Settlement: it’s not a sign of weakness!

None of us want to become embroiled in a dispute, whether it be in our private lives or through our businesses. It is an unwelcome distraction that can be extremely costly and stressful for all concerned.

We all hope that should such a situation arise where we are in dispute with a third party, we would take a sensible and pragmatic approach, have a chat over a cup of tea or coffee, and resolve any unfortunate misunderstanding before we've each munched through a couple of hobnobs (other biscuits are available). Sadly, that is easier said than done when, for example, a neighbour takes down the fence that has stood in the same location and separated your gardens for 35 years and puts up a new one a foot further over onto your garden, or a customer complains that the 15,000 novelty garden gnomes you've just delivered and in the wrong shade of green and they're not paying.

Whilst it can be easy to justify arguing over some garden land on the basis that the neighbour is taking a liberty and "it's the principle of the matter" (an often uttered phrase that sends shivers down the spines of solicitors), or to regard a customer's complaints as nothing more than an excuse to avoid payment after they have changed their mind, it is far harder to write a cheque for a substantial sum in settlement of a costs order made in favour of a neighbour or customer when the dispute escalates and has to be determined at trial, and the trial judge finds against you.

If you instruct a solicitor to assist you with your dispute, regardless of their assessment of the strength or weakness of your case, you will almost certainly be advised to given serious consideration to settling your dispute.

"But if I make an offer, the other side will see it as a sign of weakness" can sometimes be the reply when a client is advised to consider making an offer. Whilst that viewpoint is understandable, it is rarely accurate. Instead, proposing settlement evidences the adoption of a pragmatic, commercial approach to a dispute, and one that is consistent with a raft of Court judgments within which the Court has made clear that Parties should at all time seek to resolve disputes, with the Court sanctioning Parties who refuse to engage in settlement efforts by way of adverse costs orders.

There are no guarantees in any litigation. Many a distinguished solicitor or barrister has had experienced of winning/losing the seemingly unloseable/unwinnable case. Judges can make seemingly strange decisions, witnesses can fall apart in the witness box, damning evidence can come to light at the last minute in circumstances befitting of a classic Perry Mason episode. The only way of concluding a dispute that provides certainty, or as close to certainty as possible, is through settlement

In addition to providing certainty of outcome, reaching a settlement will also avoid the substantial costs that can be incurred in relation to a dispute. Where proceedings are concluded by way of a Court judgment, the losing Party will often have to meet not only its own costs, but also be ordered to pay a contribution towards the successful Party's costs. That can lead to a costs liability amounting to 6 figures.

But what about where you have been advised by your solicitor that the other side's claim/defence is of little merit, and you have a strong case. Why should you propose or accept a settlement in those circumstances?

The earlier statement that "there are no guarantees in litigation" does not only apply to the outcome of the dispute itself, it also applies to the cost orders that may be made by the Court, should proceedings have been issued. Whilst fixed costs may be ordered in limited cases, in most cases, the Court retains complete discretion as to what order it makes in relation to the costs of the dispute.

Previously, solicitors would advise clients that if their dispute went to trial and they "won", they could, in most cases, expect to recover somewhere between 65% - 80% of the costs they had incurred, putting to one side any offers that had been made in the course of the dispute. Now, however, due to the concept of "proportionality" being a key factor in determining what costs a party should recover from an opponent - just because costs may have been incurred in relation to work that the Court acknowledges was necessary to progress a case, does not mean that those costs will be recovered if the Court considers they are not proportionate in all the circumstances - solicitors find themselves in the position where they can only advise their clients that if they are successful in their claim or defence, they should recover some of their costs. Given the substantial costs associated with litigation, that it a far from ideal position for Parties to be in. An agreed settlement removes this uncertainty.

Of course, just because one Party is amenable to settlement does not mean that a deal can be done. Both Parties must be willing to consider settlement, and even then a resolution may not be achieved, as the Parties may have polar opposite views on what constitutes a reasonable outcome given the circumstances of the case. That does not mean that efforts should not be made to try and resolve a dispute.

Whilst the making of an offer of settlement will hopefully lead to a resolution of a dispute, even if it does not, it is still advantageous to make a proposal to conclude the dispute, as it may lead to the Court making a costs order in favour of the offering party, regardless of the outcome of the dispute.

For example

• Party A pursues a £200,00 debt claim against Party B;
• The Court determines that Party B owes Party A £150,000; and
• Party B has previously offered to pay Party A £160,000

In such a case, the Court is likely (caveat - no guarantees!) to be persuaded that the appropriate costs order is that Party B is ordered to pay a contribution towards Party A's costs up until the date of the offer, with Party A then being ordered to pay Party B's costs from when after the offer was made.

Likewise if

• Party A pursues a £200,00 debt claim against Party B;
• The Court determines that Party B owes Party A £150,000; and
• Party A has previously offered to pay accept £100,000

the Court is likely to be persuaded to make a costs order that is more favourable to Party A than it would have done had the offer not been made, despite Party A not fully succeeding with its claim.

The different options available to Parties to achieve a settlement is something to be discussed in a later article. The key message from this Article, however, is that settlement is something to be embraced, to be explored, and to be pursued, and not a sign of weakness.

If you have any queries arising from this article, or would like to suggest a topic for a future article, please contact Chris Drinkall on 01482 337367 or moc.s1732334957tillo1732334957r@lla1732334957knird1732334957.rehp1732334957otsir1732334957hc1732334957 Chris can also be followed on Twitter at @drinkall_chris and on LinkedIn.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.