Thinking about settling out of court? Key settlement strategies and terms you need to be aware of

Guest article written by Ryan Colgan, Claims Executive, Professional Indemnity, currently on secondment to Howden from RPC

Having a claim made against your firm is never a nice feeling, but unfortunately it can happen. Dealing with a claim, often in conjunction with your insurers, can sometimes be upsetting and confusing, particularly if you have no or limited experience with litigation.

There can be times when there are risks on liability, which mean that settlement of the claim is necessary, and your insurers (or their representatives) will ask you for your instructions on a particular settlement strategy. However, what are the different options available and what do they all mean?

Why claims are settled instead of going to court?

Whilst litigation can be required to settle a dispute, it can also be a costly and time consuming process. It is therefore important for you to consider whether to engage in Alternate Dispute Resolution (ADR). This is actively encouraged by the Civil Procedure Rules (CPR)[1] with the pre-action protocol directing that litigation should only be used as a last resort[2]. The CPR also includes various cost penalties if you fail to engage with attempts to settle claims.

Three common methods of settling disputes you need to be aware of

1. "The Part 36 Offer"

art 36 of the CPR contains a set of rules for settlement offers designed to encourage parties to settle by setting out the cost consequences of accepting or rejecting offers. A Part 36 Offer can be made by either party in a dispute and at any time during proceedings, though it must:

• be in writing;
• be clear that the offer has been made pursuant to Part 36 of the CPR;
• specify a period of not less than 21 days within which the Defendant will be liable for the Claimant’s costs if the offer is accepted (this is called “the Relevant Period”);
• state whether it relates to the whole claim or part of the claim; and
• state whether the offer takes into account any counterclaim.[3]

A Part 36 Offer will remain open for acceptance by the opposing party until the start of the trial, unless the offer is expressly withdrawn in writing[4]. It is therefore important to maintain a watching brief over any Part 36 Offers and to be ready to withdraw an offer if new details are revealed that change the circumstances. If insurers have appointed representatives to deal with the claim on your behalf, they will keep an eye on this.

Cost consequences of a Part 36 offer

A Part 36 Offer is made ‘without prejudice save as to costs’[5]. It is therefore recommended you review the various cost consequences of Part 36 offers outlined in the CPR in the link at the end of this section, however some key points to be aware of include:

• Accepting the Offer - The Claimant can be entitled to any costs incurred up to the end of the relevant period[6].
• Declining Defendant’s Part 36 Offer – If the Claimant fails to obtain a more advantageous offer, the Claimant will be liable for the Defendant’s costs from the expiry of the relevant period and interest on those costs.
• Declining the Claimant’s Part 36 Offer – If the judgment is at least as advantageous as the Claimant’s offer, the Claimant will be entitled to costs on an indemnity basis[7], interest on these costs, interest on the sum awarded and an additional amount of up to £75,000[8].

To view the full range of potential costs consequences, along with the procedure for withdrawing and accepting offers, Part 36 of the CPR can be accessed here: https://www.justice.gov.uk/courts/procedure-rules/civil/rules/part36

2. "The Calderbank Offer"

Calderbank Offer is also a ‘without prejudice save as to costs’ offer to settle all or part of a claim. However it is not as restricted by the CPR, giving parties greater discretion in forming their offers, including:

• You have the discretion to decide whether the offer will be time-limited or open-ended (if the offer is open-ended you should ensure it is kept under review).
• Unlike Part 36 Offers, Calderbank Offers can be applied in the small claims track and arbitration.
• You can agree costs as part of the settlement. Parties are also free to pick the form of the payment and how the payment should be made.

However one potential downside of a Calderbank Offer is it can create uncertainty for both parties if the issue of costs is not included as part of the agreement. This is because the courts will have discretion on how much weight should be applied to accepting or rejecting an offer. Some relevant factors that the court may consider to determine costs include whether the offeree made a genuine attempt to compromise, the prospects of success at the time the offer was made and at what stage the offer was made during proceedings. But the courts will retain the ability to place weight on whichever factors they consider relevant based on the conduct of the parties. This can create uncertainty over costs if these are not dealt with as part of the settlement agreement.

3. Mediation

ediation is a flexible, voluntary and confidential form of ADR where a neutral third party will assist in working towards a negotiated settlement. This can allow you to retain control of the decision whether or not to settle and on what terms.

You can engage in mediation at any time during the litigation process, however the timing of mediation is essential to secure the best chance of achieving a cost-effective outcome. This will differ with each case, though generally if the issues are properly defined and there has been a proper exchange of information it can be helpful to mediate before proceedings are issued to reduce costs. You should also avoid unreasonably refusing to engage with an honest offer to mediate as a failure to do so could lead to the court making an adverse costs order against you.

The process of mediation is also flexible and can be changed according to your needs. Some helpful steps that your appointed representatives can take in preparing for mediation include:

• Preparing a risk assessment;
• Liaising with your mediator and opponent to plan the agenda;
• Agreeing the extent of disclosure required;
• Preparing a case summary and supporting documents as agreed; and
• Developing strategies for discussions.

During the mediation session, discussions are facilitated and guided by the mediator to open the way for one or both parties to put forward proposals for settling the dispute. The discussion and offers can continue until such time as common ground is reached and a settlement achieved.  

However one drawback of mediation is that in the event that a mediator is unable to achieve a settlement, the process can add additional time and costs to the final resolution of your dispute. Additionally, mediation can risk exposing your strategy for proceedings which might impact your later position in litigation.

Do you have questions? Howden is ready to help

We hope this article has helped to outline the different settlement methods that are available.

If you want to consider these options in greater detail, always remember that Howden and your insurers (and/or representative appointed by insurers) are happy to help to engage in further discussion with you. We have a great deal of experience in assisting our clients in engaging with different types of settlement options and can help you decide the best strategy for your situation.

Please do not hesitate to contact your designated claims advocate at Howden at any time.