The Cost of Family Business Litigation

The cost of family business litigation is one of the most poorly understood aspects of the field. Specifically, family business owners contemplating a dispute usually focus on the legal fees. By contrast, the legal fees are only one part of the cost. Importantly, the wider costs, including the impact on the business itself, the family relationships, the personal wellbeing of the parties, and the opportunity cost of the time involved, often exceed the legal fees by a substantial margin. Crucially, family business owners who understand the full cost picture are far better placed to make rational decisions about whether to litigate, when to settle, and what to invest in prevention.

This page sets out an honest account of what family business litigation actually costs. Specifically, it covers the legal fees, the impact on the business, the impact on the family, the personal cost, the time cost, and the opportunity cost. Importantly, it also covers what the cost picture means for the strategic decisions family business owners need to make.

Why the cost question matters

In short, the cost of family business litigation is often disproportionate to the amount in dispute. Specifically, the legal fees alone can exceed the value of the shareholding being argued over. As a result, family business owners who litigate without understanding the cost picture often find themselves committed to a process that costs more than the outcome can ever be worth.

Importantly, the courts have become increasingly impatient with disproportionate litigation. Notably, the judge in Re Solent Garage Services Ltd [2020] EWHC 1975 (Ch) observed that the legal costs of the dispute were likely to have exceeded the gap between the parties’ rival positions on valuation. As a result, the court took a deliberately broad-brush approach in order to keep the costs proportionate. Crucially, this approach is now common in family business disputes, and the courts increasingly use case management powers to keep costs in check.

The legal fees: what each side actually pays

Crucially, the legal fees in family business litigation are substantial. Specifically, a contested unfair prejudice petition in the Business and Property Courts typically costs each side between £150,000 and £750,000 in legal fees. As a result, the total legal spend on both sides combined often exceeds £1 million.

What goes into the legal fees

Importantly, the legal fees in a family business dispute cover several different streams of work. Specifically, the main components are these.

• First, the pre-action work. This includes initial advice, correspondence, pre-action protocols and attempts at settlement. Typically, this costs between £15,000 and £75,000 per side.
• Second, drafting and serving the petition. Specifically, this includes the formal pleadings and the supporting evidence. Typically £20,000 to £75,000 per side.
• Third, the responsive pleadings. By contrast, this is the respondents’ equivalent. Typically £20,000 to £75,000 per side.
• Fourth, the disclosure process. Specifically, the parties have to disclose all relevant documents, which in family business cases often runs to tens of thousands of documents. Typically £25,000 to £150,000 per side.
• Fifth, the witness statement process. Importantly, witness statements in family business disputes are unusually detailed because the conduct over many years has to be set out. Typically £25,000 to £100,000 per side.
• Sixth, the expert evidence. Specifically, share valuation evidence and sometimes other forensic accounting evidence. Typically £15,000 to £150,000 per side combined with the expert’s own fees.
• Seventh, the trial preparation. Crucially, this is one of the most intensive stages. Typically £30,000 to £150,000 per side.
• Eighth, the trial itself. Specifically, family business trials usually last between two and six weeks. Typically £50,000 to £200,000 per side depending on the length of the trial.
• Finally, any consequential applications, costs assessments and appeals. Typically £10,000 to £100,000 per side.

Importantly, the total cost depends on the complexity of the case, the number of issues, the volume of documents and the length of the trial. As a result, the range of £150,000 to £750,000 per side is wide but reflects the reality of these cases.

The cost of the unsuccessful party

By contrast, the cost of being the unsuccessful party is often significantly higher. Specifically, the unsuccessful party usually has to pay a significant proportion of the successful party’s costs in addition to its own. As a result, the total exposure of a losing petitioner can be in the range of £400,000 to £1.5 million or more. Crucially, this is one of the most underestimated risks in family business litigation. Importantly, the costs risk applies to both petitioners and respondents.

The impact on the business

By contrast, the cost to the business itself is often the largest single component of the total cost. Specifically, family business litigation tends to damage the business in several ways.

Diverted management attention

First, management attention is diverted to the dispute. Specifically, the working family members spend significant time on the litigation rather than on running the business. Importantly, the diversion is not just hours spent in lawyers’ offices. By contrast, it includes the cognitive load of carrying the dispute. As a result, the business is run less well during the dispute than it would have been otherwise.

Loss of key non-family employees

Second, key non-family employees often leave during the dispute. Specifically, they see what is happening, lose confidence in the future of the business, and take other jobs. Importantly, family business disputes are often hidden from non-family staff initially. By contrast, they cannot be hidden for long. As a result, the family business may emerge from the dispute with significantly weaker non-family talent than it had before.

Damage to customer and supplier relationships

Third, customers and suppliers often notice. Specifically, they may receive inconsistent messages from different family members. They may see decisions being reversed. They may experience late replies or unanswered questions. As a result, they often quietly reduce their exposure to the business while the dispute continues.

Banking and finance impact

Fourth, banks and other lenders often become more cautious. Specifically, they may tighten covenants, increase margins, or require personal guarantees. Importantly, where the dispute involves an unfair prejudice petition, the bank may take the view that the business is now higher risk. As a result, the cost of finance may increase during and after the dispute.

Impact on business value

Crucially, the cumulative effect of all of these factors is that the business is often worth significantly less at the end of the dispute than at the beginning. Specifically, the loss in business value can be 10 to 30 per cent or more, depending on the length and intensity of the dispute. As a result, even the successful party often ends up with less than they would have done if the dispute had been settled early.

The impact on the family

Importantly, the cost to the family relationships is the part of the cost picture that family business owners most often underestimate. Specifically, family business litigation damages family relationships in ways that are very difficult to repair.

In practice, the impact on the family includes the following. First, siblings stop speaking. Specifically, the day-to-day relationships between the family members in dispute usually cease for the duration of the litigation, and often for years afterwards. Second, the extended family takes sides. Importantly, even relatives who were not directly involved in the dispute find themselves drawn in. As a result, the dispute often spreads across the wider family. Third, family events become difficult. Specifically, weddings, funerals, birthdays and Christmas are affected. By contrast, some family events do not take place at all if the parties cannot be in the same room. Fourth, the next generation is affected. Crucially, children grow up watching their parents in dispute with siblings. Importantly, they often carry the imprint of the dispute into their own family relationships years later.

For more on these dynamics, see what makes family business disputes different.

The personal cost on the parties

By contrast, the personal cost on the parties themselves is also significant. Specifically, family business litigation is unusually stressful. Importantly, this is because of the combination of large financial stakes, family relationships, and the public nature of court proceedings.

In practice, the personal cost typically includes the following. First, mental health impact. Specifically, family business disputes have been associated with depression, anxiety, and in serious cases physical illness. Second, marital strain. Importantly, the dispute often consumes the family business owner’s attention to the detriment of their own marriage. As a result, divorces sometimes follow family business disputes. Third, social withdrawal. Specifically, the party in dispute often finds it difficult to discuss the situation with friends and may withdraw from social life. Fourth, sleep and physical health. Crucially, the chronic stress of a multi-year dispute often affects sleep, weight, blood pressure and general health. Importantly, this is not minor. By contrast, it can have long-term consequences.

The time cost

Importantly, the time cost of family business litigation is substantial in its own right. Specifically, a contested unfair prejudice petition typically takes 18 to 36 months from issue to trial. As a result, the parties are committed to the process for two to three years, often longer.

By contrast, the actual time the parties spend on the litigation is also significant. Specifically, the working family members may spend 100 to 500 hours each on the dispute, depending on the complexity. Importantly, this is time that could otherwise have been spent running the business or living the rest of their lives. Crucially, the opportunity cost of this time is often more valuable than the legal fees.

The opportunity cost

Crucially, the opportunity cost of family business litigation is the cost of the things the family does not do because they are litigating. Specifically, this includes business development that does not happen, investments that are not made, and personal goals that are deferred. Importantly, the opportunity cost is invisible in any cost calculation. By contrast, it is real.

In practice, the opportunity cost includes the following. First, business growth foregone. Specifically, the family business often stops growing during the dispute and may take years to recover its pre-dispute trajectory. Second, transactions deferred. Importantly, sales, acquisitions and refinancing that would otherwise have happened are often put on hold. Third, personal investments deferred. Crucially, family members often defer their own life decisions, such as starting families, buying homes or changing careers, while the dispute is ongoing.

The cost of unfair prejudice petitions specifically

Importantly, unfair prejudice petitions deserve specific consideration because they are the most common form of family business litigation. Specifically, the average contested petition takes 18 to 36 months and costs between £150,000 and £750,000 per side. As a result, the total cost across both sides combined often exceeds £1 million, with the additional indirect costs adding significantly to that figure.

In Re Solent Garage Services Ltd, the judge observed that the legal costs of the dispute were likely to have exceeded the gap between the parties’ rival positions on valuation. Specifically, the share valuation was between £25,000 and £35,000 on the expert evidence. As a result, the parties spent more on the dispute than the outcome could possibly be worth. Crucially, the case is a salutary reminder that not every family business dispute justifies the cost of litigation. For more on the unfair prejudice route, see unfair prejudice petitions in family business disputes.

The cost comparison: litigation versus mediation

By contrast, the cost of mediation is a fraction of the cost of litigation. Specifically, a typical family business mediation costs between £5,000 and £25,000 per party in total, including the mediator’s fees and the legal preparation. As a result, the cost saving from a successful mediation is enormous.

Importantly, the cost comparison goes beyond the legal fees. Specifically, mediation typically resolves the dispute within two to three months, where litigation takes 18 to 36 months. As a result, the business impact, the family impact and the personal cost of mediation are all dramatically lower. Crucially, this is why mediation is almost always a better starting point than litigation. For more on this, see why mediation is usually the right starting point.

The cost of prevention

Crucially, the cost of preventing a family business dispute is a tiny fraction of the cost of resolving one. Specifically, a well-drafted shareholders’ agreement typically costs between £5,000 and £25,000. A family constitution costs between £10,000 and £75,000. Specialist advice on governance and succession costs a few thousand pounds.

By contrast, the cost of a single contested unfair prejudice petition can exceed £1 million across both sides, with the indirect costs adding significantly to that. As a result, the return on investment in preventive governance is extraordinary. Importantly, families that have invested in good governance and have not had a dispute often regard the investment as overhead. Crucially, this is because they cannot see the disputes that have not happened. By contrast, families that have been through a dispute usually regard preventive investment as the most valuable money they have ever spent. For more on this, see preventing family business disputes.

The hidden cost: settlements that fail

Importantly, an additional hidden cost is the settlement that does not hold. Specifically, where the parties settle a dispute but the settlement is poorly drafted, inadequately implemented, or does not address the underlying issues, the dispute resumes within a few years. As a result, the costs incurred on the original dispute are wasted and a new round of costs is incurred on the second dispute.

Crucially, this is one of the reasons why the quality of the settlement matters so much. Specifically, a comprehensive settlement that addresses the underlying causes of the dispute is far more valuable than a thin settlement that just resolves the legal claim. For more on this, see settling a family business dispute.

Costs orders and how they work

Importantly, the rules on costs in litigation are complex and often surprise family business owners. Specifically, the general rule is that the unsuccessful party pays the successful party’s costs. However, the court has wide discretion to depart from the general rule in a number of situations.

In practice, the most common departures include the following. First, where the successful party has refused to mediate, the court may award reduced costs or no costs. Importantly, the Court of Appeal in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416 confirmed that the court can stay proceedings and require the parties to engage in non-court dispute resolution, and parties who refuse to mediate risk significant costs penalties. Second, where the conduct of the successful party has been unreasonable, the court may reduce its costs award. Third, where the court considers that the case should have settled earlier, it may make a costs order reflecting that view. As a result, family business owners cannot assume that winning means recovering all of their costs. By contrast, even the successful party in a family business dispute typically only recovers 60 to 70 per cent of its costs from the loser.

Conditional fee arrangements and other funding

By contrast, the funding of family business litigation has become more flexible in recent years. Specifically, the main options include the following. First, traditional hourly billing. This remains the most common arrangement. Second, conditional fee agreements (CFAs). Specifically, the lawyer agrees to be paid a lower hourly rate during the case in exchange for a success fee if the case wins. Third, damages-based agreements (DBAs). Importantly, the lawyer takes a percentage of the recovery rather than charging hourly fees. Fourth, after-the-event (ATE) insurance. Specifically, this insures the client against having to pay the other side’s costs if the case loses. Fifth, third-party funding. By contrast, this is where an outside funder pays the legal costs in exchange for a share of any recovery.

Importantly, the choice of funding affects the strategy of the dispute. Specifically, lawyers working under CFAs or DBAs have an incentive to focus on cases they consider likely to win. As a result, the willingness of a lawyer to act under a CFA can itself be a useful indication of the merits.

The cost of being a respondent

Crucially, family business owners sometimes assume that the cost issue is mainly a problem for petitioners. Specifically, they may think that respondents simply defend the case as cheaply as possible and wait to see whether the petitioner can fund it to trial. Importantly, this is rarely a sound strategy.

In practice, the cost of defending a contested unfair prejudice petition is broadly similar to the cost of bringing one. Specifically, the respondent has to engage with the same disclosure process, prepare the same witness statements, instruct the same experts and attend the same trial. As a result, the respondent’s costs are typically in the same range of £150,000 to £750,000. Importantly, this is in addition to any liability for the petitioner’s costs if the case is lost. By contrast, respondents who engage seriously with mediation at the earliest stage typically end up paying much less, regardless of whether they would have won at trial.

The decision: when is litigation worth the cost?

Importantly, the question of when litigation is worth the cost is the most important question in any family business dispute. Specifically, the answer depends on a careful weighing of the merits, the financial stakes, the realistic recovery, the costs risk, the wider impact, and the prospects of settlement.

In practice, litigation is usually justified only where the following are true. First, the merits are strong. Specifically, the petitioner has a clear case on unfair prejudice or another applicable head of claim. Second, the financial stakes justify the costs. Importantly, where the share value in dispute is less than the likely costs of litigation, the case rarely justifies trial. Third, settlement is not realistically available. Specifically, the respondents have refused to engage seriously with mediation or have made unreasonable offers. Fourth, the petitioner has the financial capacity to fund the case to trial. Fifth, the petitioner is willing to accept the personal, business and family cost.

Crucially, where any of these conditions is not met, litigation is usually a mistake. Importantly, family business owners considering litigation should take honest advice from specialist counsel before committing. As a result, early advice from a direct access barrister is one of the most valuable investments at the start of a dispute.

How to manage the cost of litigation where it cannot be avoided

By contrast, where litigation cannot be avoided, the cost can still be managed. Specifically, the most effective cost-management techniques include the following.

• First, agree the scope of work with your lawyers in advance. Importantly, scope creep is a major driver of legal cost in family business disputes.
• Second, instruct counsel directly where appropriate. Specifically, instructing a barrister under the public access rules can produce a sharper strategic picture at lower cost.
• Third, use single joint experts where possible. Crucially, separate experts typically double the cost of valuation evidence.
• Fourth, narrow the issues early. Importantly, fighting on too many fronts is expensive and often counterproductive.
• Fifth, take settlement opportunities seriously throughout the case. As a result, even where the case does not settle early, smaller settlements along the way often reduce the eventual cost.
• Sixth, consider Part 36 offers. Specifically, a well-pitched Part 36 offer can significantly shift the costs risk.
• Finally, be realistic about what you actually need. Importantly, family business litigation often expands beyond what was originally intended because the parties cannot let go of particular issues. As a result, disciplined focus on what actually matters is one of the most cost-effective things a party can do.

Frequently asked questions

How much does family business litigation actually cost?

Typically, a contested unfair prejudice petition costs each side between £150,000 and £750,000 in legal fees. Specifically, the total cost across both sides combined often exceeds £1 million. Importantly, the indirect costs, including the impact on the business, the family relationships, and the personal wellbeing of the parties, often exceed the legal fees by a substantial margin. As a result, the full cost of a family business dispute is much higher than the headline legal fees alone suggest.

How long does family business litigation take?

Generally, a contested unfair prejudice petition takes between 18 and 36 months from issue to trial. Specifically, the early stages involve pleadings, disclosure and witness statements. The valuation evidence stage adds another 6 to 12 months. The trial itself usually lasts between two and six weeks. As a result, family business owners need to commit to a multi-year process if they decide to litigate.

Will I get my costs back if I win?

Not entirely. Specifically, the successful party in family business litigation typically recovers 60 to 70 per cent of its costs from the loser, not 100 per cent. Importantly, the court has wide discretion on costs and may reduce the costs award where the successful party has acted unreasonably, refused to mediate, or could have settled earlier. As a result, family business owners should not assume that winning means recovering all of their costs.

What is the alternative to litigation?

In practice, mediation is almost always a better starting point. Specifically, mediation typically costs between £5,000 and £25,000 per party in total and resolves the dispute within two to three months. By contrast, litigation costs £150,000 to £750,000 per side and takes 18 to 36 months. As a result, the cost saving from a successful mediation is enormous. For more on this, see why mediation is usually the right starting point.

Can the cost of family business litigation be funded by a third party?

Yes, in many cases. Specifically, the main funding options include conditional fee agreements, damages-based agreements, after-the-event insurance and third-party litigation funding. Importantly, the availability of these options depends on the merits of the case and the size of the claim. As a result, family business owners contemplating litigation should explore funding options early in the process.

Further reading on this site

• Family Business Disputes (main page)
• Why Mediation Is Usually the Right Starting Point
• What to Expect at a Family Business Mediation
• Settling a Family Business Dispute
• Unfair Prejudice Petitions
• Family Business Valuation
• The Legal Framework for Family Business Disputes
• Shareholders’ Agreements
• Family Constitutions and Family Forums
• Preventing Family Business Disputes
• Mediation Advocacy
• Direct Access Barrister

Get advice on your situation

The decision to litigate or to settle is one of the most consequential decisions in any family business dispute. Specifically, the cost picture is more complex than the legal fees alone suggest. As a result, early specialist advice is one of the most valuable investments you can make. I act as a direct access barrister, commercial mediator and mediation advocate in family business disputes throughout England and Wales.

Call 020 4538 0246, use the contact form, or book a call directly. In addition, my book Winning in Family Business Disputes (forthcoming) covers the cost of litigation in detail, alongside my published works on shareholder disputes and commercial mediation. Organisations like Family Business United also publish useful guidance for family business owners.

Important disclaimer: This page is provided for general information purposes only and does not constitute legal advice. The content may not be legally accurate for your situation or at all. You must not rely on anything on this page in respect of your legal rights. Before taking or refraining from taking any legal action, you should seek advice from a qualified lawyer. I disclaim any and all liability for any loss, damage or expense howsoever caused by reliance on the contents of this page. If you would like advice on your specific situation, contact me here.