It is a cliche of decision tree analysis (and a true one) that what you have already spent in pursuing or defending a claim is not relevant to evaluating its settlement value. However to leave it at that is to underestimate the enormous influence of legal costs on disputes.
- Recoverable costs: If you are in a jurisdiction where the tribunal has power to order a losing party to pay the other’s costs, the risks of favourable -and adverse – costs orders are a critical component in calculating your negotiating position. However the risk is unrelated to what you have actually spent at any one time. It relates only to what costs orders might be made if the dispute is not settled. In this context a Claimant can demonstrably make a profit against the component of expected overall cost recovery, if they settle quickly enough!
- The effect of spending costs: Modern litigation process being what it is, spending some costs may be just to comply with the tribunal’s process and timetable, for no obvious benefit. These costs can be seen as a tax on not settling quickly. However the overriding purpose of spending costs should be to increase your confidence in your own claim or to weaken the other party’s confidence. Both of these should produce a settlement value shift in your favour.
A well designed system (like SettleIndex!) will allow you to track by how much you have shifted the settlement position by ‘investing’ costs. If the shift is both in your favour and by more than you have spent since the last assessment, then, as Micawber would say, happiness. If the shift is less than the investment, misery.
- Managing Expectations: Of course in the context of investigating a dispute you can never be certain that expenditure will exceed income (the improvement in your settlement prospects). Occasional failure is unavoidable; but you will not be thanked by your client when you revise the prospects of success downwards. You can however use the power of financial modelling to manage expectations about the risk of misery.
Monitoring the health and progress of a dispute with regular updated assessments is an excellent way to maintain and increase your client’s confidence in the dispute process. It is also an excellent way of focussing the team’s attention always on the dispute’s exit value. If you must sink costs, be seen to sink them wisely!