Part 36 cost consequences when making a liability only offer

The recent case of Mundy v TUI [2023] EWCH 385 (Ch) considered what happens where a Claimant fails to ‘beat’ a Defendant Part 36 offer made in full and final settlement but where the Claimant still considers he has won on the basis he made a liability only offer.

A liability only offer is not an offer to settle for a sum of money but instead sets out that a party will agree to make a concession regarding responsibility for the loss being claimed, leaving only quantum to be determined by the Court.

Operation of CPR 36.17

A Part 36 offer is a settlement offer made without prejudice save as to costs and can be used to settle all or part of a claim.  The offer has to be a genuine offer to settle and made in accordance with the requirements of Part 36 of the Civil Procedure Rules (“CPR”).  The offer provides costs protection for the offering party as long as it is accepted within the ‘relevant period’ which is stated in CPR 36 to be 21 days. If a Part 36 offer is accepted outside the relevant period, then the costs protection afforded by CPR 36.17 ceases to apply as at the expiration of the relevant period.

A Part 36 offer remains capable of acceptance unless it is expressly withdrawn, even if it is rejected by the party receiving the offer; if the offer has not been expressly withdrawn the rejecting party can change their mind and accept the offer at a later stage. It is therefore important to keep a record of Part 36 offers made through the lifetime of a case and ensure that you consider their appropriateness as the case progresses.

CPR 36.17 applies where, upon judgment being entered, a Claimant fails to obtain a judgment more advantageous than the offer made by the Defendant, or where the Defendant fails to beat a Claimant’s Part 36 offer.

CPR 36.17 sets out the costs consequences of Part 36 offers and how the circumstances apply to the parties depending on whether the Part 36 offer is beaten. It states that where the Claimant fails to obtain judgment more advantageous than the Defendant’s Part 36 offer, the Court will order that the Defendant is entitled to the following:

Costs from the date upon which the relevant period expired; and interest on those costs.

Where the judgment against the Defendant is at least as advantageous to the Claimant as the proposals contained in the Claimant’s Part 36 offer, then in accordance with CPR36.17 the Court will order that the Claimant is entitled to the following:

• Interest on the whole or part of any sum of money awarded at a rate not exceeding 10% above base rate for some or all of the period starting with the date the relevant period expired;
• Costs on an indemnity basis from the date the relevant period expired;
• Interest on those costs at a rate not exceeding 10% above base rate; and
• An additional amount which shall not exceed £75,000 calculated by applying the prescribed percentage of any sum awarded to the Claimant or if there is no monetary award, the sum awarded to the Claimant in relation to costs.  The prescribed percentage is 10% where the sum awarded is up to £500,000 and 5% of any amount above that figure.

Background

In this particular case, Mr Mundy sought damages from TUI for ‘holiday sickness’.  During the course of the claim, the Claimant made two Part 36 offers, one as a full and final settlement of £20,000 and the other for liability only at 90/10.  Neither of these offers were accepted by the Defendant.  The Defendant made a Part 36 offer for full and final settlement in the sum of £4,000 which was not accepted by the Claimant.  At trial, the Claimant was awarded damages in the sum of £3,805.60 meaning he won his case but ‘lost’ on the Defendant’s Part 36 offer.

The Claimant appealed the costs point in relation to who was responsible for costs payments on the grounds that he had won on his liability only offer.

High Court decision

The Honourable Mrs Justice Collins Rice heard the appeal and decided the Claimant had not beaten his Part 36 offer, so she dismissed the appeal.

The appeal centered around whether CPR 36.17 is applicable where there are competing offers, one of which is a liability only offer.

The Claimant claimed the judgment was more advantageous to him having achieved 100% success at judgment stage and offering 90% in his Part 36 liability only offer.  This argument was rejected on the basis that liability was not a distinct or severable issue capable of being given a monetary value and did not fit within Part 36.

Effect of judgment

Where a liability only offer is made, it may not trigger the intended cost consequences set out under CPR 36.17 unless there is a divisible issue of liability which is only applicable in limited circumstances such as contributory negligence or a split trial.

Furthermore, where a liability only offer is made the wording must be sufficiently precise and set out the clear intention of the parties and how matters are to be resolved.

Where parties wish to trigger the cost consequences of CPR 36.17, they must ensure to make a Part 36 offer with a stated sum in full and final settlement of the claim.  The ‘winner’ will then be determined by comparing the financial offer made to the judgment sum awarded.  Parties should therefore exercise caution when seeking to make a liability only Part 36 offer as the cost protection afforded by CPR 36.17 is unlikely to bite.

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