Strategic use of Offers to Settle (OTS) to negotiate motor accident claims

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This article is an excerpt from the 29-page comprehensive and practical guide to motor accident claims in Singapore, written by Kok Yee Keong, Senior Associate in Eversheds Harry Elias LLP, which is publicly available for download here at the firm’s website.

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Strategic use of Offers to Settle (OTS) to negotiate

After a motor claim has been lodged against the defendant and his insurer, parties will usually engage in settlement discussions. If it reaches an impasse, the claimant may commence court proceedings, during which, parties and/or their solicitors may still concurrently engage in negotiating liability and/or quantum. When negotiating during the course of court proceedings, parties should consider leveraging on the statutory regime of Offers to Settle (“OTS”) under Order 22A of the Rules of Court, which has consequences on the amount of party-and-party (“P&P”) costs^[130] payable by one party to the other. An OTS is a without prejudice offer of settlement (i.e. not made known to the trial judge)^[131], and if used correctly, can help to significantly reduce  a party’s legal fees (by increasing the P&P costs recoverable from the other party):

• If a claimant served an OTS on the defendant, which is not accepted by the defendant, and the claimant receives an eventual judgment which terms are not less favourable than the terms of the OTS, then the claimant is entitled to costs on a standard basis up to the date the OTS was served, and costs on an indemnity basis from thereon.^[132]
• If a defendant served an OTS on the claimant, which is not accepted by the claimant, and the claimant receives an eventual judgment which terms are not more favourable than the terms of the OTS, then the claimant is entitled to costs on a standard basis up to the date the OTS was served, but the defendant is entitled to costs on an indemnity basis from thereon.^[133]

Whether the judgment is more or less favourable than the OTS is measured by their numerical value. For example, if the judgment awards $5,000 to the claimant, and the claimant’s OTS was to settle the claim at $4,000 only, then the judgment is more favourable than the OTS, such that the indemnity basis consequence above is

The legal difference between ‘standard basis’ and ‘indemnity basis’ may be quite abstract^[134], but in practical terms, standard basis is the usual P&P costs awarded by the Court to the claimant if his claim is successful, whereas indemnity basis is estimated to be usually one-third more^[135] than standard basis (i.e. “indemnity basis” does not mean full or literal indemnity but a higher measure of costs than the default standard basis^[136]). It is in the interest of the party serving an OTS to serve a realistic offer that is close to or better than the anticipated judgment terms, so as to trigger the indemnity consequence, in order to receive about one-third more in P&P costs. It is also advantageous to serve the OTS as early as possible (it may be served anytime in the court proceedings, including after trial but before judgment is issued), so that the indemnity basis applies to a longer duration, which accrues more costs.

As the costs consequence of a triggered OTS is severe, the formalities of an OTS is higher than a settlement offer made orally or in a letter or email. The OTS must be served in the prescribed Form 33 in the Rules of Court; the offer therein must not be withdrawn or have expired before judgment is issued; any withdrawal of the offer shall be by way of serving a Notice of Withdrawal in the prescribed Form 34 in the Rules of Court and one day’s prior notice of the intention to withdraw the OTS must be given to the other party (during which the OTS may still be accepted).^[137] Given that an OTS may only be withdrawn in the above manner, this means that if an OTS was rejected by the other party, it may still be accepted subsequently so long as the OTS is not withdrawn or expired.^[138] Since the withdrawal and acceptance of an OTS are governed by the statutory regime above, the general contractual principle of offer-and-acceptance – that an offer may be withdrawn before it is accepted and that an offer lapses once it is rejected or a counter- offer is made – is not applicable in assessing whether an OTS has been validly accepted.^[139]

The above thus far explains the scenario where a reasonable OTS is not accepted and the terms of the eventual judgment are either not less favourable (if OTS was served by the claimant) or not more favourable (if OTS was served by the defendant), such that the indemnity costs consequence is triggered. However, if an OTS is accepted, then there is an in-principle settlement agreement which parties should abide by. However, the accepted OTS terms are not enforceable as of right: the Court, in its discretion, may or may not incorporate any or all of the OTS terms into a judgment.^[140] In considering whether the accepted OTS terms should be enforced, the Court would exercise its discretion having regard to ordinary contractual principles and general principles of fairness and justice.^[141]

Some creative use of OTS includes the following:

• Using the OTS to offer settlement on liability only^[142] , or a dual offer^[143] on liability or quantum, rather than the traditional offer on quantum
• Serving multiple OTS to leverage on the fact that an OTS may only be withdrawn in the statutorily prescribed manner. As such, the serving of a second OTS does not supersede the earlier OTS, and the two OTS remain available for acceptance so long as they are not withdrawn or expired. This means that multiple OTS may be served on different terms at different junctures of the court proceedings, all of which are effective, and thus, there may be different applicable trigger dates for the indemnity basis consequence, and the party who served the multiple OTS is entitled to the longest applicable duration for the indemnity basis.^[144]
• Strategically choosing to include or exclude interest and/or costs (on standard or indemnity basis) into the total settlement offer in the OTS – e.g. offer to settle at “$10,000 inclusive of interest and costs” versus “$10,000 plus interest and costs” versus “$10,000 inclusive of interest plus costs on an indemnity basis”.^[145] Such specifications affect the overall favourability of the OTS terms vis-à-vis the judgment terms. A judgment usually provides for interest and costs (on a standard basis), which accrue up to the date of judgment, thereby increasing the overall favourability of the judgment over time vis-à-vis an OTS which interest and costs therein are included into a fixed lump sum amount such that the interest and costs components would not increase over time. Conversely, specifying “plus costs on an indemnity basis” in an OTS would, over time, result in the OTS’ costs outstripping the ‘standard’ costs in the judgment, thereby increasing the favourability of the OTS terms over time.
• If a judgment is on appeal, and an OTS was served before the judgment (being appealed) was issued, the OTS remains valid for acceptance by the other party even during the appeal proceedings, such that the consequence of indemnity basis (if triggered) applies also to the duration of the appeal proceedings^[146].

In summary, the purpose of the OTS regime is to facilitate the proper compromise of litigation via the “carrot” and “stick” approach: the “carrot” is the promise of indemnity costs to the party who had served a reasonable OTS in the event his OTS is not accepted, and the “stick” is the threat of the other party having to pay indemnity costs if he does not accept the reasonable OTS.^[147] Hence, the OTS is a very useful tool to ensure that the other party seriously considers your settlement offer. The corollary of this is that if an OTS is served on you, you should seriously consider the OTS terms and the anticipated terms of the eventual judgment.

An OTS should not be confused with “Calderbank offers”. An OTS may only be served after legal proceedings have commenced and subject to the formalities mentioned above, whereas Calderbank offers are pre-action settlement offers that do not need to fulfil any prescribed formalities. As such, Calderbank offers do not attract the automatic indemnity basis consequence of OTS mentioned above. Whether costs on indemnity basis should be awarded on the basis of a more favourable Calderbank offer is in the general discretion of the Court, after considering the terms of the Calderbank offer, parties’ conduct and the particular circumstances of the case.^[148]

 

[130] For explanation on party-and-party costs, please refer to paragraphs 54 to 59.9 of this guide.

[131] Order 22A rules 3 and 4 of the Rules of Court.

[132] Order 22A rule 9(1) of the Rules of Court.

[133] Order 22A rule 9(3) of the Rules of Court.

[134] Explained in Airtrust (Hong Kong) Ltd v PH Hydraulics & Engineering Pte Ltd [2016] 5 SLR 103; [2016]  SGHC 167 at [17]: “When costs are taxed on the indemnity basis, all costs are allowed except in so far as they are of an unreasonable amount or have been unreasonably incurred, and any doubts in these respects will be resolved in favour of the receiving party: O 59 r 27(3) of the Rules of Court … This is to be contrasted to an order of costs on the standard basis, where the party in whose favour the costs order is made is allowed a reasonable amount in respect of all costs reasonably incurred, and any doubts are resolved in favour of the paying party: O 59 r 27(2). Order 59 r 27(4) establishes that where a costs order is made without an indication of the basis of taxation, costs will be taxed on the standard basis. This demonstrates that an order of costs on the indemnity basis is the exception rather than the norm and requires justification.” See also [23] on the non- exhaustive list of factors to justify indemnity costs.

[135] See footnote 122 of this guide.

[136] Maryani Sadeli v Arjun Permanand Samtani and another and other appeals [2015] 1 SLR 496; [2014] SGCA 55 at [13]

[137] Order 22A rules 3(2) and (3), and Order 22A rules 9(1)(A) and 3(a) of the Rules of Court.

[138] Order 22A rule 6 of the Rules of Court.

[139] Ong & Ong Pte Ltd v Fairview Developments Pte Ltd [2015] 2 SLR 470; [2015] SGCA 5 (“Ong & Ong”) at [41] and [44] to [53].

[140] Order 22A rules 6(3) and 8 of the Rules of Court, as explained by the Court in footnote 139 at [19(e)].

[141] Ong & Ong (footnote 139) at [64] to [69].

[142] Ram Das V N P v SIA Engineering Co Ltd [2015] 3 SLR 267; [2015] SGHC 74 (“Ram Das”) at [29], [57], [59] and [61]: Court recognised that OTS on liability only is permissible, especially in bifurcated proceedings.

[143] Ong & Ong (footnote 139) at [59] where the Court in obiter noted that an OTS could comprise “separate offers for each of the claims constituting the package”.

[144] LK Ang Construction Pte Ltd v Chubb Singapore Pte Ltd (judgment on costs) [2004] 1 SLR(R) 134; [2003] SGHC 263 at [18].

[145] See NTUC Foodfare Co-operative Ltd v SIA Engineering Co Ltd and another [2018] 2 SLR 1043; [2018]  SGCA 56 (“NTUC Foodfare”) at [25] for various permutations of OTS terms (i.e. include, exclude or silent on interests and costs) and the Court’s approach in interpreting such OTS terms for the favourability requirement. Also, see Order 22A rules 9(2) and (4) on the non-provision of costs in the OTS, and the requirement to take into account interest accruing before the OTS was served when determining the favourability requirement.

[146] Ram Das (footnote 142) at [67] and [71] – [73], endorsed in NTUC Foodfare (footnote 145) at [17].

[147] Ong & Ong (footnote 139) at [17]. See also [16] and [18] on the rationale of the OTS regime.

[148] SBS Transit Ltd (formerly known as Singapore Bus Services Limited) v Koh Swee Ann [2004] 3 SLR(R) 365; [2004] SGCA 26. See also footnote 134 of this guide on the common considerations in awarding indemnity costs.

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This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article. Singapore Management University has no responsibility or liability to any person in respect of this article.