International Jurisprudence on “With Prejudice/Settlement Offer”
Internationally, the concept is known as “settlement offers” or “offers to settle”.
In the United Kingdom, “offers to settle” are dealt with under Part 36 of the Civil Procedure Rules, 1998 (“CPR”). As a rule in the UK, offers to settle are treated “without prejudice”, except as to costs which are primarily the idea in the Indian context also, since the fundamental thought behind the provision is to pay the money to the party who was ready for the settlement upfront or the amount being offered was something genuinely workable in the sense that the ultimate relief provided by the Court was not at much variation with what was offered.
As per Part 36, Rule 17, ‘when a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer, the court must, unless it considers it unjust to do so, order that the defendant is entitled to the costs (including any recoverable pre-action costs) from the date on which the relevant period expired and interest on those costs. On the other hand, ‘when a judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a Part 36 offer, the court must, unless it considers it unjust to do so, order that the claimant is entitled to interest on the whole or part of any sum of money (excluding interest) awarded, costs (including any recoverable pre-action costs) on indemnity basis from the date on which the relevant period expired, interest on those costs at a rate not exceeding 10% above base rate; and an additional amount, which shall not exceed £75,000.
In Calonne Construction Ltd v Dawnus Southern Ltd, the claimant brought a claim against a defendant seeking damages under a construction contract. The defendant made an offer to settle the proceedings, expressed to be an offer under Part 36 of the CPR, which stated that the defendant was willing to settle the whole of the claimant’s claim together with a counterclaim which the defendant intended to issue shortly in the same proceedings if the claimant paid the defendant the sum of £100,000. When the matter proceeded to trial, the judge ruled in favour of the defendant and awarded a sum greater than £100,000. Since the defendant had beaten its Part 36 offer, the Court ordered the claimant to pay most of the defendant’s costs.
In another case, when a judgement was more advantageous to the claimant than the proposals contained in claimant’s Part 36 offer rejected by the defendant, the Claimant was held as entitled to the costs. When the case went for appeal to the Queen’s Bench Division as JLE (A Child) v Warrington and Halton Hospitals NHS Foundation Trust, the question before the Court was: what would constitute a ‘proper approach’ for the determination of ‘unjustness’ in awarding an amount additional to the costs. However, it was eventually held that there was nothing unjust about awarding the additional amount in the facts and circumstances of the matter.
An important observation from Gibbon v Manchester City Council is also of relevance. In the impugned case, the Court of Appeal observed that when considering whether a claimant had failed to obtain a judgment more advantageous than a defendant’s Part 36 offer, it was important to see things from the litigant’s perspective rather than to be too ready to impose the court’s view of what was and what was not to his advantage. The Court also observed that although the court should take into account all aspects of the case, including emotional stress and the number of unrecoverable costs, in most cases obtaining judgment for a sum greater than the offer was likely to outweigh all other factors.
United States of America
In the Federal Rules of Civil Procedure of the United States of America, settlement offers have been dealt with by Rule 68 as “Offer of Judgement” wherein the procedure of paying costs after an unaccepted offer is also laid down under sub-rule (d).
According to the aforementioned provision, if the judgment that the offeree finally obtains is not more favourable than the unaccepted offer, the offeree must pay the costs incurred by the offeror after the offer was made. The Supreme Court of the United States of America in the case of Marx v General Revenue Corp observed that as per Rule 68(d), if a defendant makes a settlement offer, and the plaintiff rejects it and later obtains a judgment that is less favourable than the one offered to her, the plaintiff must pay the costs incurred by the defendant after the offer was made.
The dubiousness of the Indian Rule is something which can be derived from another US case titled Delta Air Lines, Inc. v Rosemary August . In the impugned case, the defendant made an offer of judgment in a nominal amount to the plaintiff, who refused the offer. At trial, the plaintiff lost her case in entirety and the final judgement obtained was not more favourable than the offer. Surprisingly, the Court held that the defendant was not entitled to an order requiring the plaintiff to pay the defendant’s post-offer costs, even though the defendant had succeeded in prevailing entirely in the case.
Justice Powell, while concurring with the Court’s decision, nevertheless made an observation that it was “anomalous” that a defendant may obtain costs under Rule 68 against a plaintiff who prevails in part, but not against a plaintiff who loses entirely. It is pertinent to point out that the observation of Justice Powell was based on the narrow ground that the defendant’s offer of judgment which plaintiff had rejected had not “specified some amount of substantive relief, plus costs and attorney’s fees to be awarded by the trial court” but instead had offered that judgment be taken against it in “the amount of $450, which shall include attorney’s fees”. According to Justice Powell, the offer should have distinguished between the principal amount of the settlement offer and then specified that attorney’s fees were to be added. It is also important to note that while Rule 7 (the Indian rule) is one simple Rule which also includes Chapter XXIII of the Rules, Rule 68 (the US rule) is divided into four tabs of (i)Making an Offer; Judgment on an Accepted Offer,
(iii)Offer After Liability is Determined and
(iv)Paying Costs After An Unaccepted Offer, which is currently absent in Rule 7.
The “anomalous” nature of Rule 7 of the Delhi High Court (Original Side) Rules, 2018
The ‘anomaly’ acknowledged and pointed out by Justice Powell in Delta Air Lines is one of the major issues that Rule 7 suffers with. It wouldn’t be wrong to say that if Rule 7 is not modified or clarified in the near future, it has the capacity of defeating the very purpose and spirit of settlement and negotiation.
This can be better explained vide an example. Imagine a scenario where a ‘proposal’ of Rs. 100/- is made by A, a ‘counter-proposal’ of Rs. 50/- is made by B and a subsequent counter-proposal of Rs. 2/- is made by A. Now, consider that the negotiation fails and B approaches the Court for initiation of the matter, where the Court ultimately decides the case at Rs. 40/-, but in favour of A. Since the case was decided on ‘more favourable terms, A will be burdened with the payment of full costs of the matter to B despite winning the case. This basically means that despite winning a legitimate claim, it might have to pay costs of amounts higher and/or lower as the case may be to B.
Furthermore, Rule 7 has no appeal or review which is different in relation to Rule 13 of Chapter XXIII of the DHC Rules 2018, however, in the author’s view, the possible reason for that might be the fact that the later part of the Rule goes directly into the domain of Chapter XXIII, so the review option may be exercisable. In the author’s view, the language of Rule 7 has created a dubious interpretation which needs to be rectified and be adjudicated upon by the Court. Otherwise, the very purpose of the provision will be defeated as it will be grossly unfair and perverse to the principles of substantive justice that the winning party must get penalized and burdened with the costs of litigation of the opposite side, even when they were not the ones to initiate the process of litigation.
Hopefully, this issue will soon come into the limelight by virtue of someone invoking the provision before the Court in which case the provision may get harmoniously read and/or get modified by way of judicial intervention. The study of such interventions (as and when that happens) might result in a follow-up article.
(This post has been authored by Abhimanyu Chopra, Counsel at AZB & Partners, New Delhi. The author would also like to thank Ms. Rachana Yadav and Ms. Mitali Gupta for their thoughts, research and inputs)
 EWCA Civ 754. ↑
 EWHC 1582 (QB). ↑
 1 WLR 2081. ↑
2013 SCC OnLine US SC 11. ↑
1981 SCC OnLine US SC 48 ↑