From the outset of a law suit, a key advisory role we fulfill as litigation counsel requires us to equip our clients with the analytical tools necessary to evaluate their decision to commence, settle or continue litigating.
The significance of analyzing the economic risks inherent in litigation cannot be overstated. Each case presents a unique amalgamation of context, facts, and law, making it essential to delve into the specifics when assessing the potential outcomes for our clients. Vague descriptors such as "strong case" or "uphill battle" provide little clarity for commercial businesses facing decisionmaking uncertainty.
Civil litigation's formal discovery process (the exchange of documents and evidence) serves to narrow down and spotlight the core issues and facts in contention. The complexity of this process, along with factors like the cooperation of opposing parties and counsel, greatly influences its challenges and costs.
As the issues and facts crystallize through discovery, we offer clients a systematic analysis to aid their decisions on trial continuation or settlement. This analytical framework, useful even outside formal litigation, helps organize uncertainties and factors pertinent to commercial disputes. The issues in a case can generally be separated into issues of (1) liability, and (2) damages.
On the issue of liability, we assess whether the Court is likely to find the responding party liable for the alleged harm or loss caused. A claim can advance multiple "causes of action" (the legal basis for seeking a determination of liability from the Court), for the same harm or loss, concurrently, or in the alternative. For example, in commercial cases, the most commonly advanced cause of action is for damages arising from a breach of contract. Also, breaches of non-contractual obligations are often included as additional causes of action.
Each cause of action requires the claiming party to prove certain elements (specific facts) to establish liability. The availability and admissibility of evidence to support the causes of action are, in most cases, the most significant factors in estimating the probability of success, especially where key facts are in dispute. Our assessment of the probability of success on each identified issue is informed by prior case law deciding similar issues and decisions. There are many other factors, including the strength of potential witnesses' testimony, which party's position is more sympathetic, the judge's personal background and experience, and changes in the law, that may need to be weighed, depending on the case.
On the issue of damages, a similar analysis is necessary. Even where the provable facts strongly support a finding of liability, the amount of damages the liable party will be obliged to pay can be disputed with experts necessary to identify or estimate the loss flowing from the defendant's actions.
Once the potential outcomes of the liability issues raised by a claim are identified, we assess the likelihood of these outcomes.
Similarly, once the probability of the expected findings on damages are identified, we can adjust the expected value of the litigation based on the estimated probability of success on the corresponding issue of liability. Even with minimal uncertainty about the facts and law, assigning probabilities to expected outcomes on issues and damages is more an art, born from experience, than a scientific process.
Our goal is to provide a systematic approach to identifying a risk adjusted expected economic value of the litigation. In its simplest example, a 60% chance of proving liability in a $1 million dispute where the damages are clear, would result in a risk adjusted litigation value of $600,000. Where there are multiple contested liability and damages issues, this matrix of potential outcomes can become complex, quickly.
The final stage of this analysis frames this calculation in the context of the other hard and soft costs of litigating the dispute: legal costs and expected recovery, the time value of money, and the parties' appetite for the risk/uncertainty of the outcome, client time and stress, to name just a few. These costs can have a substantial impact on the expected actual value of litigation.
Beyond courtroom advocacy, helping clients navigate economic risks and opportunities in disputes is integral to our role as litigation counsel. It enables clients to formulate reasoned settlement positions and assess options against the backdrop of continued litigation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
