Litigation costs: Overview, definition, and example
What are litigation costs?
Litigation costs refer to the expenses associated with taking legal action or defending against a lawsuit in court. These costs can include attorney fees, court fees, expert witness fees, costs of gathering evidence, filing fees, travel expenses, and other legal expenses incurred during the process of a lawsuit. Litigation costs can vary greatly depending on the complexity and duration of the case.
In simpler terms, litigation costs are the expenses you pay when involved in a legal dispute, whether you’re the one suing or defending yourself.
Why are litigation costs important?
Litigation costs are important because they can have a significant impact on a business's finances. Even if a case is successful, the costs of litigation can be substantial and may affect a company's profitability. Understanding and preparing for these costs can help businesses make informed decisions about whether to pursue legal action or settle a dispute out of court. It also helps businesses assess the potential financial risks of litigation.
For SMB owners, being aware of litigation costs is essential for managing legal risks and budgeting for possible disputes.
Understanding litigation costs through an example
Let’s say your business is involved in a contract dispute with a supplier. You decide to take legal action, and as the case moves forward, you incur various litigation costs, including the fees for your lawyer, court filing fees, and costs for expert witnesses who testify about the contract’s terms. These costs add up over time and can become a financial burden on your business. Even if you win the case, the litigation costs could exceed the value of the dispute itself.
In this example, the litigation costs represent the financial resources spent during the legal proceedings, which need to be considered when deciding whether to proceed with litigation or settle.
Example of a litigation costs clause
Here’s an example of what a litigation costs clause might look like in a contract:
“In the event of a legal dispute arising from this Agreement, the prevailing party shall be entitled to recover all reasonable litigation costs, including attorney fees, court fees, and any necessary costs for expert witnesses. These costs will be awarded in addition to any other remedies granted by the court.”
Conclusion
Litigation costs are a significant factor to consider when engaging in legal action, as they can quickly add up and impact a business's bottom line. For SMB owners, understanding these costs is crucial for managing legal risks, making informed decisions about disputes, and ensuring that the business is financially prepared for the possibility of litigation. By carefully weighing the costs of litigation against the potential benefits, businesses can make strategic decisions about how to handle legal conflicts.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.