pay.
Finance teams therefore weigh the likely recovery against the cost and delay before deciding to sue. For accounting, a company that expects to receive money from a lawsuit does not normally record a gain until it is virtually certain.
This differs from a company that expects to pay, which may need to record a provision, a liability for a probable loss. The treatment is a common area of judgement and disclosure.
Many cases settle before trial, with the parties agreeing a payment or other terms. Mediation, in which a neutral person helps the sides to find a solution, is often cheaper and faster than going to court.
Contracts commonly set out how disputes are to be resolved in advance. A class action is a case where one or more plaintiffs sue on behalf of a larger group with similar claims, such as shareholders or customers.
These are expensive for defendants, so finance and risk teams watch for them.
In practice
Real-world examples
Example 1
A building supplier is owed $75,000 by a contractor who has stopped answering its calls. After formal letters fail, the supplier sues and becomes the plaintiff. The claim settles for $60,000 paid in instalments, and the supplier records a bad debt for the rest. Its credit controller then tightens the terms offered to new contractors.
Example 2
A software company discovers that a rival has copied its code and brings a case as plaintiff. The court may order the rival to stop using the code and to pay damages. The company's finance team estimates legal costs of $400,000 and decides the potential benefit justifies the spend. It also sets aside time for its engineers to prepare evidence.
Example 3
A group of shareholders become plaintiffs in a class action after a company misstates its profits. They claim that the share price was inflated. The company's insurer and finance team assess the potential cost and disclose the case in the accounts. The directors also review their insurance cover.
Think of it
Think of a plaintiff like a sports team filing an official complaint with the league referee because another team cheated, demanding that the referee award them the points they lost due to the unfair play.
Case study
Seen in the real world
Harcourt Fabrics is a fictional textile wholesaler created for this illustration. A customer owed it $140,000 for deliveries and refused to pay, claiming that the goods were defective, though it had used and resold most of them.
The company's lawyers advised that Harcourt would be the plaintiff and that the claim was strong but would cost about $35,000 to take to trial. After weighing the cost, the time and the customer's ability to pay, the board agreed to file the claim. It also asked the lawyers to check the customer's assets before spending money on the case.
The illustrative outcome was that the customer offered a settlement before trial of $120,000, to be paid over six months. The finance team recorded the receipts as they came in, wrote off the $20,000 difference and later tightened its credit checks for new customers. The board also noted that the process had cost about $12,000 in fees up to the settlement, so the net recovery was lower than the headline figure.
Watch out
Common mistakes
- Assuming that winning means being paid, when the defendant may not have the money to satisfy the judgment.
- Counting the expected award as income before it is certain, which breaks accounting rules and overstates profit.
- Ignoring the cost and time of a case, when these can exceed the amount being claimed and tie up management for years.
Questions
People also ask
Who is the opposite of a plaintiff?
The defendant, who is the party that responds to the claim.
Can a company be a plaintiff?
Yes, any legal person including a company, partnership or individual can bring a claim, provided it has a valid legal basis.
Is a plaintiff the same as a claimant?
In many systems, particularly in the UK, the term claimant is used for the same role, while plaintiff is used in several other jurisdictions.