Litigation is often seen as a way to resolve disputes definitively, but many individuals and businesses underestimate the financial risks involved. Court proceedings in England and Wales can be expensive, unpredictable, and time consuming. Even when a party believes they have a strong case, the costs of litigation can outweigh the benefits if those risks are not properly assessed at the outset.
Understanding the cost risks of litigation is essential before deciding whether to issue or defend a claim. This article explains how litigation costs arise, what risks parties face, and how those risks can be managed.
How litigation costs arise
The most obvious cost of litigation is legal fees. Solicitors’ fees, barristers’ fees, court fees, and expert fees can all accumulate quickly as a case progresses. Costs often increase significantly once proceedings are issued, particularly if the matter involves multiple hearings, applications, or a trial.
In England and Wales, the general rule is that the losing party pays a proportion of the winning party’s costs. However, this does not usually mean all costs are recovered. Courts assess costs for reasonableness and proportionality, and recovery is often substantially less than the amount actually spent.
There are also indirect costs. These include management time, disruption to business operations, stress, and reputational impact. For businesses, litigation can divert key personnel away from core activities for months or even years.
Court fees themselves can be substantial, especially for higher value claims. Issuing a claim, applying for interim relief, or enforcing a judgment all involve additional fees.
The main cost risks parties face
Litigation carries several distinct cost risks that parties should understand clearly before proceeding.
• Losing the case and paying the other side’s costs
• Winning the case but recovering only part of your own costs
• Facing unexpected applications that increase legal fees
• Delays that extend proceedings and costs
• Enforcement costs if the judgment is not paid voluntarily
Another significant risk is costs sanctions. Courts in England and Wales expect parties to comply with procedural rules and act reasonably. Failure to engage in settlement discussions, comply with court directions, or follow pre action protocols can result in adverse cost orders, even for a successful party.
Litigation is also inherently uncertain. Outcomes depend on evidence, witness credibility, legal interpretation, and judicial discretion. Even strong cases can fail, and weak cases can sometimes succeed.
Managing litigation cost risk
The key to managing litigation risk is early and realistic assessment. Parties should obtain clear advice on prospects of success, potential costs, and alternative options before issuing proceedings.
Alternative dispute resolution methods such as mediation are strongly encouraged by the courts and can significantly reduce cost exposure. Refusing to engage in mediation without good reason can lead to cost penalties.
Cost budgeting and phased decision making can also help control expenditure. Reviewing strategy at key stages allows parties to reassess whether continuing litigation remains proportionate.
At Penerley, we help clients understand litigation risks clearly and early. Our focus is on strategic, cost effective dispute resolution and avoiding unnecessary exposure wherever possible.
If you are considering litigation or are already involved in a dispute, contact Penerley today for clear advice on managing cost risk and protecting your position.
