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:
- 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?
- 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?
- 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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
