'Loser Pays' Rules Make A Comeback - Article Example

Under the current system, lawsuits have proven to be outrageously expensive for corporations. These lawsuits have generated up to $73 billion being paid by corporations, out of which a staggering amount of $17 billion has made its way into the pockets of plaintiff attorneys. Out of the latter, the plaintiffs fail to claim the amount that rightfully belongs to their corporation. The implemented taxes that should serve to protect shareholders instead cause more harm due to added litigation charges.

Lawsuits are initiated because of a third party harming the corporations. These lawsuits add to the damage and do little to control the initial problems. Because there are no added costs involved, shareholders have been relentlessly filing lawsuits against the third parties that harm corporations. In such an event, the authorities have decided to implement a loser-pays rule. According to this rule, the party which loses in the trial has to pay the costs incurred by the winner as well. Since the trial never really subjects the parties to any costs whatsoever, through this rule, the shareholders will have to take precautions before going ahead with the lawsuit.

This is because the probability of winning a trial is not definite for all cases. Therefore, shareholders are risking higher costs when initiating a lawsuit. If they lose, they will have to ‘compensate’ for the resulting costs incurred by the winning party. The loser-pays rule is very different from the American Rule applied in the United States. Under the latter, the long-term shareholders bear the costs of added litigation which are not obvious at the time of the trial. This rule is not new to economies as it has been the basis of shareholder lawsuits in the United Kingdom.

If this rule is implemented it would alter the business model currently being followed by introducing actual financial risk. However, this rule needs to be implemented at the