In English law, the normal rule in a contested case is that the loser pays the winner's costs. Where an offer to settle a case is made, the rule is modified. If the case then goes to court, in simple terms the loser still pays if the court makes an award which 'beats the loser's offer'. If the offer is not beaten, the winner's ability to recover costs from the loser is limited.
This sounds fine in principle, but the reality is often more complex. For example, a recent dispute ended up in court because the parties could not agree whether an offer had been beaten or not.
The legal dispute related to an insurance claim in which there were a number of claims run as a single case. The defendant made an offer to settle each claim, specifying how each was calculated. At the trial, the award made was greater than the offer overall, but not in respect of one aspect of the case, which related to a business interruption claim.
The insurance company sought to reduce its liability for the winner's legal costs on the ground that part of the costs related to a head of claim which it had 'won'.
The court was having none of it. The total award was greater than the total offer and the loser had to pay.