How Much Money Are Your Legal Claims Losing Out On?

How Much Money Are Your Legal Claims Losing Out On?

With litigation costs higher than ever before, it has never been more important for lawyers to ensure claims are supported in the best manner possible when considering bringing proceedings or seeking settlement. Here Gavin Cunningham, forensic accounting partner at Menzies LLP, delves into the importance of forensic accounting and the impact a proper assessment can have on a claim.

Even when the legal aspects of a claim are strong, without proper interrogation and thorough financial analysis of the evidence, there can be no certainty as to the benefit of embarking on potentially long and costly proceedings. Despite this, lawyers sometimes fail to call in forensic accountants early enough to provide their assessment of what the claim is worth.

In theory, the role of forensic accountants in the claims process is a simple one: to provide some certainty as to the value of the claim and to test the causal link between the facts of the case and the financial damage claimed as a result. In doing so, this assists the client and their advisers in deciding whether it is worth taking the matter to court and, when acting in a formal Expert capacity, to give independent opinion.

The process of evaluating a claim can vary widely depending on the stage litigation has reached. Sometimes, when forensic accountants are called in late, the outcome has been more or less decided and the brief is simply to check if the client’s schedule adds up.

It is not unusual in those circumstances to find that the schedule lacks intellectual rigour and the scope of work needed is far wider than initially thought. The situation is made worse if disclosure has already been settled and the many queries that inevitably arise cannot be answered without access to the opponent’s papers that are no longer available.

This scenario probably arises because when lawyer and client meet for the first time, the dialogue understandably seeks to establish the basic legal merits of the case. Little consideration tends to be given to establishing the loss element of the claim at this stage and the potential client is simply asked what they think it is. The answer given can be wildly out, even in cases where the client has a large internal accounting department. The client simply lacks the knowledge and experience of litigation that an experienced forensic accountant can bring.

It is precisely because the accounting profession has developed a specialisation around forensic accounting that you should not expect a finance director, book keeper or entrepreneurial CEO to identify all the financial loss aspects of a claim. In addition, formulation of evidence is not their normal role or focus and having to carry out their usual duties in the day job necessarily divides their attention. In the same way that a property lawyer would not be suitable to handle criminal defence litigation, lawyers should not just accept the client’s views, or those of a non-specialist accountant, when assessing loss.

The client will usually be able to give an indication, but the reliability of that assessment may be significantly above or below a reasonable range of value for the damages. That figure is then often used not only in pre-action exchanges but can also end up in the particulars of claim. In cases where the value is significantly under stated, it is very rare that the other party will say “hold on, you’re not claiming enough!”

In some cases, where the extent of the losses appear limited to what is obvious, additional expertise may not seem necessary. However, even in these cases forensic accountancy services may prove valuable where there are significant consequential losses that can only be assessed by careful calculation. This is particularly true where the impact of the direct loss causes unseen contingent losses, perhaps around loss of opportunity, which could only be quantified based on specialist professional insight and experience.

It is important to involve forensic accountants as soon as possible. It is likely that some form of alternative dispute resolution will be attempted at an early stage and having reliable financial evidence regarding the loss is as vital to enable the client to achieve the correct result at mediation, as in formal Court proceedings.

When brought in early, forensic accountants can also help shape the legal arguments of a claim according to its financial strengths. It can also help in shaping disclosure requests to ensure the relevant evidence is available when needed.

One other benefit is to assist in procuring litigation funding as, increasingly, potential funders will want to know a reliable value for a claim before committing to pay the costs. Forensic accountants can use their skills to assess the overall range of the loss and so assist in obtaining funding support.

Collaboration is at the heart of the matter and the risks are high for all parties if the financial elements of a claim are not given enough thought at an early stage. By seeking specialist input, lawyers can strengthen their clients’ claims and avoid unfavourable outcomes.

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