The importance of Risk Assessment in Commercial Mediation | Paris Smith Skip to content

27th November 2017

The importance of risk assessment in Commercial Mediation


27th November 2017

The importance of risk assessment in Commercial Mediation

The factual matrix and the law applying to it in every case is fundamental to a decision to start or defend any proceedings in the Courts. There are not many parties to civil proceedings that will start off an expensive court process without any belief in the strength of their case. There are however many parties who will defend a case without any belief that they will win, simply to test their opponent’s resolve or to try to settle on terms favourable to themselves. What is important in determining whether a settlement is arrived at on any terms is not just what you think of the strengths and weaknesses of your case, but what your opponent thinks of your case. This is not necessarily the same thought, and the opponent may take a wholly subjective even unrealistic view.

Against that background litigants have to take account of the inevitable serious cost of litigation. As a Claimant you should not push forward with a case that may fail or where the cost of doing so may outweigh the benefit to be gained, as the consequences in financial terms are often severe. As a Defendant you must decide when and whether to settle if you can, against the prospect of doing much worse if the case against you is allowed to continue.

One common task of a Mediator is to work out each party’s best achievable result and worst possible outcome and set against it in discussion with the parties the percentage chances of each party winning or losing in relation to their pleaded case and the possible financial outcomes.

Let us assume that A sues B for a breach of contract with damages of £100,000. Let us assume that it is an “all or nothing” case. Each side would have to pay possibly up to £50,000 to get a decision at Trial.

A very simple analysis might be as follows:

  • Claimant’s best arguable case
  • Receive £100,000
  • Pay out own costs of £50,000
  • Do not pay the opponent’s costs
  • Recover say 80% of costs from opponents
  • Net possible gain best arguable case £90,000 so can never get back the full extent of alleged loss
  • Claimant’s worst arguable case
  • Fail to get any Judgment at all
  • Pay out £50,000 of own legal costs
  • Pay say 80% of opponent’s costs £40,000, net outlay £90,000 and recover nothing
  • Defendant’s best arguable case
  • Win the case and Do not pay the Claimant’s claim
  • Do not therefore pay the Claimant’s costs, recover 80% of own costs after assessment say £40,000, net outlay £10,000
  • Worst arguable case
  • Have to Pay the whole claim £100,000
  • Have to pay own costs £50,000 in addition
  • Have to pay most of the opponent’s costs say £40,000, net outlay/loss £190,000

The question of costs may be made more difficult. One side or the other may be acting subject to a Conditional Fee Agreement where there is a large payment for an insurance policy and an uplift in legal costs that they simply cannot recover against their opponent under current regulations. Alternatively one side or the other may have Legal Expenses Insurance. Possibly one side or the other has spent more than anticipated by their opponents or even by themselves in costs to date of Mediation.

Mediators routinely set against this analysis the parties own estimates of their chances of success or failure based on their analysis of the facts and law to help them come to a decision on settlement. If one adds in factors that may be peculiar to the parties themselves, such as whether one side can actually afford to pay any Judgment or the other to take the case to Trial, or possibly the personal relationship between the parties themselves or the style and attitude of their representatives or the possibility of a solution appearing that the Courts would not be able to entertain and the parties have not thought of, then you have some flavour of the ground that a Mediation might cover.

The importance of risk assessment in Commercial Mediation is therefore crucial.

If you would like to discuss any of the issues raised in this blog please email me.

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