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Making effective offers in litigation

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A recent Court of Appeal decision provides an insight into the benefits of making well formulated offers of settlement.

Offers may be made at any time in litigation, either before or after the issue of Court proceedings, with a view to settling the case and / or obtaining a more favourable position on the costs of the litigation if the dispute proceeds to trial than would otherwise be the case. Well placed offers to settle are a key tactical weapon in litigation.

Such offers are normally made “without prejudice save as to costs” which means that the trial judge must not be told about the offer until after he has decided the substance of the claim, but can be told about the offer when he comes on to deciding the question of who pays the costs.

Some negotiations, such as those at a mediation, may take place “strictly without prejudice”, meaning that the trial judge must not be told about those negotiations at all and cannot take them into account in his decision.

In its judgment dated 8 May 2014 in the case of Pasha Saigol v Thorney Limited (trading as Thorney Motor Sport) [2014] EWCA Civ 556 the Court of Appeal considered the impact of offers to settle on who should pay the costs of litigation.

In 2008, Mr Saigol bought a 20 year old BMW motor car that he intended to race. Thorney specialises in tuning BMW and Vauxhall cars and preparing them for racing. Mr Saigol took his BMW to Thorney to have it converted into a car fit for racing. A dispute arose and Thorney refused to return the car to Mr Saigol unless he paid them a sum above that which Mr Saigol claimed was agreed. Mr Saigol did not pay it. Thorney then advertised the car for sale.

Mr Saigol, who did not have solicitors, but was represented by his mother, issued a claim for the return of his car and “expenses” of £2,230.00. Thorney counterclaimed for payment of the sum it said was still due.

Following a trial at Oxford County Court in January 2013, His Honour Judge Harris QC decided that, after setting off the amounts owed by each party, Thorney should pay Mr Saigol damages of £370.00.

His Honour Judge Harris QC indicated that he was not disposed to make any order as to costs between Mr Saigol and Thorney, but Mr Saigol should be paid his costs of the original injunction hearing (where he asked for the return of his car). Thereafter, the Judge said, Mr Saigol’s claim was largely misconceived. He decided Thorney was also wrong in asking Mr Saigol for sums which the Court had found that it was not entitled to and holding onto his car because he would not pay them.

The Judge then became aware of a letter dated 8 March 2012 which contained an offer by Thorney to pay Mr Saigol £2,000.00 in satisfaction of all disputes, in terms that litigation would then end and there would be no order to costs (i.e. each party would pay its own costs) . That offer was only open for acceptance for about 22 hours.

Taking into account this offer, His Honour Judge Harris QC decided that Thorney should pay Mr Saigol’s costs of the injunction hearing, but Mr Saigol should pay Thorney’s costs from 1 April 2012 because Mr Saigol did not accept the offer of £2,000.00 and had not done better than that at trial.

The Court of Appeal decided that Judge Harris QC had failed to appreciate that the offer dated 8 March 2012 was not a Part 36 offer. He may also have been influenced by having being told of events at a failed mediation which he should not have been told about because they were strictly “without prejudice”, namely that Mr Saigol had indicated a willingness at mediation to settle the case for a payment by Thorney of £2,000.00. This may have made the apparent refusal to accept the same amount in the offer letter seem all the more unreasonable.

The Court’s usual approach to deciding costs is to determine which party can be properly described as “the successful party” and then to investigate whether there are any good reasons why that party should be deprived of some or all of their costs.

Part 36 offers may also come into play. A full discussion of Part 36 is outside the scope of this article, but Part 36 is a self-contained code which provides that if an offer in Part 36 form is not beaten, the Court will, unless it considers it unjust, order that the Defendant is entitled to his costs from the date on which the relevant period (at least 21 days from the date of the offer) has expired and interest on those costs. Claimants can also make Part 36 offers.

The Court of Appeal’s view was that neither side had approached the settlement negotiations very sensibly. The short period of acceptance for Thorney’s £2,000.00 offer suggested that the offer was made for tactical reasons which were not obviously apparent. In fact, Mr Saigol said he was in hospital at the time and did not even read the letter before the offer expired.

Because the 8 March 2012 offer was open for such a short period it should not carry decisive weight in deciding who should pay the costs. Neither side deserved any credit for the efforts, or lack of them, to settle the litigation.

Judge Harris QC described it as “an object lesson in unfortunately litigation”, a view which the Court of Appeal appeared to share. The Court of Appeal substituted Judge Harris’ Order for an Order that Thorney pay Mr Saigol costs of the injunction, but otherwise each party must pay its own costs. The costs claimed were £67,000.00 for Mr Saigol and £77,000.00 for Thorney.

Several lessons may be drawn from this case, apart from keeping in mind the financial value of a dispute:

  1. An offer which complies with the formal requirements of Part 36 will provide more certain costs protection than one which does not.
  2. If there are good tactical reasons for not making a Part 36 offer (for example a Part 36 offer by a Defendant requires the Defendant to offer to pay the Claimant’s costs in addition to the amount offered and the amount offered must be paid within 14 days of acceptance) it is still worth making an offer which is not in Part 36 form. The offer should be open for a sufficient period for consideration, normally at least 21 days.
  3. If a party has made a strictly without prejudice offer, for example at a mediation, for which it wishes to receive credit, it should repeat the offer separately outside the context of the mediation, so that it can be referred to the trial judge.

For more information about offers to settle in litigation please contact John Mackle who is a senior associate in the litigation team at Clarion on 0113 336 3336 or at john.mackle@clarionsolicitors.com. Each case is different and you should take legal advice on the specific facts of your own case.
 

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