Prevailing party: Overview, definition, and example
What is a prevailing party?
The prevailing party is the side that wins a legal dispute under a contract. Many contracts include a prevailing party clause, which states that the winning party in a lawsuit, arbitration, or other legal proceeding can recover legal costs, such as attorney’s fees and court expenses, from the losing party.
For example, if a business sues a contractor for failing to complete a project and wins the case, the business (as the prevailing party) may be entitled to reimbursement for its legal fees.
Why is a prevailing party important?
A prevailing party clause is important because it ensures that the winning party does not bear the financial burden of legal costs. Without this clause, even if a business successfully defends itself in a lawsuit, it may still have to cover expensive attorney’s fees.
For businesses, including a prevailing party clause in contracts can:
- Discourage frivolous lawsuits.
- Ensure fair outcomes by allowing the winning party to recover costs.
- Reduce financial risk in case of legal disputes.
However, contracts must clearly define what qualifies as a prevailing party and specify which legal costs can be recovered. Without clear wording, there may be disputes over how legal fees are awarded.
Understanding a prevailing party through an example
Imagine a marketing agency signs a contract with a client to create a website. The client refuses to pay, claiming the work was not completed as agreed. The marketing agency takes legal action and wins in court. Since the contract includes a prevailing party clause, the client must not only pay the outstanding invoice but also cover the agency’s attorney’s fees and court costs.
In another example, two companies enter into arbitration over a breach of contract. The arbitrator rules in favor of one company, making it the prevailing party. Because the contract includes a prevailing party clause, the losing company must reimburse the winning party for all reasonable legal expenses related to the dispute.
An example of a prevailing party clause
Here’s how a prevailing party clause might look in a contract:
"In the event of any dispute arising under this Agreement, the prevailing party shall be entitled to recover all reasonable attorneys' fees, court costs, and related legal expenses."
Conclusion
A prevailing party clause protects the winning party in a legal dispute by ensuring they can recover legal costs. It helps businesses minimize financial risk, discourages unnecessary lawsuits, and promotes fair contract enforcement. Including a clear prevailing party clause in agreements ensures both parties understand their potential legal obligations in the event of a dispute.
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.