“My friend told me you should never accept the first offer they make.”
“Insurers are always happy to take your money, but they will wait until the last minute until they pay out.”
“My mate/uncle/bloke down the pub who had a similar injury got £20,000 more than that…”
“I don’t care what you say, I’m not accepting £XXX and I am happy to take my chances in court….”
“Insurers will always make a better offer if you stand firm.”
…and variations thereon, often with unprintable bits added.
The reality is that any personal injury solicitor worth his salt is there to do one thing only, which is to get the best deal for his client that he reasonably can. As always in the law, what is “best” and what is “reasonable” are very flexible concepts, they vary with the facts, and that is one reason why lawyers are always stressing that each case is different. The paradox is that often cases are very similar, too. Similarity enables solicitors, insurers and judges to compare cases and assess likely levels of compensation, based on similar past awards.
Contrary to popular opinion, neither insurance companies, nor claimant solicitors go to trial if it can reasonably be avoided. At a trial, a judge has to decide whether the claimant is entitled to compensation at all and if so, how much. The outcome of trials is notoriously hard to predict. It is like each side having its own dice, each knowing what the others’ dice look like, but then throwing both sets just to see who gets the higher score. You might think you ought to come out on top- but are you willing to bet on it?
To an insurance company faced with an accident claim, there are only ever two real questions. The first is “Are we going to have to pay anything at all on this one?” If the answer is “Probably, yes.”, then the other question is simply “How much?” Having dealt with those questions, any insurer who wants to stay in business will put a reasonable amount of money on the table to ‘buy’ the claim off, sooner rather than later. Human nature being what it is (and bearing in mind that personal injury law deals with assessment of a range of compensation, not a precise formula for fixing compensation to the penny) insurers will try to avoid paying more than they have to. Conversely, claimant solicitors will try to extract as high a sum of compensation as they reasonably can for their client.
In theory, if both sides know their business, they should both have a very shrewd idea of the range within which any claim will fall – everything else is just horse-trading within that range.
The practical consequence of this is that in just about every accident claim, there will come a point at which someone offers to settle it. Lots of back and forth negotiation will probably follow between the solicitors on each side. Nearly every injury claim will settle by negotiation. In my years of practice, I have handled literally thousands of accident claims and I can count on both hands the number of times I have had full-out, no-holds-barred trials.
All of this is simply practical recognition of a basic human truth – where there is risk and something could go either way, any sensible person will look for a reasonable compromise, rather than run an unacceptable risk. The law and the rules of court recognise this by providing a procedure to encourage parties to settle. This is the purpose of Part 36 of the Civil Procedure Rules.
First, a brief history lesson. Prior to the current court rules, there were two ways a defendant’s solicitor would try to persuade a claimant to settle his claim accident claim.
- By making an offer “without prejudice”- in other words, the terms of that offer could not be referred to if the matter ever came to court and could not be used in evidence against the defendant. All negotiation and discussion is “without prejudice”. It carried no costs risk to either party. By paying money into court- literally taking the amount they thought they would end up having to pay in compensation, depositing it with the court and telling the claimant they had done so. The usual scenario was that if stage 1 produced a deal, there was no need to go to stage
- Paying money into court was widely considered a more aggressive action by a defendant, because it put the claimant at risk over legal costs. The basic rule in this country is that the loser pays the winner. If a claimant did not accept a payment into court and took his chances at trial, the trial judge would not be told about the payment. He would assess all the evidence and award compensation. If that compensation was more than the amount paid into court, the money in court would be paid to the claimant’s solicitors and the defendant (as the loser) would have to pay the balance, as well as the claimant’s legal costs of bringing the case.
But if the claimant was awarded less than the amount paid into court, all hell would break loose. The defendant would point out that he had offered more to the claimant months ago, deposited it with the court, and now that the claimant had forced everyone to go through the time and expense of a trial only to end up with less, the claimant should therefore foot the bill for the privilege.
A payment into court would force a claimant to think very carefully and objectively about the issues involved in their accident claim, the evidence available and the realities of the case- because if he got it wrong, he would end up significantly out of pocket, perhaps even to the extent that the costs he had to pay would exceed the amount of his compensation altogether.
Nowadays, virtually every claimant personal injury solicitor works on a “no win, no fee” basis. Under no win, no fee, if the injury claim fails, the claimant gets no compensation and his solicitor doesn’t get paid. This arrangement is nearly always linked to an insurance policy, which pays out any legal costs due to the other party if the case goes badly wrong. To that extent, a claimant is blissfully risk-free in bringing his case, provided he acts upon sensible advice given to him by his solicitor. If he wins, the other side pays his compensation and his legal costs. If he loses, he gets nothing, but does not have to pay his own solicitor and his insurer picks up the tab for the other side’s legal fees.
In line with this change in how personal injury claims were funded, there was a fundamental change to the court rules, which brings us to CPR Part 36. This rule designed to simplify the offer/risk/costs procedure by allowing either party to make one or more formal offers to settle a claim. The rule specifically allows the court to take such offers into account at the end of the case when deciding who should pay legal costs. It was thus an extension of the payment into court idea, which was available only to defendants.
The basis of Part 36 is deceptively simple. It states that either party can make an offer at any time to settle a claim (or any part of it). The offer:-
- has to be in writing
- has to state on the face of it that it is a part 36 offer
- has to specify a period of not less than 21 days within which the offer can be accepted as of right and the offering party will pay the accepting party’s legal costs
- state whether it relates to the whole of the claim or to part of it
Initially, the effect of Part 36 was limited, because it was held that for any costs sanction to be effective, a defendant making such an offer still had to back it up with a payment into court. That procedure was not available to a claimant. After a few legal skirmishes, it was then decided that the payment into court did not actually have to be made, provided the defendant was “obviously good for the money”. Eventually, a level playing field was rolled out, so that no money had to be paid anywhere by anyone- all that was needed was an offer in accordance with Part 36 to put the other party on risk of legal costs if that offer was rejected and they were unable to do better than that at a later trial.
In the nature of things, the actual wording of such offers became rather sloppy, particularly from certain insurance companies, who shall remain nameless. Despite Part 36 itself being clear about what had to be said, offers would be worded rather willy-nilly whilst still claiming the benefit of Part 36. The potential difficulties this might have caused were greatly reduced by the rule stating that the court could take into account any offer when deciding on legal costs, even if that offer was not in accordance with Part 36. In practical terms, solicitors, clients and insurers would not take the risk of ignoring any offer, even if not in line with Part 36, because of the costs risk.
To that extent, this rather casual regime in fact reflected what the rule was intended to do – to give a simple and reliable procedure to encourage the parties to set out their stall openly, then discuss things between themselves knowing each others’ view. It worked very well … which was a sure sign that someone was about to mess it up.
The first nasty little shock was in the case of Gibbon –v- Manchester City Council in 2009. Mrs Gibbon had an injury claim against the council. Attempts were made to settle the claim as follows:-
- the council offered her £1,150, which she turned down
- she made her own offer to settle for £2,500, which the council did not accept
- the council made a new offer of £1,500, which she rejected
- the council then offered £2,500, but by then Mrs Gibbon considered her claim was worth more, so she rejected that too.
- the council then purported to accept Mrs Gibbon’s own offer which she had made at no. 2 above and declared the claim was settled at £2,500.
As you can imagine, Mrs Gibbon’s solicitors vehemently disagreed, arguing that by making their subsequent offers, the council had impliedly rejected offer no. 2. Alternatively, they argued, when Mrs Gibbon rejected the council’s offer of the same amount, £2,500, at no. 4, she made it clear that she was no longer willing to settle for that sum. Either way, they said, Mrs Gibbon’s offer at no. 2 was not available for acceptance. They relied on basic contract law, where rejection of an offer effectively kills it, so that it no longer exists; it cannot be accepted afterwards if there is a change of mind.
The court did not agree and said that Part 36 was not based on contract but was a set of Rules which were self-contained. In short, Part 36 said nothing about offers being impliedly withdrawn if rejected. On the contrary, the Rules contained guidance on how to withdraw an offer, which had not been done in this case. Therefore, since Mrs Gibbons’ original offer was still on the table, the council was able to accept it and the settlement was binding. The only way to prevent a Part 36 offer being accepted was to either withdraw it, so it was no longer on the table; or vary it, so that it was in reality a new offer.
Since in the course of negotiation in a personal injury claim there are likely to be several offers going back and forth, this decision caused some concern. It meant, at the very least, that the parties would have to be very careful to monitor the offers made and received, especially if the evidence in the case was changing or developing. There was now a risk of either selling a claim short, or paying more than necessary, depending on which side you were on.
Of course, the parties could try to avoid those problems by making “without prejudice” offers which were not covered by Part 36, and to which the usual contract rules would apply. This could be tricky, bearing in mind the cavalier wording of many offers, mentioned earlier. After the Gibbon case, solicitors started to look more carefully at Part 36 and the actual wording of offers. If there was a dispute about whether or not a case had been settled, the exact nature of an offer could be a crucial issue.
This was highlighted in the case of C –v- D in 2010. The claimant’s solicitors made an offer to settle which was stated to be “open for 21 days from the date of this letter”. To fully comply with Part 36, it should have gone on to say that the offer could still be accepted later than the 21 days, provided the parties could agree about costs, or the court gave permission for late acceptance. The defendant did not accept the offer within the 21 days but then tried to do so a few days before trial. The claimant had altered his views of the case by then and was no longer willing to stand by the earlier offer. Although it seems likely that, at the time it was made, both parties assumed this was a Part 36 offer (and therefore was still available for acceptance unless expressly withdrawn), the claimant now argued that because the offer had a specific time limit for acceptance, it did not comply with Part 36, it was not a Part 36 offer and so once the 21 days had elapsed, it was dead and could no longer be accepted. The Court of Appeal agreed, saying that an offer with a strict time limit and nothing more could not fall within Part 36. The time limit had expired, the offer had not been accepted by then, so the offer died and could not be accepted later.
If you have stayed with me this far, you may well be wondering what all this has to do with the average personal injury claimant? Simply this; bringing an injury claim under a typical “no win, no fee” agreement is like having a rich, friendly uncle bankroll your legal costs. “You go ahead with your claim, my boy. I’ll take care of the legal costs if you have to pay any. Of course, if at any stage it turns out to be a no-hoper, then the deal is off.” For uncle, read solicitor and legal expense insurers, the people who underwrite the “no win, no fee” deal. A claimant’s solicitor has a duty not only to the claimant himself, but also to the insurers. He cannot allow a claimant to pursue an accident case which has no reasonable chance of succeeding, nor can the solicitor allow the claimant to pursue a reasonable case in a totally unreasonable way. He has to tell the insurers (and indeed the partners in his own solicitors practice) if the case is unlikely to succeed or if there is a reasonable offer on the table which the claimant ought to take, but won’t.
This is where Part 36 affects the client. The solicitor has a duty to act in the client’s best interests. That sometimes means telling them things they don’t want to hear. Perhaps the most common is that the compensation offer on the table is a reasonable one and ought to be accepted, when the solicitor hoped to get substantially more (see comments at the beginning of this article).
A personal injury solicitor can only advise a client on what to do for the best. He cannot force them to agree with him. But a client believing he knows better than the lawyer (and let’s face it, it’s possible!) brings risk. If the client rejects the offer which the solicitor has advised be accepted, then the solicitor is under a duty to report that situation to the legal expenses insurers. They will almost certainly refuse to back the claim any further. From that point onward, the client will be at personal financial risk in pursuing his accident claim. If he carries on but fails to do better than the offer he rejected, then he will almost certainly have to pay the other side’s fees. It may well exceed the compensation he has just won, so he could then find himself in serious financial trouble.
To make matters even a smidgen more difficult, it is no longer even a question of merely beating the other side’s offer, even if only by a few pounds. That used to be the case; eg. Offer £10,000, Compensation £10,050- claimant has beaten the offer and wins all round. It is no longer so. The courts are clear that pure mathematics is not the only yardstick. The judge can take into account other factors, such as time, delay, stress, aggravation and so on. The accepted rule now is whether the claimant has achieved a result which is “more advantageous” than the offer. There have been cases where, despite the claimant getting marginally more money than the offer made, the judge has decided that the overall situation was not really justifiable, and penalised the claimant in costs.
The upshot of all this is that the rules are designed to encourage adult, sensible attempts to negotiate. Any party who refuses to play by the spirit as well as the letter of those rules does so at his financial peril.
If you have any queries about settlement offers or CPR Part 36, or you would like more general guidance on pursuing a claim for personal injury compensation then we can be contacted at firstname.lastname@example.org
Please note that the law relating to part 36 offers has developed since this article was published so please check the up to date position with us.