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Exaggerated Claim and Dubious Litigation Strategy Create Cost Catastrophe

When an offer to settle a legal dispute is made, important consequences follow from the offer (called a 'Part 36' offer in the legal profession) as regards legal costs.

If the offer is accepted by the offeree, they will have their reasonable legal costs met by the offeror up to the date on which the offer was made and (normally) 21 days thereafter.

If the offer is not accepted, the burden of legal costs depends on the outcome. Who bears what costs will depend on who made the offer(s) to settle and when. The system represents quite a minefield, as a recent case illustrates.

The case involved a man who was hit by a bus when crossing the road in December 2005. The bus company originally admitted liability for the accident and offered him £75,000 in April 2007 and then increased its offer to £100,000 in November 2007. Neither offer was accepted and the second offer was withdrawn in January 2008. The man then commenced legal proceedings.

By this time, the bus company had decided to argue that the man was partly at fault for the accident. It issued a revised offer of £40,000 in June 2009 and that offer was open for 21 days. Further offers to settle were made and rejected before the court held that the claimant had been 30 per cent contributory negligent. This decision was challenged by the bus company and the Court of Appeal apportioned liability equally. Shortly before the scheduled quantum trial, the claimant accepted an offer of £17,500.

The reason why the offer finally accepted was less than the earlier offers was that it had become clear that the man's original claim had been 'embellished'. The lower court ruled that he had failed to beat the offer made in June 2009 and ordered him to pay the bus company's costs with effect from the expiry of that offer. The bus company was ordered to pay the man's legal costs up to that date.

The bus company appealed against that decision. The Court of Appeal ruled that it was unreasonable of the claimant not to have accepted the November 2007 offer and ordered him to pay the bus company's costs with effect from 21 days after the date it was made – a sum which is probably greater than the damages he received.

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