If you’re involved in a legal dispute, deciding whether to accept a settlement offer can be one of the most challenging decisions you face.
There can be a lot of uncertainties to grapple with. Is the offer fair? Could I get a better offer if the dispute progresses? If I continue, will I end up with less? To make this decision, you need to balance considerations of potential outcomes, risks, and personal impacts.
Here, we outline a five-step process to help you make an informed decision.
Step 1: Rational assessment
The first step is to conduct a rational assessment of the settlement offer. This involves evaluating what is an appropriate settlement range for your dispute.
However, it’s important to recognise that you will be making this assessment with imperfect information. Working closely with your lawyer is crucial to ensure you have enough information to make an informed decision. Your lawyer should also advise you on the risks involved and the things you can do to mitigate those risks. Ensure you know how to test this advice.
Step 2: Assess the impact of staying in the dispute
Next, you need to assess what it means to stay in the dispute.
Consider the financial cost, the time it will take, your level of involvement, and the emotional impact of continuing the dispute. Being involved in a legal dispute is much more than just the financial cost. A comprehensive assessment is critical because the impact of all these factors will likely influence your decision-making process going forward.
Step 3: Opportunity cost
The third step is to take what you have understood in step 2 to evaluate the opportunity cost of staying in the dispute.
This means considering what you could be doing with the time, money, and attention that would otherwise be directed towards the dispute. Understanding the alternative uses of these resources can provide a clearer picture of the true cost of continuing the litigation.
Step 4: Improving the offer
Consider whether there is potential to improve the settlement offer.
Assess the information you have that might suggest the offer could increase and evaluate the steps you can take to enhance the offer. This involves understanding the confidence you have in your ability to negotiate a better deal.
Step 5: Avoiding the sunk cost fallacy
Finally, it’s essential to avoid the sunk cost fallacy.
This means not letting the amount you have already spent influence your decision. Instead, focus on future expenses and the probability of a better return on the next dollar you spend. We call this applying an investment mindset to dispute resolution. The critical assessment should be on what you will spend moving forward and the potential outcomes of those expenditures.
Deciding whether to accept a settlement offer is not just about a logical, rational assessment of the settlement amount. It requires careful consideration of the impact of staying in the dispute. By following these five steps, you can make a more informed decision that aligns with your best interests.
Aptum’s approach to dispute resolution guides clients through each step of the process, ensuring you have the support and information you need to make the best decision for your circumstances. If you have any questions or need further assistance with your commercial or tax dispute, please don’t hesitate to contact us.
