How Offers Can Improve the Outcomes in Legal Cases

Personal Injuries & Compensation

Improving Legal Case OutcomesMaking an Offer is a sure way of increasing the chance of a settlement. Unless a party to a dispute is willing to compromise then the prospect of a settlement will always be remote because there is no incentive for the other party to consider its own position.

Making an Offer is then a way of attempting to create a negotiated settlement in which both sides accept conclusion on certain agreed terms. Often the outcome created by negotiation is said to be a situation in which both parties are unhappy (because neither party is a clear winner) yet equally both sides are avoiding the peril of being found by the Court to be the loser. It could be said that a negotiated settlement is “not as good as I hoped, yet not as bad as I feared”.

Making an Offer also has the potential of a significant tactical advantage. In this article I’ll examine the finer details of the mechanism of an Offer. Reference is made to one of my own real-life cases in which my client gained a huge financial benefit (of approximately an extra $900,000!) through the use of a special form of an Offer made during the pre-Trial phase in the running of the case in Court.

How was this mammoth positive outcome achieved?

The case concerned the quantification of financial support for a young Japanese visitor to Australia who encountered unfortunate accident. She was on the first day of her short holiday in Cairns when she was runover by a bus. Left with a range of permanent health impairments due to the significant injuries, she was unable to maintain her job back in Japan. The insurance company connected to the at-fault bus was QBE and there was a dispute about the payout price. There were a range of factors which were appropriate for consideration in calculating the payout price, including lost salary as well as lost pension entitlements. My client was very sensible and following legal recommendation made a formal Offer to QBE stating that she was prepared to settle the claim without requiring a Trial by accepting a payment from QBE of $1,444,000 plus administration fees, plus legal fees on a standard basis. The Offer was kept open for a period of 2 weeks. That Offer was rejected by QBE. In fact, QBE’s own best Offer made at the same time was to pay $1M, which was insufficient given the very serious predicament and including the long-term needs of a young person (only 23 years of age).

At the Trial of the case in the Supreme Court, the Judge was not told about the formal Offers that each party had made earlier during the running of the case. In the standard way, the Judge received and considered all of the evidence during a Trial that lasted for one week with many witnesses, including my client, and her mother and father, as well as testimony from my client’s employer in Japan that I had collected to support the presentation of the case. It was the role of the Judge to adjudicate on the payout price without any influence via his knowing of the past Offers.

The Judge gave the decision that QBE should pay an amount of ¥164,703,785 plus AUD$169,908.79, plus administration fees. The Judge initially also ruled that QBE should be responsible to pay for a portion of the legal expenses (and that is the usual consequence of the loser having to pay an additional amount of money towards the legal expenses of the winner). For the complete details of the reasons given by the Judge in making his decision about the compensation payout price, please refer to Yamaguchi v Phipps [2016] QSC 151.

Since my client had achieved a better price from the Judge at the Trial, compared to her Offer, then she gained the advantage of a huge additional financial entitlement.

What was the effect of the achieving a better outcome at the Trial than the amount of the Offer?
To explain the significance, please allow me to define the consequence in numerical terms and then to give further explanation about the legal mechanism. The summary of the numerical position is as follows:

  • If my client had not made an Offer (or if her Offer made was not of a figure less than the amount ultimately awarded by the Judge) then my client would have been entitled to a contribution from QBE towards her legal expenses. Such contribution would have been assessed on the standard basis. This is the description for the typical outcome in which the loser is required to pay a contribution. That allowance is only a portion of the actual expenses and typically will be in the order of 40% of the actual expenses involved. So, if the running of the case and including the conducting of the Trial, involves a legal expense of $950,000, then the loser will be required to pay a contribution of approximately $380,000. That money is extra to the payment by the loser of the compensation award.
  •  In the event that the award by the Judge is higher in value than the amount offered, then the formal Offer triggers a costs penalty against the loser. The penalty means that the loser is required to pay a higher contribution towards the legal expenses of the winner, based on an evaluation described as the indemnity basis. Under such consequence the contribution will be approximately 90% of the actual legal expenses. So, in the example of the actual expenses totaling $950,000 then the contribution payable by the loser under the indemnity basis will be approximately $855,000 as extra money!

Through the use of the formal Offer a financial advantage was generated of close to an additional $500,000. This was a huge victory and significantly supported the client.

Interestingly, QBE attempted to argue that it should not be required to pay the extra money for the contribution on the indemnity basis. QBE argued with the Judge (unsuccessfully) that it was not able to properly assess the quantum of the client’s case at the time of the exchange of the formal Offers. The Judge rejected that argument and pointedly stated that my client’s Offer was reasonable and noted that it was not accepted by QBE at the time that it was made. The Judge also (again, very pointedly to the insurance company) stated that as a result of QBE not accepting the offer, my client was put to substantial expense in running a substantial Trial and including the Japanese client having to travel to Australia to attend the Trial to give evidence. The Judge also noted that, “The task and costs of preparing for Trial were not made any lighter by the failure of [QBE] to make appropriate admissions until very close to the Trial”. In the circumstances, the Judge considered that it was appropriate that he should order that QBE pay the contribution towards the legal expenses on an indemnity basis. For the complete details of the reasons given by the Judge in making his decision about the requirement for QBE to pay the costs on an indemnity basis as a consequence of the formal Offer, please refer to Yamaguchi v Phipps [2016] QSC 170.

Running a Court case (and particularly having the dispute adjudicated by a Judge at a Trial) is a difficult and complex project, and due to the cost, uncertainty of result and the personal stress should not be undertaken lightly. In some cases however the situation demands that the lawyer stand with the Claimant in the support of the case, so not bowing to accept an unreasonable offer from the other party in the dispute. The use of the mechanism of the formal offer, if not accepted by the other party, where the offer made is reasonable, can trigger a costs consequence of enormous financial benefit (as can be seen in the sample of one of my own real-life cases). The rational for the costs penalty is that the Court prefers the parties to resolve the dispute through negotiation between themselves without resort to the running of a Trial.

My client did not ask for the trauma and associated requirement for financial support yet by taking a reasonable approach in the conduct of her legal case, she was validated by the Judge.

The final word on this theme is left to the famous Judge of the Supreme Court of the United States, Ruth Bader Ginsburg, “So often in life, things that you regard as an impediment turn out to be great good fortune”.

Published by Mitchell Clark – Personal Injuries Partner

Read article