Courts in Guernsey and elsewhere are increasingly adopting a stricter approach in relation to the costs of litigation. Parties to litigation often try to protect themselves from exposure to costs by making offers to settle the case. For defendants, this is usually done by way of a formal payment into court of an amount approximating to what the defendant thinks the plaintiff might be awarded if the case goes to trial. For plaintiffs, this is usually done by way of a formal offer to settle the case in which the plaintiff sets out what payment they would be willing to take to settle the case.

Payments into court and offers to settle can help limit a party’s exposure to costs. In simple terms, if a party rejects a payment into court or offer to settle and doesn’t succeed in getting a better result from the court, that party will often be found liable for the costs which are incurred after the date the offer was made. As you might expect, the potential costs exposure of failing to accept a reasonable payment into court or offer to settle can help focus the mind of the other party into giving serious consideration to settling a dispute.

Until recently, when considering whether or not an offer had been beaten, the courts have adopted a relatively straightforward arithmetical approach. However, recent cases in the courts of Guernsey and England make it clear that courts will increasingly look beyond simple arithmetical calculations but will look also to the conduct of the parties and the issue of whether there was any real benefit in taking the case to trial.

The approach in England

This was demonstrated most recently in the English Court of Appeal case: Carver v BAA Plc [2008] All ER (D) 295 (Apr). The defendant made a payment into court (in England called a Part 36 offer) of £4,520. The claimant insisted on proceeding to trial and succeeded in beating the payment into court, but by a mere £51. The claimant tried to argue that the usual rule applied and that she had bettered the payment into court and was therefore entitled to all her costs.

The court disagreed and held that she had not obtained a “more advantageous” judgment by proceeding to trial. The court emphasised that, even in money claims, all of the circumstances of the case had to be taken into account. In that regard, courts were entitled to look at the emotional cost associated with the stress and anxiety of a trial. Bearing in mind that the claimant had beaten the offer into court by just over 1%, the Court felt that it was not enough for the claimant to have improved on the offer by taking the matter to trial. In simple terms, the monetary gain was not worth the added stress and time of the additional litigation.

The approach in Guernsey:

The court’s approach in Carver has found a parallel in Guernsey in the case of Ladbrokes PLC v Galaxy International Limited, a judgment of Lieutenant Bailiff Southwell QC, issued by the Royal Court on 24 November 2008. In this case the plaintiff beat a payment into court of £50,000 by £12,373.25.

The Royal Court was critical of Ladbroke’s approach to the litigation and found that its summary rejection of Galaxy’s offers and invitations to engage in ‘without prejudice’ negotiations amounted to “unreasonable and unacceptable conduct”. Against that backdrop, not even the comfortable margin (of almost 25%) by which Ladbroke beat the payment into court did not prevent Ladbroke from having to pay a small proportion of Galaxy’s costs. At paragraph 9 of the judgment, Lieutenant Bailiff Southwell QC stated that:

“In my judgment the time when the Courts of Guernsey would simply look at whether the sum recovered (by way of costs or damages or otherwise) was more than, the same as or less than an amount offered in settlement or paid into Court, and then award costs on that ground alone has passed. It is incumbent on the Court to take a broader view, bringing into account relevant conduct of the parties as well.”

The lesson to be learned

To guard against the potential liability for costs, it is no longer enough for parties to beat a payment into court or offer to settle because the courts will no longer view the issue purely in monetary terms. Both the English and Guernsey courts have highlighted that a broad approach will be taken when assessing the impact of settlement offers.

As a result, parties should be wary of dismissing offers summarily and should give any offer made proper consideration and ensure that they actively attempt to avoid further litigation, unless this is really necessary and appropriate. Parties also need to assess whether the likely improvement which may be gained at trial in monetary terms is sufficiently substantial that it outweighs the emotional strain involved in a trial.