The Judgment in Mundy
Mundy v TUI UK Ltd [2023] EWHC 385 (Ch)
Mr. Mundy brought a travel sickness claim against the provider of a package holiday. As can be common in many types of claims involving high volumes with relatively middling prospects, a Part 36 offer was made by the Claimant to compromise liability on a 90/10 liability split basis. Separate Part 36 offers for monetary value were made by both parties - £20,000 by the Claimant, and £4,000 by the Defendant.
At trial, Mr. Mundy secured judgment on a full liability basis for approximately £3,800. The effect was that the Claimant failed to beat the offer of £4,000, while conversely Mr. Mundy had bettered his offer of a 90/10 split offer on the issue of liability. Who was actually the 'winner' in this litigation?
On appeal to the High Court, Mrs Justice Rice considered that the Claimant’s Part 36 offer could not impart adverse cost consequences on the Defendant. The judge’s reasoning included:
- If the liability offer were allowed to stand, then this would create the potentially contradictory situation where two parties were successful on Part 36 offers. In the judge’s interpretation, the liability split offer was an attempt to obtain ‘insurance’ against an adverse scenario on quantum. While not articulated in this way, one might interpret the judge’s views as considering the Part 36 offer as being purely tactical and not a genuine attempt to reach a settlement.
- The above concern was amplified by the judge’s finding that there was no ‘genuine’ scope for a judge ever finding that there was a liability split. Travel sickness claims are ‘all or nothing’ claims.
- In a claim for money, a Part 36 offer should be about monetary settlement of a claim, and CPR 36.17(2) is concerned with comparing the monetary value of a settlement to the offer made. There is no scope to consider a liability split position which does not articulate a monetary sum.
The judgment in Chapman
A riposte to Mundy followed in very short order in the case of Chapman v Mid and South Essex Foundation Trust (Re Costs) [2023] EWHC 1871 (KB). This was a clinical negligence claim which was in the first instance dealt with by way of a split trial on liability. The Defendant pleaded a case on contributory negligence, but was unsuccessful. The Claimant had made a Part 36 offer to settle liability on a 90/10 split basis, and the Defendant sought a finding that this was not an effective offer.
This was rejected by Hill J, who distinguished the case from Mundy on several grounds:
- Unlike in Mundy, there was a “genuine question of issues-based liability” – i.e. there was a genuine prospect of a liability split.
- The prior judgment of Rice J was not intended to repudiate any suggestion of Part 36 applying to liability split offers. There may be difficulties reconciling liability only offers in cases where liability and quantum were being decided together, but that was not the case here.
The Part 36 offer made by the Claimant in that case was effective.
The impact of Mundy
It has been argued that Mundy is confined to its own facts, and that it is perhaps only a matter of time until it is overturned. Whilst in no way seeking to detract from the excellent arguments made in support of that proposition, it appears that some of the principles set out in the judgment are likely to remain of broader importance.
Looking at the three limbs of the judgment, it seems likely that where there are Part 36 offers on liability and quantum in a trial on all of the issues, then the offer for quantum will take precedence in the majority of cases. This makes sense in practical terms, since a Part 36 offer on issues of liability will only dispose of part of the claim, whereas a quantum offer will always dispose of the damages claim in its entirety.
However, this does not exclude the possibility of a judge applying their discretion where there is a genuine offer on liability. It is not the most straightforward proposition, but there is nothing in the rules that would prevent a judge from ordering indemnity costs in favour of a Claimant for costs incurred on the issue of liability only, although splitting them out can be difficult.
It seems likely that the applicability would be influenced both by the timing of the respective offers, but also by the second limb set out above. Therefore we must consider if a Part 36 offer on liability could ever be effective if there is no prospect of contributory negligence, unless made in tandem with a quantum Part 36. Would a Calderbank offer be treated differently?
It might be argued that the rules surrounding Part 36 are intended to bring about compromise, and that the purpose of any offer is to make concessions in the interest of avoiding trial. Therefore, the argument goes, it is consistent with the intention of Part 36 that parties should be capable of compromising on all issues. That includes allowing a Claimant to compromise on a sure-fire case on liability if it brings about greater certainty on settlement.
The difficulty with this line of argumentation is twofold. Firstly, CPR Part 36 (1)(d) states:
A Part 36 offer must – state whether it relates to the whole of the claim or to part of it or to an issue that arises in it, and if so to what part or issue.
A Part 36 offer on liability will always apply to part of the claim only, and the offer would have to specify it is to bring about settlement on that issue. But if it is not pleaded as an issue, then it must follow that a liability split not an issue capable of being determined as a part of the claim. The offer is therefore an artificial one.
The second problem is that there is no barrier to making an offer on damages where the intention is to achieve a compromise in the interests of achieving a settlement. There is no tangible benefit in introducing the complexity of liability split offers outside of the specific scenarios where damages-based offers would not apply (i.e. split liability trials). The only situation in which they would have a purpose is (as in Mundy) where a party is looking to ‘insure’ their risk on the issue of quantum.
Turning to the third limb of the judgment, it does seem likely that this is a finding that will remain confined to its facts. The interpretation of CPR 36.17 that was reached was not restated in Chapman, and it does seem likely that it will remain a position that is confined to the facts of the specific case.
Practical takeaways and future battlegrounds
For practitioners, the main takeaway is to examine and clarify liability split offers when they are made. A split liability offer should reflect a result that might reasonably be determined. The courts are likely to continue to be unsympathetic of parties who make offers as a way of ‘gaming’ the costs rules.
One area where it is foreseeable that there will be future disputes is in split liability cases where there is contributory negligence running alongside an all-or-nothing argument.
To take a straightforward example, a Defendant may argue in a slipping case that it complied with all of its duties towards a Claimant, but argue in the alternative that the Claimant was in part at fault for the accident if a breach was found. If the Claimant makes a 75/25 split offer, and the Defendant would accept 25% contributory negligence in the event its complete Defence failed, then how should it respond?
The answer would appear to be to either offer a qualified acceptance of the offer, and to invite the Claimant to agree the level of contributory negligence in the event the primary Defence failed, or perhaps instead to make a counter-offer on the issue of contributory negligence only. It seems likely that someone will eventually find themselves on the wrong side of this particular argument, and that the courts will be invited to provide further clarification.
