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When someone refers to another as Not Bad, it's used to show that the person of whom it is said has won the (albeit grudging) respect of a character who initially hadn't liked them.
A variant of this is when a character refers to another as Not Bad For An X, which is usually said by a character who normally looks down on another group except for the other character. This variation is often what a supposed Superior Species would say to our plucky human hero whose proven themselves worthy in their eyes.
This is often used by people whose approval is hard to come by and expressed in terms that don't seem all that approving if you don't know them. Deadpan Snarkers are the most frequent abusers of this trope, because outright complimenting someone is out of the question for them. It's also a characteristic of The Stoic, The Spock (because his standards are just that high), people with a Stiff Upper Lip, and is of course a subtrope of Understatement.
By the way, saying "not bad" instead of just straight up "good" is one of many examples of what's called litotes.
- In Aliens, the android Bishop says Ripley was "Not bad, for a human.", just before he dies (or whatever it is that androids do). The point is that Ripley initially hadn't liked Bishop because he was an android; then he helped save her and the others and she admitted to him that he hadn't done badly for an android. Then the Alien Queen turned up, fatally injured Bishop and the line is an Ironic Echo of Ripley's earlier comment, she having defeated the Alien Queen.
- Spaceballs has this example:
Princess Vespa: Ah! My hair! He shot my hair! Son of a bitch! [shoots and destroys all their pursuers] ...How was that?
Lone Starr: Not bad.
Barf: Not bad, for a girl.
Dot Matrix: Hey, that was pretty good for Rambo.
- In the 2010 True Grit, Mattie defies Rooster and the Texas Ranger and crosses the river on her horse to come with them. Rooster observes her crossing with an appraising eye, and then says "Good Horse", as she staggers ashore.
- The closest Granny Weatherwax (of Discworld fame) will come to commending someone is to say something neutral implying that they were barely adequate. More often she will only comment to the effect that the person didn't fail as abysmally as she expected.
- In The Titan's Curse, Artemis tells Percy he didn't do bad, for a man. (Before then, she had always called him a boy.)
- In A Song of Ice and Fire, when Jaime Lannister fights Brienne of Tarth, he uses this--when she successfully fends off his first attack, he concedes that she's "Not half bad, for a wench." As the duel goes on and he realizes her level of skill, it comes up again:
Jaime: Not bad at all!
Brienne: For a wench?
Jaime: For a squire, say. A green one.
- For the record, Brienne of Tarth came out on top in the end.
- In Sonic Generations, this is Dr. Eggman's reaction to if you hit him in the Egg Dragoon. This is, like most things, mocked in Pokecapn's Let's Play of the game.
- Averted in the Offspring song, Pretty Fly for A White Guy, since the whole point of that song is that the titular white guy is actually an idiot for acting like a black man.
- In How I Killed Your Master, the protagonist (as a boy) reflexivly blocks the strike of his abusive foster parent. He (and the reader) expect him to be in serious trouble, since he wasn't supposed to be learning his martial arts style but instead he gets a "Barely competant" and his "punishment" is to run to the forest and back every day.
- In The Legend of Korra "A Leaf in the Wind" The Stoic Mako sincerely offers this compliment when Korra successfully follows Bolin's pro-bending advice. It backfires, as she assumes she's been Damned By Faint Praise, to Mako's confusion.
Mako: What? I said "Not bad."
- Not Bad seems to be the default compliment for French people. Nothing, even the best or most exceptional thing that could happen, ever ranks higher than "Not Bad".
- The inverse has become a common expression in German politics. With an increasing trend to never explicitly commit to any opinion, "only slightly helpful" has become the most unambiguous way to say "STFU!".