On the perils of rejecting a £1 offer to settle.

The claimants sued the defendants for £30,000. Before the trial, the claimants offered to settle their claim for the nominal sum of £1, and for the defendants to pay costs to the claimants. The defendants did not accept the offer.

The matter went for trial. The claimants succeeded in their claim for liability. But the claimants were unable to prove their losses. They were awarded the nominal sum of £10.

One might think that the defendants had effectively succeeded in defending the claim, and should therefore be entitled to their legal costs. After all, the claimants had originally claimed £30,000, but were awarded just £10!

But wait.

The fact that the claimants had offered to settle at £1 made all the difference. The Court held that the offer was a genuine attempt to settle the action. The claimants offered to settle for nominal damages, they got nominal damages, and the judgment was at least as advantageous as the offer.

The claimants were therefore entitled to their standard costs up to around the time the offer was made, and indemnity costs for the period thereafter. They got their costs! And the costs decision was upheld on appeal.

For those who are unacquainted with the offer to settle regime, this outcome may appear perverse. When the claimants made the offer, the defendants probably baulked at the thought of paying costs to the claimants - and understandably so.

But! The defendants should have balanced that against the risk of an unfavourable outcome at trial, which would lead to more costs incurred, and more costs payable to the claimants. The defendants should have considered whether it would be safer to limit their exposure to just the claimants' costs to date. Since the defendants decided to roll the dice and proceed to trial, they must live with the consequences.

The key takeaway? When you receive an offer to settle, consider it carefully. Don't just toss it away, regardless of how unacceptable you may think it is - weigh it against the possible outcomes at trial.