Tender is the right way to do business

Most disputes are settled with a handshake rather than going to court. Picture: Craig Stephen

Most disputes are settled with a handshake rather than going to court. Picture: Craig Stephen

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A better bet than ‘going the distance’ argues Alistair Dean

Here’s the thing about commercial litigation: the vast majority of court actions settle. In percentage terms, you could probably count on the fingers of one hand the cases which “go the distance’” Raising a court action is supposed to be the last resort, as all attempts at negotiation having failed. So, at least 95 per cent of commercial court actions are resolved, one way or the other, by a handshake.

As an evidential hearing looms, clients and lawyers alike tend to move to settle. This is hardly a ground-breaking revelation, but I am often intrigued by the psychology behind this. No doubt books could be (and probably have been) written about this tendency towards settlement, but one factor is certainly the mounting costs. The longer a case exists, the higher the costs, sometimes to the point where the costs exceed the amount in dispute. Court actions tend to be all or nothing, and on the basis that costs follow success, the stakes escalate like a long drawn-out poker game.

So most actions involve a compromise. Herein lies something else which intrigues me: if compromise is the way in which most actions conclude, why do most actions not involve the lodging of a tender?

The value of a judicial tender is often overlooked and lawyers should be more creative when thinking about the tendering process.

So, what is a tender, and how does it work? Tenders exist to protect a defender in a litigation. Let’s take an example, in the construction industry. A contractor sues its client for £100k, claiming this is the balance due, following the completion of the building. The client believes the builder caused delay, is inflating its claim, and is due nothing.

What the client should contemplate is that it is likely that some sort of award will be made against him, albeit nothing like £100k. The client might be happy to actually pay £20k if that made the action go away. In these circumstances, the client should lodge a tender.

A tender is a formal court document offering the pursuer a specific sum of money, plus the expenses of the action to the date of lodging the tender. It is issued to the pursuer and sent to the court in a sealed envelope. It’s a gloriously basic concept.

Let’s say the client tenders £25k, plus expenses. The builder can reject it, accept, it or ignore it. However, if it is not accepted and the case proceeds to court, then following the court’s decision, the sheriff or judge will then open the envelope and see that a tender was lodged and not accepted. If the court awards a higher sum than contained in the tender, the pursuer will, as would be the case if there was no tender, be awarded expenses. This is likely to be so even if the award is far less than the amount sued for.

However, let’s say the court awards £20k to the builder. The judge will see that a higher sum was offered previously, and wasn’t accepted. What this means is that the pursuer is liable to pay the defender’s expenses from the date of lodging the tender, onwards. The logic is that the pursuer ought to have accepted the tender, and because he didn’t, he is responsible for the costs of everything thereafter.

You can be creative with tenders. £20k one week, £30k a month later, £40k amonth later, then back down to £30k, and maybe withdraw all tenders a month later. They can have profoundly unsettling effects on one’s opponent. Why has a tender just been withdrawn? Should we accept the tender? How was it calculated?

You can see the obvious advantages of the tender mechanism. A building firm might feel relatively relaxed in a litigation where it thinks it is bound to get something but it is a completely different matter where a tender is involved. It is continuing to litigate at a far greater risk to itself. It puts the defender in a stronger negotiating position. It is a sign of a defender who understands the practicalities of litigation, and protects itself.

A tender is a simple, highly effective tool which all litigators should be alert to at the earliest possible stage. I suspect in the early exchanges of a litigation, when both sides are entrenched and happy to “go the distance”, the last thing a defender wants is make an offer to pay anything, especially if that also has to include costs. However counter-intuitive it may feel, it is probably the first thing a defender should do.

• Alistair Dean is principal at ADLP http://adlp.co.uk/

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