It does, and it absolutely has a chilling effect in countries which don't do things this way.

Sue someone who can spend millions of pounds (for the sake of argument) on defence? Better be certain you can win... against someone who can spend millions of pounds, and probably went to the same public school as the judge.

In America, legal fees can be awarded as additional damages. We should do it more than we do. But given those two options? I'm on Team American Rule, 100%