SETTLEMENT OF A RIGHT OF ACTION

PART 5

November 2010

SETTLEMENT OF A RIGHT OF ACTION 

31.9.83  Settlement – general

Settlement of a claim is the process by which the parties to a legal claim (the right of action) can agree to bring the claim to an end on terms – usually by the payment of a sum of money.  Typically, a settlement is attempted before court proceedings are issued, though settlement is allowed after issue, subject to certain rules [note 1] (see paragraph 31.9.95).

As outlined in paragraph 31.9.22, settlement is one of the ‘positive’ ways that the official receiver can deal with a vesting right of action, and should always be considered before assignment (see paragraph 31.9.84).

Settlement is likely to be the most cost-effective way to deal with a vesting claim.

 

31.9.84  Settlement to be offered before assignment

Settlement should always be attempted before litigation (see Part 7) or assigning (see Part 6) a right of action.  The reason being that the official receiver, as trustee, cannot demonstrate that he has acted in the best interests of creditors (and achieved the best realisation of the right of action) if he/she has not attempted settlement – for which a better price may be obtained than in an assignment [note 2].

Assignment should not be promised before the defendant has had an opportunity to settle.  Where the offer of settlement is likely to realise less than an assignment then, of course, the official receiver, as trustee, should explore the assignment in the best interests of creditors.  But on this there is likely to be a timing issue, detrimental to the creditors. A settlement will, most likely, produce funds quickly whereas under an assignment, funds may only become available after the conclusion of litigation.

 

31.9.85  Settlement – official receiver may deal with negotiations

Where the right of action relates to a simple claim, it should be possible for the official receiver, as trustee, to conduct the settlement negotiations required.  The official receiver should attempt to negotiate a payment close to the stated value of the claim (which might be apparent from the background papers provided by the company officers or bankrupt – see paragraph 31.9.17), but it may be appropriate to give a discount to reflect risk of failure in the case or risk of success in any counterclaim (see paragraph 31.9.48).

Where this is not possible or desirable, the official receiver may appoint his/her own legal advisors (see paragraph 31.9.102) or retain those engaged by the company or bankrupt (see paragraph 31.9.89) to pursue negotiations for a settlement.

 

31.9.86  ‘Ogden Tables’ may assist the official receiver in negotiating a settlement in personal injury cases

In personal injury type cases the official receiver, as trustee, may be assisted by the ‘Ogden Tables’ (http://www.gad.gov.uk/services/Other%20Services/Compensation_for_injury_and_death.html) which give guidance on the amounts that should be awarded in cases of injury and death, including ‘property’ losses such as future medical/care expenses.  But official receivers should be very wary of using such specialist information in such circumstances. The handling of personal injury claims is a specialism in its own right and is also likely to involve potentially competing interests – the trustee in bankruptcy, for the creditors on the one hand, and the bankrupt, for themselves, on the other.

 

31.9.87  Paragraph deleted May 2015

 

31.9.88  Offers of settlement to be marked ‘without prejudice’

Any letter to the defendant offering (or enquiring into the possibility of) a settlement should be marked ‘without prejudice’.

This will give the official receiver a defence to any assertion that the letter was a formal offer to settle to which he/she is bound.

 

31.9.89  Settlement – retention of company’s or bankrupt’s solicitors

Where the official receiver, as liquidator or trustee, is dealing with a claim which is in the process of being negotiated towards settlement, he/she may wish to retain the solicitors engaged by the insolvent to continue to negotiate the settlement on his/her behalf.  This would be a sensible option in that the solicitors would be aware of the value and strength of the claim and would be able to easily form a view whether any offered settlement was fair, although there may be difficulties later with this approach in ‘hybrid’ claims (see paragraph 31.9.43).

This instruction should be under strict conditions (see paragraph 31.9.90).

 

31.9.90  Conditions where bankrupt’s solicitors retained

In the circumstances where the insolvent’s solicitors are retained (see paragraph 31.9.89), assuming, of course, they were minded to be retained, the official receiver, as liquidator or trustee, should make it clear to the solicitors that they are being retained to negotiate (or continue to negotiate) an out of court settlement and under no circumstances should proceedings (including protective claims – see paragraph 31.9.146) be issued (whether in the name of the official receiver or the bankrupt) without express authority from the official receiver.  Also, see later about costs (see paragraph 31.9.91).

The official receiver may use the letter attached at Annex E for this purpose (modification will be necessary in a company case).

 

31.9.91  Payment of solicitor’s costs where bankrupt’s solicitors retained

Where the official receiver, as liquidator or trustee, chooses to attempt to retain the insolvent’s solicitors in order to negotiate a settlement (see paragraph 31.9.89), the solicitor’s reasonable costs may only be paid from the settlement (no funds will be made available from the estate and nor will the official receiver, as liquidator or trustee, pay the costs).  In ‘hybrid’ claims (see paragraph 31.9.43), the costs should be deducted pro-rata from the gross claim - in effect, from each element of the settlement (and not, for example, just from the portion of the award due to the bankruptcy estate). 

Along with the points made at paragraph 31.9.90, these points should be outlined to the retained solicitor from the outset of the instruction if they are minded to act in this way (which may benefit both parties).

 

31.9.92  Potential difficulties where bankrupt’s solicitors retained

Where the bankrupt’s solicitors are retained by the official receiver, as trustee,  to negotiate a settlement (see paragraph 31.9.89), there may be difficulties where a settlement is reached in a ‘hybrid’ action and there is no apportionment of the settlement between ‘personal’ (see paragraph 31.9.38) and ‘property’ damages (often called a ‘global’ settlement).

The difficulties may arise where, in such a global settlement, there is a dispute as to how the settlement monies should be apportioned between personal and property elements of the claim.  In effect, the retained solicitor would be acting for both parties (the official receiver and the bankrupt) in this dispute. This is something to be borne in mind if, as seems sensible, the solicitors are instructed to act in seeking a settlement.

See paragraphs 31.9.190 to 31.9.195 for advice on dealing with global settlements.

 

31.9.93  Appointment of the official receiver’s own solicitors to negotiate a settlement

In claims where it is not possible or proper to retain the bankrupt’s solicitors to negotiate a settlement, or to continue such a negotiation, (see paragraph 31.9.89) the official receiver, as liquidator or trustee, may appoint his/her own legal advisors to assist in the negotiation of a settlement.

When considering this course of action, the official receiver should consider the costs of such an instruction against the amount of any potential settlement.  Where necessary, the official receiver may incur a debit balance to pay the costs of such legal representation, after seeking the prior agreement of Technical Section.

 

31.9.94 Negotiating a settlement where limitation date approaching (amended May 2015)

In circumstances where the limitation date (see paragraph 31.9.143) is approaching, it may be necessary for the official receiver, as liquidator or trustee, to take some action to protect the claim.  This may be by way of a protective claim (see paragraph 31.9.146) or a standstill agreement (see paragraph 31.9.150).  Neither process should be undertaken without first seeking legal advice (see paragraph 31.9.132).

 

31.9.95  Settlement after issue of proceedings (a Part 36 settlement)

Whilst most settlement negotiations and settlements occur before the issue of proceedings, the relevant rules [note 8] do allow the claim to be settled after that event.

This may occur where the official receiver, as liquidator or trustee, has had to take action to suspend the running of the limitation period by issuing a Claim Form, (see paragraph 31.9.143), or where proceedings had already been opened by the date of the making of the bankruptcy order.

It is not envisaged that the official receiver would enter into such a procedure without legal representation (see paragraph 31.9.104).

 

31.9.96  Advance payments during settlement

Sometimes, the defendants to a claim will offer interim payments to assist the claimant with ongoing expenses, general living costs, etc.  Unless there is evidence to the contrary, these payments should be apportioned pro-rata between ‘personal’ and ‘property’ elements of the claim (and claimed accordingly) using the same methodology as outlined in paragraphs 31.9.190 to 31.9.195.

 

[Back to Part 4 – Effect of a right of action vesting] [On to Part 6 – Assignment of a right of action]