Part 36: How should “90/10” split liability offers be treated under the rules?

In Mundy v TUI UK Ltd [2023] EWHC 385 (Ch), the High Court (on appeal) considered how a rejected offer to settle liability on a 90%/10% basis affected the usual cost consequences under Part 36 in a case where no issue of split liability genuinely arose.

Background

Mr Mundy (Claimant) contracted food poisoning on an all-inclusive holiday supplied by TUI (Defendant). The Claimant brought a claim against the Defendant for breach of contract.  The Court awarded the Claimant £3,700 in general damages and £105.60 in special damages.

Prior to the judgment, the Claimant had made two Part 36 offers. The first was in monetary terms, offering to accept £20,000 to settle the claim (net of acceptance of any liability offer). The second offer (made on the same day as the first) was to settle the issue of liability on the basis of 90%/10% in favour of the Claimant (“the 90/10 offer”). The Defendant subsequently made its own Part 36 offer to settle the claim for £4,000. None of these offers were accepted by the parties.

In light of the damages awarded, the Judge found that the Claimant had failed to obtain a judgment more advantageous than the Defendant’s Part 36 offer and made a split costs order to reflect this (as explained further below). The Claimant appealed the costs order, arguing that he had beaten the 90/10 offer he had made and therefore should not be subject to these costs consequences.

Legal Framework

Part 36 of the CPR encourages parties to settle their disputes by making detailed provision about the potential costs consequences of rejecting a Part 36 offer. The usual cost consequences under CPR 36.17 where a party rejects but fails to do better than an offer from the other side are:

Defendant’s offer: If a claimant fails to obtain a judgment more advantageous (in other words, better in money terms) than a defendant's Part 36 offer, a split costs order is usually made. Although the claimant has obtained a judgment in their favour, they will only be awarded their costs up to the end of the ‘relevant period’ for the offer (i.e. the time period in which the defendant will be liable for the claimant’s costs if the offer is accepted). The defendant will be entitled to their costs and interest on those costs from the end of the relevant period.

Claimant’s offer: If judgment against a defendant is at least as advantageous to the claimant as their Part 36 offer, the claimant is entitled to: (a) interest on the sum awarded from the end of the relevant period; (b) costs on the indemnity basis from the same date; (c) interest on those costs; and (d) an additional amount (calculated as a percentage of the damages awarded and capped at £75,000).

The Appeal

The appeal turned on the cost effects properly to be given to the parties’ rejected offers. The Claimant argued that he had beaten his own 90/10 offer as he had won on liability 100% and that, with the benefit of the additional amount which came from beating his own offer, he had beaten the Defendant’s offer too. The Claimant argued that the Defendant should be subject to the adverse costs consequences provided for by CPR 36.17.

Court’s decision

The High Court dismissed the appeal (except on one ground relating to set off of costs).

The Court considered that there were significant issues with fitting a rejected 90/10 offer into the terms of the CPR 36.17 mechanism.  It was not straightforward to recognise it as an offer to settle a whole claim on quantified or quantifiable financial terms, in a case where there was no genuine question of issues-based liability. The Court considered that the Claimant’s arguments, as to the effects of the 90/10 offer, made it into a means for a claimant, who fails to beat a money offer to settle his claim, to recoup a substantial premium for “winning” the case nevertheless.  It was an attempt at a unilaterally imposed insurance policy to reverse the losses otherwise provided for by CPR 36.17 and an attempt to use CPR 36.17 against itself, contrary to both its letter and its spirit. 90/10 offers, where no issue of split liability genuinely arises, cannot rely on the incentivisation furnished by the Part 36 consequences of rejection.

Key Takeaways

The practice of making 90/10 offers to secure costs advantages has become widespread amongst claimants who are confident of success on the issue of liability. This judgment provides welcome clarification on how the court will approach rejected offers in the context of CPR 36.17. The key message seems to be that, in cases where no issue of split liability genuinely arises, 90/10 offers should not be relied upon to offer any incentivisation under Part 36.17.

With thanks to Laura Lonsdale for her assistance in preparing this post.