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Is Your Litigation Costing More Than It Will Ever Win?

Key Points

  • The time it takes for senior management to deal with litigation is a direct cost to your business. The courts have confirmed that wasted management time is recoverable as a ‘head of damage’, but only where it is properly quantified with contemporaneous evidence (i.e. evidence from the time).
  • The hidden cost of a major commercial dispute is more than just legal fees. CMS research found that company employees spend an average of 477 days on a significant dispute, roughly two person-years.
  • Litigation which lasts for 12 to 24 months (which is quite normal for contested High Court proceedings) can place sustained pressure on operations, hiring, and commercial relationships.
  • Mediation achieves settlement in approximately 87% of cases according to the CEDR Mediation Audit 2024, and most of those settlements are reached on or shortly after the mediation day.
  • A clear internal governance structure, with a single senior decision-maker and protecting operational staff from procedural demands, is essential once significant proceedings are underway.

Litigation is sometimes necessary, especially where a business simply cannot absorb the cost of fraud by a supplier, misappropriation by a director, or a breach of a high-value contract. In many cases, court proceedings are the only tool capable of achieving what a company needs. The decision to litigate, though, is a commercial decision as much as a legal one, and it deserves the same rigour as is applied to any other significant business investment.

I am often asked the question: at what point does pursuing the claim become more damaging than the original wrong? The answer changes as the case develops, as costs accumulate, and as the realistic prospect of recovery becomes clearer. The businesses that manage litigation well treat it as a managed liability.

This article is for chief executives, managing directors, and finance directors who find themselves with significant proceedings underway and are trying to assess whether the business is in control of the process or whether the process has taken control of the business.

The cost beneath the legal fees

Senior managers involved in litigation understand that legal fees can be substantial, but so is the management time taken up with the proceedings. Research carried out by CMS found that employees spend an average of 477 days on a major commercial dispute. This includes instructions to Solicitors, document review, witness statement preparation, attendance at hearings, and the dozens of incidental meetings that occur over a case’s life. English law does recognise this cost as recoverable, however. The courts have confirmed that where a defendant’s breach causes significant disruption, diverting staff from their normal duties to managing and investigating the loss, the claimant can recover that time as a specific category of damage without needing to prove a direct loss of profit. However, to do so, the claim must be accurately quantified and supported by contemporaneous records, i.e. information gathered at the time.

A business involved in significant litigation will often experience a drain on decision-making at the senior level. Strategy sessions are interrupted by disclosure exercises. Key executives spend the run-up to trial preparing evidence rather than serving clients. Talented employees, uncertain about the company’s financial exposure, start looking elsewhere. Customer and supplier relationships suffer when the proceedings involve a commercial counterparty. None of these costs appears on the legal invoice, and none will be recovered even if the claim succeeds.

How best to handle disputes

Businesses that manage litigation least well treat it as something handled entirely by the lawyers. External solicitors and counsel provide indispensable expertise in procedure, evidence, and advocacy, but are not a substitute for commercial judgment about whether the proceedings continue to serve the company’s interests.

Once proceedings are underway, the business needs a single designated contact with sufficient authority to give instructions and make settlement decisions. That person, typically a senior director or the general counsel, should shield operational management from the day-to-day procedural demands of the case. Regular top-level reports should be provided covering:

  • Costs incurred against budget
  • The current realistic range of outcomes, and
  • Any Part 36 offers made or received.

The rest of the leadership team should be updated at board level but they don’t need to know every procedural detail.

It is important to note that document retention is a legal obligation as soon as litigation is reasonably anticipated. Deleting, overwriting, or failing to preserve relevant communications risks contempt of court and can lead to adverse inferences being drawn against the responsible party. I highly recommend sending written guidance to all staff who may hold relevant documents to this effect as the consequences of failing to comply can be fatal to a claim or defence.

When to reassess continued pursuit

It is always a good practice to review the merits of your claim at fixed intervals. This is important because the legal and factual picture of a case shifts as documents are disclosed, witnesses are interviewed, and expert reports emerge. A claim that appeared sensible at the outset may prove much more complex once opposing evidence is available.

I also recommend carrying out a reassessment of your situation if there is a material change in the counterparty’s financial position, for example, insolvency risk or significant asset disposal, as this affects the value of any judgment obtained. At the end of the day, if the other side cannot pay, a court order is a pretty worthless piece of paper.

Under the Civil Procedure Rules, either party can make a formal settlement offer at any point during litigation. If you are the defendant and you make a Part 36 offer that the claimant turns down, the clock starts running from the date that offer expires. If the case goes to trial and the claimant wins, but the damages awarded are no higher than what you offered to pay, the court treats the refusal as an expensive mistake. The claimant will normally be ordered to pay your legal costs from the date the offer expired, even though they won on the underlying dispute. This means a claimant might spend two years litigating, prove that you owe them money, and still walk away worse off than if they had accepted your offer on day one. The damages they recover get eaten up by the costs they have been ordered to pay you for the period after the offer was made. For you as a defendant, this creates genuine leverage. A well-pitched offer, set just below what the claimant realistically expects to recover at trial, makes continued litigation a financial gamble for them. The risk is not just that they might lose; it is that even a narrow win could leave them out of pocket.

Practical steps for senior management

Managing litigation as a business risk, rather than a legal project, requires specific disciplines that sit alongside the legal strategy. These are not complex, but they are rarely applied consistently:

  • Commission a realistic costs budget at the outset, including internal management time, and update it at every significant procedural milestone.
  • Set a clear objective for the proceedings: recovering a specific sum, protecting intellectual property, or establishing a contractual right. Test every decision against that objective rather than the general aim of winning.
  • Ensure Part 36 offers are considered proactively, both as a tool for applying pressure on the other side and as a mechanism for achieving a sensible exit if the opposing offer is commercially reasonable.
  • Build a formal review trigger into the litigation plan: a date, or a procedural event such as close of disclosure, at which the board reassesses whether continued litigation is the best use of the company’s resources.
  • Engage with mediation seriously rather than treating it as an obligation to discharge. Courts expect genuine engagement with alternative dispute resolution, and unreasonable refusal can result in adverse costs orders.
  • Keep contemporaneous records of all management time spent on the dispute, quantified at an appropriate daily or hourly rate, so that time can be recovered as damages if the claim succeeds.

A business that is financially disciplined during litigation is better placed to pursue claims forcefully when the merits justify it. What it avoids is drifting into a prolonged dispute on the basis of sunk costs or a misplaced sense that settling means conceding defeat. Askews Legal’s civil litigation team works with businesses of all sizes to build litigation strategies that protect commercial performance alongside legal position.

 

Frequently Asked Questions

Can we recover the management time our directors spend on litigation?

Yes, wasted management time is recoverable under English law following Zenith Logistics Services (UK) Ltd v Keates [2022] EWHC 1496 (Comm), but only where the disruption is significant, the time is properly quantified, and contemporaneous records support the claim. Retrospective estimates will not produce a full recovery.

What happens if we refuse a mediation invitation?

Unreasonable refusal to mediate can lead to adverse costs orders regardless of the outcome at trial. Courts expect parties to engage genuinely with alternative dispute resolution, and a bare refusal without substantive justification is treated as conduct relevant to the court’s costs discretion.

At what stage should the board be making settlement decisions?

Settlement authority should sit with the board or a delegated director from the outset, with a clear internal protocol governing how offers are evaluated and at what level board approval is required. Leaving settlement decisions entirely to external lawyers without business-level oversight creates the risk of missing commercially sensible exits.

How does a Part 36 offer change our cost exposure?

If a defendant makes a valid Part 36 offer and the claimant fails to beat it at trial, the claimant will usually pay the defendant’s costs from the date the relevant period expired, plus interest, even having won on liability. The consequences under CPR 36.17 are serious and should be modelled carefully before any offer is rejected.

Should we involve the board in disclosure exercises?

Board members should understand the obligation to preserve and disclose relevant documents, but need not be operationally involved in the process itself. The critical obligation is to preserve documents from the moment litigation is reasonably anticipated. A designated senior contact should manage the relationship with the legal team and ensure that document preservation guidance reaches all relevant staff.