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To beat or not to beat: that is the question

A recent Court of Appeal decision has made it clear that exceeding or beating a settlement offer in strictly financial terms no longer guarantees a costs award in your favour in litigation.

Part 36 of the Court rules (Civil Procedure Rules) governing litigation and disputes is a provision which aims to encourage parties to try to settle their disputes as early as possible. It does this by imposing costs sanctions if a party fails to accept a realistic offer made by the other side.

The case in question here involved a personal injury claim by an air hostess (Miss Carver) who had injured her ankle when falling into a defective lift. The Defendant, BAA, admitted liability before then making a Part 36 offer at an early stage of the Court claim. Miss Carver rejected the offer and at the subsequent trial went on to be awarded £4,686.26. This was significant because this sum equated to just £51 more than the total amount previously offered by BAA.

By the trial, Miss Carver's costs had reached £57,000 plus VAT. She then sought to recover these costs from BAA on the basis that she had “beaten” the offer made by BAA.

The trial judge however, in applying the new rules on settlement offers, had other ideas and awarded costs to BAA from the time when the acceptance period on its offer passed. In doing so, the judge criticised Miss Carver’s approach to the Court proceedings on the basis that she had failed to engage in any meaningful settlement negotiations nor had she put forward a reasonable offer of her own. Miss Carver therefore appealed.

The Court of Appeal upheld the original judge’s decision, emphasising that it was in line with the modern approach to litigation. It concluded that a court is now entitled to make a more wide-ranging examination of all the facts and circumstances of a case when considering whether or not a party had achieved a “more advantageous” result. In particular, it was noted that litigation is time consuming and can come at an emotional cost as well as a financial one.

The effect of the decision is significant as parties must now ensure that they consider the broader context when assessing the risks of refusing a settlement (Part 36) offer. The clear line in the sand which existed under the old rules has certainly now been removed. Whilst it may assist the court to reach a fair result in individual cases, the new interpretation brings with it an unwanted degree of uncertainty.

For more information, please contact Barry Jervis on 0121 212 1200 or Emma Anderson on 0116 254 5454.