The Costly Courtroom Lesson for Business Owners

Litigation risks

Litigation is often viewed as a means of obtaining justice. If you are right, surely the court will put things right and the losing party will pay the bill?

Unfortunately, the reality is rarely that straightforward. A recent High Court costs decision arising from Prince Harry’s unsuccessful privacy claim against Associated Newspapers provides a striking reminder of a fundamental aspect of litigation that is often overlooked: even if you have the financial resources to bring a claim, the costs and consequences of getting it wrong can be severe. In some cases, they can be catastrophic.

Whilst the headlines focus on celebrities and eye-watering figures, there are important lessons for individuals, as well as entrepreneurs, directors, shareholders, and SME owners involved in commercial disputes.

The case in brief

Prince Harry, Sir Elton John, Baroness Lawrence and other claimants brought claims against Associated Newspapers, publisher of the Daily Mail, alleging unlawful information gathering. Following an 11-week trial, the claims were dismissed by the High Court.

The subsequent costs judgment may have attracted even more attention than the substantive decision. Mr Justice Nicklin ordered that the claimants pay costs on the indemnity basis, finding that the litigation had gone “well outside the norm” and that its conduct had been “unreasonable to a high degree”. The Court also ordered an interim payment of approximately £9.5 million, with the total costs exposure potentially exceeding £34 million.

Whatever your views on the underlying dispute, the decision provides a powerful illustration of the risks that accompany litigation.

Winning the argument is only part of the battle

One of the biggest misconceptions I encounter is that litigation is a simple question of winning or losing. It is not. Every claim involves a commercial risk assessment. Before proceedings are started, sensible parties should ask:

• What are the prospects of success?
• What evidence do we have?
• What is the likely value of the claim?
• What are the legal costs likely to be?
• What happens if we lose?
• What proportion of our costs are likely to be recoverable even if we win?

These questions are just as important as the legal merits themselves. A claim may appear attractive on paper. However, if the costs of pursuing it significantly outweigh the likely recovery, or if the evidence remains uncertain, litigation can quickly become an expensive exercise.

The general rule: Costs follow the event

In England and Wales, the starting point is that the unsuccessful party pays the successful party’s costs. That sounds straightforward. However, many litigants are surprised to discover that this does not usually mean the winner recovers every pound spent.

Even where a party succeeds at trial, they may only recover a proportion of their legal costs following assessment. For commercial litigation, this often leaves a successful party with a significant shortfall.

I often describe costs recovery as similar to an insurance excess. Winning parties typically have to absorb part of their own legal spend, even after obtaining judgment. As a result, clients should never assume that “winning” means litigation will be cost-neutral.

When costs become even more dangerous

The Prince Harry decision is particularly noteworthy because the court ordered costs on the indemnity basis.

Indemnity costs are not the norm. They are generally reserved for situations where the court considers conduct to have fallen outside the ordinary course of litigation. Although each case turns on its own facts, courts may consider such orders where allegations are pursued without adequate evidential foundation, positions are maintained unreasonably, or the litigation is conducted in a way that increases costs unnecessarily.

The practical significance is substantial. A party facing an indemnity costs order can find it much harder to challenge the reasonableness and proportionality of the successful party’s costs. The result is often a significantly larger costs recovery in favour of the winning party than would be achieved under a standard basis assessment.

For individuals and business owners involved in commercial disputes, this is an important reminder that litigation strategy matters just as much as legal arguments.

The hidden risk: Unrecoverable costs

Even when clients understand adverse costs risk, another issue often receives less attention: unrecoverable costs.

Imagine a company spends £150,000 pursuing a claim. It wins. It obtains judgment. The court orders the opponent to pay costs. Excellent result.

However, after assessment, the business only recovers £100,000. That leaves a £50,000 gap, despite being the successful party. Many litigants find this surprising and frustrating.

Commercial litigation should therefore be viewed as an investment decision rather than simply a legal process. The critical question is not just “Can I win?” but “What will the net outcome look like after costs?”

The importance of keeping litigation under review

One of the themes emerging from the judgment is the court’s criticism of allegations that, in its view, should have been narrowed, withdrawn or reconsidered as the evidence developed.

That serves as an important lesson for all litigants. Litigation should never be approached with a “set and forget” mentality.

As evidence emerges through disclosure, witness evidence and expert reports, parties should continually reassess:

• Whether the claim remains commercially viable.
• Whether all allegations remain sustainable.
• Whether settlement opportunities should be explored.
• Whether alternative dispute resolution, including mediation, may now offer a better outcome.

Good litigators are not simply advocates for their client’s position. They are also strategic advisers who help clients manage risk and make informed commercial decisions throughout the life of a dispute.

What business owners can learn

The figures involved in the Prince Harry litigation are extraordinary, but the underlying principles apply equally to disputes involving £50,000, £500,000, or £5 million.

Before commencing litigation, businesses should ensure they understand:

1. The strengths and weaknesses of their case.
2. The likely costs of pursuing the claim.
3. Their potential liability for the other side’s costs if they lose.
4. The reality that some costs may remain unrecoverable even if they win.
5. The importance of regular strategic reviews as the case develops.

The strongest litigation strategy is rarely the most aggressive one. More often, it is the one that combines robust legal analysis with sound commercial judgment.

Final thoughts

The recent costs ruling should not discourage parties from pursuing legitimate claims. Access to justice remains a cornerstone of our legal system. However, it is a timely reminder that litigation is never simply about who is right or wrong. It is about risk.

For businesses, entrepreneurs and company directors, the most important question at the outset is often not whether you can afford to bring a claim, but whether you can afford the consequences if matters do not go as planned. As the Prince Harry case demonstrates, those consequences can sometimes be far more significant than the dispute itself.

How can Ellis Jones help?

Conor Maher is a Partner, Solicitor Advocate and Accredited Mediator in the Dispute Resolution team at Ellis Jones Solicitors. He advises businesses, directors, shareholders and individuals on complex commercial disputes, shareholder disagreements, professional negligence claims and regulatory matters.

If you are involved in a commercial dispute and would like advice on the merits, costs risks, or strategic options available to you, please contact our Dispute Resolution team.