Working collaboratively with all key stakeholders, which often includes members of our client's management team, counsel and the legal team, we create decision trees that capture the likely costs and probable outcomes of various legal strategies, on a single page.
Decision trees are invaluable at any stage of a dispute. They are used frequently to update the client's Board on the progress of litigation, set realistic financial expectations for settlement and to demonstrate the rational of our position to mediators and opponents.
Our client was involved in a contractual dispute with a supplier. The claim was for damages of £2 million. The supplier made an offer to settle of £500,000 and the client's initial view was that this offer was too low. The client asked for advice on whether to accept the offer, the options available to it, the associated costs and likely outcomes.
The forensic team worked with our lawyers to assess the likely costs and outcomes of the case, based upon their current knowledge of the claim and evidence disclosed so far. Using this information the forensic team prepared a decision tree, capturing the options available to the client in a diagrammatic format on a single page.
To assist with settlement negotiations, the forensic team prepared a second version of the decision tree, from the opponent's perspective. This provided the client with an insight into the opponent's estimated financial outcome from trial and helped to generate a realistic range for settlement purposes.
The client's decision tree demonstrates that the highest weighted average expected outcome is achieved by rejecting the offer and proceeding to mediation, where it is judged that a better settlement can be achieved. Therefore, from a purely financial perspective we would advise our client to reject the offer and seek to mediate. In terms of an acceptable settlement figure, because the client's weighted average expected outcome from arbitration is £521k, any acceptable settlement would have to be more than this figure.
The decision tree prepared from the opponent's perspective demonstrates that, based on our view of the merits of the claim, the opponent's weighted average expected outcome from trial is a net financial outlay of £1.4 million. Therefore, the opponent should be willing to settle for an amount up to this value, to avoid the risk of proceeding to arbitration, where it could find itself in the position of having to pay out as much as £2.7 million. The client can make use of this information in any settlement negotiation.
However, there may be other commercial factors to consider (positive or negative) with regard to the options set out in the decision tree. These factors could affect the client's decision.
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