The Cost of Litigation - When to Fight and When to Settle

By Anastacia Willemse | Civil Litigation

Litigation can be a powerful tool for businesses to enforce their rights or defend against unwarranted claims. However, it comes with significant financial, reputational, and operational costs. Deciding whether to proceed to court or settle is a critical decision that involves legal, strategic, and practical considerations. This article examines the key factors businesses should weigh when choosing between litigation and settlement, supported by applicable laws and real-world examples.

The Financial Cost of Litigation

The financial burden of litigation is one of the most immediate concerns for businesses. Expenses such as legal fees, court costs, and payments for expert witnesses can escalate rapidly.

Under the "loser pays" rule, codified in procedural laws such as Rule 70 of the Uniform Rules of Court, the unsuccessful party is often required to pay the other party’s legal costs. While this discourages frivolous claims, it also highlights the financial risks associated with litigation.

Reputation and Public Perception

Litigation is a public process, with outcomes and proceedings accessible to the media and public. Businesses must carefully consider the potential impact on their reputation and relationships, as negative publicity could harm their standing in the market.

Precedent: Legal and Strategic Considerations

The result of a court case can create a precedent, potentially influencing future disputes. Businesses should evaluate whether they want to set or avoid a precedent in their industry.

Pursuing litigation to secure a favourable judgment can deter future claims, but this strategy is most effective when the likelihood of success is high, and the legal principles are well-defined.

Operational Disruptions

Litigation requires significant time, resources, and personnel that could otherwise be allocated to business operations. Employees may need to testify or provide evidence, leading to potential disruptions in workflows and productivity.

Alternative Dispute Resolution (ADR) methods, such as mediation or arbitration, offer faster and less disruptive ways to resolve disputes. These methods are supported by statutes like the Arbitration Act of 1965, which promotes the enforceability of arbitration agreements and awards.

Settlement: A Pragmatic Approach

Settlement provides a controlled resolution that reduces uncertainty and minimises costs. Well-structured settlement agreements can include confidentiality clauses and terms that protect both parties' interests.

Before agreeing to a settlement, businesses should:

1. Evaluate the merits of the case.
2. Compare the costs of litigation versus the settlement amount.
3. Seek advice on enforceability to ensure settlement terms are legally binding.

Conclusion

Deciding whether to litigate or settle is a complex process that requires careful evaluation of costs, risks, and potential benefits. While litigation may be necessary to defend principles or establish a precedent, settlement often offers a pragmatic and efficient solution.

Call to Action: If your business is facing litigation or considering settlement options, contact SchoemanLaw Incorporated for expert legal guidance. Our team specialises in crafting tailored legal strategies to protect your interests and achieve optimal outcomes.

For further assistance, consult an attorney at SchoemanLaw.

Anastacia Willemse | SchoemanLaw IncCandidate Attorney

Website: Commercial Law Services