Settlement Offers. Pitching it Right, Covering all the Bases

Transcription

1 Settlement Offers Pitching it Right, Covering all the Bases

2 What I ll Cover Part 36 A quick recap Upcoming changes Limitations and pitfalls How to approach making offers Responding to offers A couple of worked examples Implementation Tomlin orders when do you need them and what to keep out of them Things to remember when drafting settlement agreements 2

3 Part 36 A refresher A part 36 offer carries automatic costs consequences. It must specify a period of 21 days or longer when it can be accepted( relevant period ) If offer is accepted D pays C s costs to date, except where C makes a late acceptance of D s offer, where D gets costs from expiry of the relevant period If D beats his own offer at trial, it will get its costs from expiry of the relevant period and interest on them If C beats its own offer at trial, it will get its costs on the indemnity basis from the expiry of the relevant period, interest on those at up to 10% above base rate, plus enhanced interest on any sum awarded from the end of the relevant period beat means getting a judgment more advantageous, and if it s all about money, it means by any amount 3

4 Part 36 Limitations Prescriptive costs consequences No drop hands No cost inclusive option Cannot go beyond the four walls of the claim Minimum offer period Forced to keep offer open to retain cost benefits Inflexible time for payment Interest up to expiry of the relevant period. 4

5 Upcoming Changes the 10% levy The Jackson Report recommended that where D fails to beat C s part 36 offer, C should be entitled to recover an additional 10% The changes will come into effect this April with the 60 th update to the CPR, and are contained in the Civil Procedure (Amendment) Rules 2013/262 Some polishing has been done to the Jackson proposals, specifically: Where damages are not in issue, the levy applies to the Claimant s awarded costs In any mixed case, the levy is fixed as 10% of the damages element The Levy will be tapered for high value claims over 500,000, with an anticipated cap of around 75,000. 5

6 The formulation of the Amendment The amendment provides for the new insertion of a sub-paragraph (d) to rule36.14(3) the rule dealing with a Claimant beating its own Part 36 offer as follows: (d) an additional amount, which shall not exceed 75,000, calculated by applying the prescribed percentage set out below to an amount which is (i) where the claim is or includes a money claim, the sum awarded to the claimant by the court; or (ii) where the claim is only a non-monetary claim, the sum awarded to the claimant by the court in respect of costs Amount awarded by the court Prescribed percentage up to 500,000 above 500,000 up to 1,000,000 10% of the amount awarded; 10% of the first 500,000 and 5% of any amount above that figure 6

7 Upcoming Changes When will it matter? The changes should only affect your approach when you act for a Defendant considering a Claimant offer. Consequences of failing to beat a D s offer remain the same When making the offer you should disregard the additional 10% you might recover otherwise your offer could be pushed too high and might not be beaten at trial As a Defendant, however, the risks of not accepting a Claimant s offer in the right general ballpark are increased: Failure to beat by even a few pounds could lead to a 10% worse outcome (as well as adverse costs and interest consequences) Particularly important where there is no claim for damages (e.g. boundary, TOLATA or Lease Renewal dispute) your costs exposure is increased by 10% 7

8 Making Offers When? Even if an offer is barely below your best case scenario, it demonstrates willingness to negotiate Even if you fail to beat the offer, if the other side fails to respond constructively the offer could shift costs The sooner you make an offer the earlier you put the other side under pressure Review your offer and any from the other side at each stage Pre-action Pleadings Disclosure Evidence Does new evidence undermines the basis of your previous offer? Is your previous offer too generous? 8 8

9 QUANTIFY The worst case scenario How certain is liability to be established? What are all the possible heads of loss? Could any fail altogether? Is there a minimum value for others? What is the costs exposure? CFA? ATE? 9

10 QUANTIFY the best case scenario What irrecoverable costs will be incurred? Allow for costs to be assessed down by at least 30% Fast track trial costs in excess of the cap Even if you succeed will it generate payment? Solvency of Debtor Enforceable assets 10

11 Non Quantitative Considerations What are the real life consequences of the worst case scenario? Can the client afford to maintain legal support to trial and beyond until costs can be recovered? Can the client cope with the stress of ongoing litigation? Is the client stuck in an ongoing relationship beyond the outcome of litigation? Is there a risk of adverse effects from publicity? 11

12 Pitching the offer Ice Breaker Demonstrate willingness to negotiate Preferably accompanied by offer of ADR Still possible to get costs benefits if other side stonewall All or nothing In certain cases where the remedy is clear, and only liability is in issue there is a benefit to making an offer at a we win level Tempter Other side may or may not beat it increases their risks substantially, but may prove ultimately not to be cost protective Failsafe A low offer at minimum recovery level where the client has strong incentives to avoid the uncertainties of a trial maximum costs protection 12

13 Responding to an offer In terms of quantum look at all the same factors Consider how it shifts the likely costs outcome how likely is a loss on costs? How does this affect your approach? If it is Part 36, consider the costs consequences of failing to beat it in your worst case scenario Is the offer time limited? Should you try to avoid rejecting it to leave it open for future acceptance (if it is not Part 36)? Does it comply with the Part 36 requirements. Would it be better for your client if it did? Then ask for clarification! 13

14 Worked Example Small change big difference You are a claimant in a damages claim for 100,000. You know that one of your heads of liability is uncertain - if the head of damages fails, you will still recover 50,000 there is a 50% chance you will recover 60,000, a 25% chance you might recover 80,000. Your current costs are 10,000. You expect to incur another 10,000 to trial. You suspect your opponent s costs are similar. Assume no other offers are made! You receive a part 36 offer at 60,000. If you accept it, your client recovers around 67,000 If you go to trial working through the possible outcomes: 14 25% chance fail to beat offer, recover 50,000, 7,000 costs to date, but have to pay 7,000 costs plus interest to your opponent: total 50,000 * 0.25 = 12,500 50% chance you will recover 60,000, and all your costs: total 74,000 *.5 = 37,000 25% chance you will recover 80,000 and all your costs: total 94,000 * 0.75 = 70,500 But you ll spend an extra 10,000 on lawyers! So on average going to trial will net you 100,000 Well worth it! You receive a Part 36 offer at 65,000 If you accept it, your client recovers around 72,000 If you go to trial working through the possible outcomes: 25% chance fail to beat offer, recover 50,000, costs balance: Total 50,000 *0.25 = 12,500 50% chance fail to beat offer, recover 60,000, costs balance: Total 60,000 *0.5 = 30,000 25% chance you beat the offer and recover 80,000 and all your costs: total 94,000 * 0.25 = 23,500 You incur 10,000 legal costs So on average, going to trial will net you 56,000 that offer is looking very attractive!

15 Worked Example 2 The 10% levy You are in exactly the same position, only this time you are a Defendant receiving the Claimant s offers, you made a pre-issue drop hands offer of 50,000 (as Claimant is guaranteed to recover at least that!) Let s explore the impact of the levy with a Part 36 offer at 60,000: If you accept it, your client pays around 67,000 If you go to trial working through the possible outcomes: 25% chance you beat the offer, pay 50,000 and recover costs on the standard basis: 36,000 * 0.25 = 9,000 50% chance you will pay 60,000, but the offer bites, so you pay indemnity costs of 20,000: * 0.5 = 40,000 25% chance you will pay 80,000 and indemnity costs of 20,000: 100,000 * 0.25 = 25,000 And you ll spend an extra 10,000 on lawyers! So on average going to trial will cost you 94,000 This is probably well worth accepting, trial is 40% more expensive If the levy applies: 25% chance to beat offer, pay 50,000 and recover costs on standard basis: 36,000 *0.25 = 9,000 50% chance you will pay 60,000, but the offer bites, so you pay indemnity costs of 20,000 and a levy of 6,000: * 0.5 = 43,000 25% chance you will pay 80,000 and indemnity costs of 20,000 and a levy of 8,000: 108,000 * 0.25 = 27,000 You incur 10,000 legal costs So on average, going to trial will cost you 116,000 that offer looks a lot more appealing it s now 73% more expensive to go to trial almost doubling the exposure. 15

16 Implementation Tomlin Orders Tomlin orders move parts of a settlement agreement into a schedule to a court order. The proper wording to use is simply: The claimant and the defendant having agreed to the terms set out in the schedule hereto, IT IS ORDERED THAT all further proceedings in this claim be stayed except for the purpose of carrying such terms into effect But remember: anything in the Schedule cannot be enforced without further court order. Possession orders should usually appear in the body along with any conditions of suspension Judgment interest will not run on sums falling due in the schedule either move them to the body of the order, or provide expressly for interest. If costs need to be assessed, you need an order awarding them, not just a provision in the schedule 16

17 When is a Tomlin necessary or appropriate? You must use a Tomlin order if your settlement includes agreements to do things which the court could not have ordered e.g. continuing commercial relationships, compromises of unpleaded disputes, Confidentiality agreements Agreements to adopt binding alternative means of resolving disputes You may want to use a Tomlin order if: You want to keep parts of a settlement private the Schedule will not form part of the public court record You are making complex arrangements for time to pay You want an interest rate other than the judgment rate to apply in the event of default 17

18 Thinking about the little things If a Tomlin order is not precise enough, the court could refuse to enforce it don t be sloppy Remember the parties to a Tomlin are already in one set of litigation, if you aren t utterly clear there is bound to be more in the offing! Be mind-numbingly specific. If you really can t define it absolutely, agree a dispute resolution mechanism. Think about who does what and when. Are the obligations interdependent? Do I still have to transfer the land if you haven t paid me the instalments? Think about what happens if obligations are breached especially where there is time to pay given does the principal fall due? 18