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When should you accept an offer settlement offer in litigation?

I saw a post on LinkedIn recently about lawyers' aversion to describing risks as a percentage. If you are litigation, the lawyer may describe your prospects as reasonable prospects, strong prospects, or borderline prospects but will quite possibly be unwilling to define what any of those mean.

The challenge for clients in litigation is that during the process, offers will most likely be made. The client will need to make a decision whether or not to accept those offers based on whether they are better or worse than their BATNA or best alternative (see this article to learn more about your BATNA). And, they'll need a basis on which to make that decision.


Probability theory gives us one way of assessing that calculation. So for example, if you had a million dollar claim and you were offered $650,000 to settle that claim. Should you take the offer? Let's make some assumptions about that case and look at a helpful thinking process.


Assumptions:

  1. There is a 75% chance that the judge will find in our favour and we will be awarded the full amount of $1,000,000 and $45,000 back from the other side in compensation for our legal costs.

  2. There is a 15% chance that the judge will find in favour of the defendant and we will be awarded nothing but we will have to pay $45,000 to the other side for their legal costs

  3. There is a 10% chance that the judge will find our evidence for part of the claim unsatisfactory and only award us $650,000 with each party bearing their own costs.

  4. It will cost us an additional $50,000 in legal costs from today until trial.

Based on these assumptions, the following table sets out that based on these assumptions any offer over $601,862.50 should be an acceptable outcome based on the risks of possibly losing or having a reduction in our claim. The offer of $650,000 puts us in a better position than the risk weighted assessments of outcomes and we should accept it as a rational outcome - even though it might be one we see as unfair.


Of course, this analysis excludes some very important considerations which should also factor in to your decision:

  • What will be the impact of the delay on your cash flow compared with getting money now?

  • How much management time will be taken up in preparation for and attendance at trial? What impact will this have on management's focus on progressing the business?

  • Does the defendant have assets to meet the claim or will you have to spend even more costs to enforce the judgment?

  • How much sleep will you lose before receiving a judgment in the case?

  • Research shows that lawyers have an optimism bias and will assess a case more favourably towards their client. If you give exactly the same facts and background to two lawyers, they will assess it differently depending on whether they are told they are representing the plaintiff or defendant.

On this basis, an even lower offer may also be acceptable.


So why do lawyers, and barristers in particular, have an aversion to providing percentages. While I don't have any evidence to support this, here are my thoughts on some of the factors that may be at play:

  1. They are worried that their clients will sue them if they get it wrong and the client litigates and ends up worse off than the offer that they rejected based on the lawyer's analysis.

  2. They understand that litigation is inherently unpredictable. I sometimes describe it a "legalised gambling". The ability to accurately predict outcomes is hampered by this.

  3. They actually enjoy being in court before a judge and don't want to miss out on the chance of the court-room drama.

  4. Their fees stop if the client settles.

There is no doubt that putting percentages on chances of success is difficult in an unpredictable court environment. BUT, there is also no excuse for not trying to do so, with caveats, to allow a client to make a slightly more informed choice about what to do about THIER dispute.


If you have a legal dispute and want to consider options other than battling to the death in litigation, please reach out for a no-obligation, confidential discussion.

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