Three questions every company should ask before commencing litigation

When a company is considering whether to commence litigation, it will typically assess both the “soft” and “hard” factors at play. “Soft” factors include the management time, business relationship issues and reputational considerations. The typical “hard” factors are the potential return if the case is successful, the likelihood of winning, and the cost of advancing the matter. In addition, a company should always ask:

1. What other opportunities will we forfeit if we direct our capital to this litigation? Capital directed to litigation cannot be used for other business purposes, such as research and development, organic growth, or acquisitions. What opportunities will be delayed or abandoned if the company commits its cash to litigation?
2. If we lose the case, what additional fees will we have to pay the other party? In addition to the fees and expenses incurred for advancing the case, if the litigation is not successful in most Canadian jurisdictions, the company will have to pay a portion of the winning party’s fees and expenses. How much additional capital has to be reserved for that potential liability?
3. Could we advance this case in a less expensive and less risky way? Is there a way to limit the capital investment, or to reduce or eliminate the risk of paying the other party’s costs if unsuccessful?

Where other business opportunities might be forfeited, or where the exposure to the other side’s costs is a deterrent, litigation funding might be able to play a role. A litigation funder will pay all or some of the costs of the litigation, thereby freeing up the company’s capital for other business priorities. A professional funder may also pay any adverse costs awards if the case is unsuccessful. As a result, companies can shift the cost and risk to a funder, while still realizing the benefits of a successful action.

Sophisticated corporations, and CFOs in particular, are increasingly considering litigation funding as part of their assessments when advising about litigation. To learn more about how companies work with funders or to discuss a specific case, please contact us.

Trois questions que chaque entreprise devrait se poser avant d’intenter un recours. Lorsqu'une entreprise songe à intenter un recours judiciaire, elle évalue généralement les facteurs intangibles et les facteurs tangibles en jeu. Les facteurs intangibles incluent le temps de gestion, les problèmes de relations commerciales et les considérations réputationnelles.

Les facteurs tangibles typiques sont le rendement potentiel en cas de gain, la probabilité de succès et les coûts liés à la poursuite du recours. En outre, une entreprise devrait toujours se demander:

1. Quelles autres opportunités perdrons-nous si nous affectons notre capital à ce litige? Les capitaux destinés à des litiges ne peuvent pas être utilisés à d'autres fins commerciales, telles que la recherche et le développement, la croissance organique ou les acquisitions. Quelles opportunités seront retardées ou abandonnées si l’entreprise investit son argent dans un litige?
2. Si nous perdons la cause, quels frais additionnels devrons-nous payer à l'autre partie? Outre les frais et dépenses engagés pour faire avancer l’affaire, dans la plupart des juridictions canadiennes, si le litige se solde par un échec, l’entreprise devra payer à tout le moins une partie des frais et dépenses de la partie gagnante. Combien de capital supplémentaire doit être réservé en raison de cette responsabilité potentielle?
3. Pouvons-nous intenter ce recours de manière moins onéreuse et risquée? Existe-t-il un moyen de limiter l’investissement en capital, ou de réduire ou d’éliminer le risque de payer les frais à l’autre partie en cas d’échec?