Be wary of ‘near miss’ settlement offers

Dilapidations claims are frequently complex and it is essential that all clients are aware of the RICS Dilapidations Protocol which, if ignored, has a high chance of adversely affecting a client’s settlement.

The need to stay vigilant has been highlighted by a recent High Court decision regarding costs under Part 36 in relation to the new Cost Rules and the Dilapidations Protocol.

Hammersmatch Properties (Welwyn) Limited v Saint-Gobain Ceramics and Plastics Limited (24 July 2013) saw Hammersmatch claim dilapidations damages for £4.5 million, plus loss of rent and insurance at an annual rate of £750,000.  Under Part 36 of the Civil Procedure Rules Saint-Gobain made an initial settlement counter offer of £500,000 before increasing to £1,000,000.  Hammersmatch offered to settle for £3,200,000 plus costs.

At Court, Hammersmatch were awarded £1,058,768, less than £4,000 more than Saint-Gobain had originally offered (based upon interest payable at the time).  Under Part 36, if Saint-Gobain had offered to settle for just £4,000 more, Hammersmatch would have been automatically liable for its own and Saint-Gobain’s costs incurred since the date of the Offer.

Given the general costs position, Saint-Gobain argued that the normal rules as to recovering costs incurred should not apply and Hammersmatch should only recover 40% of its costs.

The Court considered the effect of the near miss in relation to a Part 36 Offer looking at changes made to the Rules following Reforms introduced by Lord Justice Jackson.  It determined that if a Claimant recovered more than the amount offered by the Defendant, no matter how small,  then the Claimant had succeeded in beating the Part 36 Offer and the resulting Offer was of no effect.

Despite the fact Hammersmatch had recovered significantly less than they claimed, the Court could not find blame, instead it held that Saint-Gobain had failed to comply with the Dilapidations Protocol by not making its case on liability and quantum more clear earlier during negotiations.   Furthermore, it held that Hammersmatch could not have been able to take account of Saint-Gobain’s evidence in this respect at the time when its Part 36 Offer was made.

Although Hammersmatch had only recovered approximately 20% of the amount claimed in the proceedings, and received less than £4,000 on top of the Part 36 Offer,  the Court thought it would not be appropriate to penalise Hammersmatch for the fact that Saint-Gobain had made an offer which was slightly too low.

Evidently, the lessons moving forward to any advising surveyor or Defendant is to firstly follow the Protocol, making its case very clear as to liability and quantum at an early stage.  But secondly, to steer towards a more generous Offer when making any Part 36 Offer.

A near miss is as good as a mile in terms of reaching a settlement!

James Bostock works within the OBI Property Building Consultancy Department. Please do not hesitate to contact James if you would like any more information.