Decisions, decisions...
Part 2 – Decision Tree

This article looks at how decision trees can be used in litigation to establish the potential range and value of outcomes and so help clients and their advisors make informed choices about resolution.

Here is an example, a hypothetical professional negligence claim.

The facts
Solicitors were instructed in the purchase of a rural property for £750,000 in 2006. The clients were very keen to go ahead - they were life-long city dwellers retiring to the area and had fallen in love with the property. The solicitors carried out the usual searches and enquiries but failed to note/confirm their advice that the property was subject to an agricultural tie, limiting its occupation to those employed in agriculture. Post completion the clients are told by the local authority of the existence of the tie which they cannot meet. They consult new solicitors who tell them that -

The agricultural tie could be lifted but the cost of so doing would be £25,000 and there is only a 50/50 chance of a successful outcome, and

The tie reduces the value of the property by 20%, so by £150,000 at 2006 prices.

The claim comes in at £150,000 for the overpayment of the purchase price, with interest of 8% over six years, effectively another £75,000. What should you offer and when?

Duty
The first step - is there a duty?

Not too difficult to establish this, given the clear existence of a retainer. At this point there is no chance of establishing "no loss".


Breach
A little less clear cut. In our example the solicitors allege that they did advise the clients about the existence of the tie and its consequences. The problem is the lack of documentary evidence. The court is likely to side with the client but it is not certain - let's allow for the Claimant having a 65% chance of winning on this point. There is also a 35% chance of the solicitors winning on the point and so establishing no loss.


Causation
This is the area which throws up most points for discussion. If we accept that the claimants were not properly advised, what could have happened if they had been? This can lead to a large number of possible outcomes - no difference, no deal or a range of potential deals in between. For this example we will limit the possible outcomes to the following -

1. They would have done nothing - they were very keen to buy and would have been prepared to run the risk of occupying in breach of the tie, or
2. They would have walked away from the whole transaction

1. We now have a number - £117,000 - to set against the potential costs of rectification - £25,000. Given the potential loss, it seems sensible to consider offering to pay to apply for the lifting of the tie.
2. If the application fails, we have a starting point for negotiations. A key element in resolving a dispute is being able to value the claim first, to be able to make credible offers early which put the other side under costs pressure.
3. We have a framework for focused discussion. The decision tree can capture analysis, putting a value on an element and then seeing how changes in analysis of one point affect the overall valuation of the claim. As a result -
4. It helps avoid discussions about resolution where issues are thrown into the mix in an haphazard way and then potentially overlooked when deciding what to do.