Litigation costs – can it be estimated?

How much does it cost to sue?”, is a typical question we get. Well, we will try to answer this question in this post, or at least explain why it is so difficult to predict the cost of litigation.

Litigation is split into two major stages, each with their own set of costs:

  1. Pre-Litigation stage; and
  2. Litigation stage.

Pre-Litigation stage:

This is the stage where the client approaches an attorney to initiate the litigation proceedings, and usually consists of:

  • consulting with the attorney on the basis of the claim;
  • let the attorney read through the contract and/or other documents, emails, etc. to determine the merits of the claim; and
  • getting advice from the attorney on the correct way forward to deal with the claim.

The majority of the legal costs incurred during the pre-litigation stage is usually not recoverable from the other party, even if the claim succeeds. It is therefore important to manage the costs of this stage as far as possible.

One way to manage the costs during the pre-litigation stage, especially for businesses, is to have an attorney on “retainer”, so that the attorney is already familiar with the basis and background of the claim. This way, the pre-litigation costs are spread over a longer period, which in turn relaxes the strain on the cash flow of the business.

As you will see from the graph below, the initial costs involved in initiating litigation proceedings is quite substantial. This is simply because the attorney spends several hours to familiarise him-/herself with the background and facts of the matter, in order to:

  1. determine the basis of the claim;
  2. the facts that needs to be proved for the claim to be successful; and
  3. the proper procedure to follow to pursue the claim.

The background and facts leading up to the claim, and the correspondence exchanged between the parties, usually spans over several months and contain vital information about the matter that the attorney needs to familiarise him-/herself with, before he/she can advise the client on the merits of the matter and the proper procedure to follow.

Litigation stage:

Once the pre-litigation stage is finalised and the client has made an informed decision to proceed with litigation, the litigation stage commences when either the summons or application is drawn up by the attorney and issued by the court.

The litigation stage, for the most part, consists of the exchange of documents by the parties’ legal representatives.

The Litigation stage is broken down into 3 main phases:

  1. Pleadings phase;
  2. Trial preparation phase; and
  3. The Trial phase (or the grand finale).

During the Pleading phase, the parties to the litigation exchange pleadings, which is just a legal term for documents in which each party sets out his case.

Once each party has had the opportunity to set out his case in the pleadings, the pleadings phase is closed and trial preparation phase commences.

During the trial preparation phase, the parties exchange further documents and hold conferences, in an attempt to limit the issues to be decided at the trial (to reduce the duration of the trial) and also to agree on how the trial will be conducted.

During the pleadings and trial preparation phases, a complete document record is being created, which record will ultimately serve before a Judge or Magistrate during the actual trial. A trial date is applied for during the trial preparation phase and trial preparation continues until the date of the trial.

Once the trial date arrives, the matter is finally presented to the court. The complete record of all the documents exchanged between the parties, will assist the court in following the trial and the evidence led by the parties.

As a result of the former two phases, the issues to be decided by the court is cut to the bone, which allows for a trial to be finalised as efficiently as possible.

The costs of litigation do not increase linearly. It always starts high, flattens during the trial preparation phase, and then takes a sharp incline right before the trial and for the full duration of the trial.

If we had to plot the costs of an average litigation matter on a timeline, it would look something like this:

Depending on which court has jurisdiction to entertain the matter, the whole process, from the initial consultation to finalisation of the trial, can take anything from 12 to 36 months, or even longer if there is a postponement or two for some reason.

Either party may at any time during the litigation process propose a settlement, and if accepted by the other party, the matter comes to an end. This is one of the reasons why it is almost impossible for an attorney to give a client an estimate of what the litigation will cost.

Other factors that make it difficult to estimate the cost of litigation includes:

  1. The complexity of the matter – More complex matters usually contain more issues in dispute, which results in more documents, longer consultations, more evidence and a longer trial;
  2. 2. The extent of the evidence – More evidence usually means more time, both in preparation for trial and the trial itself;
  3. 3. The other party’s defence – It is impossible to predict what defence the other party will present and therefore, depending on the complexity and extent of the other party’s defence, more work may be required to counter this defence successfully.

Although it is possible to estimate the cost of litigation early on to a limited extent, any estimate at an early stage is totally unreliable. As the process unfolds, later estimates will be more reliable.

When we are asked the question “How much will it cost me?”, we follow a different and more realistic approach, and give the client an estimate of what the next step in the process will cost, opposed to how much to whole process will cost. We can illustrate our approach by the following example:

If you were given the option to pay R72 000.00 up front for car insurance for 3 years, or R2 000.00 per month, which option would you choose?

Both cost the same, but the former sounds unaffordable, but only psychologically. The same goes for litigation cost. Attorneys are too scared to provide an estimate, in fear of either scaring off the client if the estimate is too high, or being held to the estimate if the estimate is too low.

You only need to consider if you can afford the next step in the process. If you can, go for it, if you can’t, try to settle. Remember, the other party sits in the same boat, also has an attorney to pay and also considers settlement to avoid further legal costs.

Litigation is not necessarily meant to be an inflexible rigid process from start to finish. From experience, the initiation of litigation proceedings and the costs to defend it, is on average enough to force the other party to come to his/her senses. If you backed out during the initial phase due to a high estimate of the whole process, you potentially lost out on your opportunity to experience justice, when all that was needed was that first step.