By Mitchell Clark – Partner at MBA Lawyers
In my lengthy career (over 30 years), I have many times encountered the situation of saying to someone who has a genuine avenue for claiming compensation, that it is uncertain whether the financial result would accord with the personal stress of running a legal case combined with the associated legal expenses – even if the payment of those legal expenses are accepted by the lawyer to be deferred or subject to the end result in the case.
Strategies for improvement of the outcome, specifically related to the lawyer’s costs, include the feature of making a Formal Offer to settle. The basic principle of civil law is that the losing party pays the legal expenses of the winner.
What Is A Formal Offer
There is a dynamic however where the loser can in fact win through the utilisation of the mechanism of the Formal Offer. A recent example involved a Supreme Court case in Brisbane for compensation for injury following a car accident in which the claimant was awarded over $217,490 in compensation following adjudication at a trial.
However, it then transpired that the insurance company had offered the claimant, before the trial, to pay $300,000 (!) which the claimant had rejected. During the conducting of the trial, the offer was not revealed to the Judge (which is the standard approach, as a way of allowing the Judge to decide the case based on the evidence without any influence from outside factors).
When the offer was made known to the Judge, he then penalised the claimant by requiring that the claimant pay the legal expenses of the insurance company. The result was that much of the compensation award was then taken off the claimant because of his obligation to pay the insurance company’s legal expenses. This was a disastrous result for the claimant, with the claimant’s obligation to pay the insurance company’s legal expenses triggered by the insurance company’s clever use of the mechanism of the formal offer.
What Is The Impact Of A Formal Offer?
The dramatic influence of the formal offer can operate in favour of a claimant. Meaning, in a circumstance where before the trial a claimant offers to accept a certain amount of money which is then rejected by the insurance company, but the amount is “beaten” by the Judge’s decision at a trial, the insurance company will then be penalised through being obligated to pay a much higher portion of the claimant’s legal expenses.
My Own Real Life Court Case
I was the lawyer in the real-life court case of this type of scenario in which the claimant was a young Japanese person from Toyohashi City severely injured when run over by a bus on her first day of holiday in Cairns. She was extremely reasonable and sought to compromise her compensation case with the insurance company without requiring the huge expense of conducting a trial that went on for over five days in the Supreme Court.
However, the insurance company unreasonably rejected her proposal. The Judge (His Honour Justice Applegarth) ultimately agreed with the claimant (my client) and was highly critical of the insurance company’s refusal to accept the claimant’s reasonable pre-trial offer. The Judge specifically referred to the way that the insurance company’s attitude caused the claimant to incur substantial additional expenses in running the trial and including the fees for the claimant and her parents travelling from Japan to Brisbane to give evidence. The result was that the insurance company was ordered by the Judge to pay additional money (with the classification of “costs on the indemnity basis”) of over $600,000!
The details of this Court case are now a benchmark of this type of legal situation involving the strategic use of the Formal Offer (see Yamaguchi v QBE  QSC 151 and  QSC 170).