The big day has arrived, with the end finally in sight. Years have passed since the accident that has wrought so much misery on the client. The parties and their lawyers have now assembled for a joint settlement meeting.
The injured client and their partner are in the room, anxious but hopeful for an end to the litigation and the prodding by lawyers and experts that have served as constant reminders of their misfortune.
The client’s schedule of loss is pleaded at £1 million, and the defendant’s counter-schedule at £155,000. Claimant counsel has advised the client that a realistic valuation of the claim is £600,000.
At the settlement meeting, the defendant makes an opening offer of £157,000, a mere £2,000 more than the pleaded figure. Although warned that the first offer may be low, the client is furious: 'they ruined my life and they think it’s worth this! Shall we just walk away?'.
This scenario, modified from a real case, will be familiar to many personal injury practitioners. Here, I briefly analyse the defendant’s decision to make an opening ‘lowball offer’.
The lowball offer is an attempt to warp the other party’s sense of reality in order to obtain an advantage. Setting an extreme opening offer, often referred to as an ‘anchor’, can in theory give the negotiator an edge by shifting downwards the bargaining zone, within which the parties would be willing to agree to a deal. The implicit message to the other side is 'you should not think that this case is worth much more than this.' The hope is that this may lead claimant counsel to doubt the accuracy of the valuation and accept a lower settlement.
Even if claimant counsel maintains the original valuation, it may still be effective by influencing counsel’s perception of how the defendant appraises its valuation of the claim. Claimant counsel might think 'the defendant’s realistic valuation is much lower than mine. We’ll have to go lower than planned if we want to settle this.'
This strategy can work if the opponent has a poor grasp of the bargaining zone, like tourists in the souks of Marrakech. The souk sellers set an extremely high anchor to influence customers, who may have little idea of an item’s true worth. Yet, it is rare for lawyers in a joint settlement meeting to be so naïve. They should be well prepared and reluctant to undercompensate their client.
If claimant counsel is well prepared, a lowball offer is usually a poor negotiating tactic as it carries a high risk of impeding settlement.
Setting an extremely low anchor is perilous for several reasons.
First, the lowball offer is likely to offend the other side, who may see it as a breach of a fairness norm. As Chris Voss observes in his book Never split the difference, ‘the most powerful word in negotiations is "Fair".’ People who feel they have been treated unfairly can be so outraged that they act against their economic interests. A lowball offer can lead clients, who are often already anxious, to adopt a less compromising stance or abandon negotiating altogether. Without a perception of fairness, goodwill is lost and replaced by anger.
Second, a lowball offer can create friction with opposing counsel, who may feel insulted by such an uncooperative approach, and obstruct settlement.
Third, a lowball offer negatively impacts the credibility and reputation of the lawyer and party that makes it. In a relatively small profession, word travels quickly and a party’s poor negotiation behaviour in one case may affect future cases. The claimant’s legal representatives may encounter the same opponents in other negotiations. Even within the same negotiation, trust in the party who made the lowball offer is eroded and further actions looked upon with suspicion.
Fourth, even if an opening lowball offer does not derail proceedings altogether, it can slow them down. Faced with a measly increase of £2,000 from the counter-schedule, opposing counsel may be tempted to reciprocate and lower the pleaded figure by an equally marginal amount.
In the example case, the claim settled for £600,000, after a needlessly long and drawn-out negotiation.
There are cases where a lowball offer is justified. If I make such an offer on a painting and it is declined, then - unless I desperately wanted it – I have lost little. In the personal injury context, there may be rare cases where the party making the low offer does not really want to settle, or wishes to make a strong statement about their valuation of the claim, or knows of a particular weakness in the opponent (e.g., a desire to settle at all costs), or where slowing down the speed of the negotiation forms part of the strategy.
However, in the vast majority of cases, a lowball offer in a joint settlement meeting is a poor opening gambit. It presents a threat to sensible concessions and the efficient running of the settlement meeting. It can turn a good-natured negotiation dance into a bitter fight, in which both parties suffer financially, reputationally and psychologically.
Daniel Sokol is a clinical negligence barrister and mediator at 12 King’s Bench Walk. He is regularly involved in high value negotiations
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