This blog was written by Andrew Roy KC, Deputy Costs Judge & Head of 12KBW’s Costs Team.

Introduction

This article considers the judgment in Mundy v TUI UK Ltd [2023] EWHC 385 (Ch); [2023] Costs LR 153 in light of the subsequent decision Chapman v Mid and South Essex NHS Foundation Trust (Re Costs) [2023] EWHC 1871 (KB).

In Mundy Collins Rice J held therein that it was not possible within Part 36 to make an offer to settle liability on a percentage basis (90%/10% in this case) with the effect that the claimant could not obtain the benefits provided by CPR 36.17 when he established liability in full.

Such offers are very commonplace. If the judge’s reasoning is correct it will have widespread implications. However, this article will respectfully suggest that the reasoning is not correct.

Mundy – the facts and the judgement at first instance

The claimant brought a claim for food poisoning suffered whilst on a holiday. Liability was always disputed, and contributory negligence pleaded.

The claimant made two Part 36 offers; one to accept £20,000 in full and final settlement, and another to settle liability on the basis of a 90/10 apportionment in his favour (“the percentage offer”). The defendant made a Part 36 offer of £4,000. At trial the claimant established liability in full but only recovered c. £3,800.

HHJ Parkes KC held that the claimant was entitled to his costs up to the expiry of the defendant’s offer, and the defendant entitled to his costs thereafter.

The claimant appealed, arguing that because he had achieved a judgment more advantageous than the percentage offer, he should be entitled to all his costs from the expiry of the relevant period on the indemnity basis.

Mundy – the Judge’s Reasoning on Appeal

The appeal was dismissed. Collins Rice J’s key reasons were as follows:

1. The claimant’s interpretation created the problematic prospect of both a claimant’s and defendant’s offer being simultaneously effective [32].
2. By CPR 36.2(3) a Part 36 offer may be made in respect of the whole, or part of, or any issue that arises in a claim. In a claim for money where there is no prospect of a liability split, liability as such is not obviously a distinct or severable “part” or “issue” capable of being given a monetary value. “Liability” within the context of a percentage offer is thus not something which is capable of being the subject matter of a Part 36 offer [37].
3. In a money claim, CPR 36.17 is concerned with comparing rejected quantified money settlement offers to the judgment entered. A percentage offer does not fit within that mechanism [39-40].
4. As a matter of policy, it was contrary both to the letter and spirt of the rules for the claimant to gain the benefit of the percentage offer [41].

Chapman

Chapman was a clinical negligence claim. Hill J heard liability as a preliminary issue. The claim succeeded. The defendant’s allegations of contributory negligence were dismissed.

The claimant made a Part 36 offer tin the following terms “an offer to settle the liability and causation issues in this action for 90% of damages assessed on a 100% liability basis, that is with a deduction of 10% from the full value of the claim”. In other words, a 90/10 percentage offer as per Mundy.

The defendant argued that this was not effective, relying upon Mundy. The judge rejected this in the following terms (emphasis added):

28. However, the factual context of Mundy is important. This was that the Claimant had made two separate Part 36 offers (one based on a 90/10 liability split and one to accept £20,000 pounds in settlement of the claim) and the Defendant had made a Part 36 offer of £4000 in full settlement. The Claimant was ultimately awarded £3,805.60 but nevertheless argued that the judgment was at least as advantageous to him as the proposals in his 90/10 offer: [1] and [6]-[8]. At [32], Collins Rice J identified a “particular difficulty” with the Claimant’s position, namely that it seemed to:

“…cut across the binary structure of CPR 36.17(1) by contemplating a situation in which the answer to both limbs could be “yes”: A claimant can have failed to beat a defendant’s money offer, but still have beaten or equalled his own liability offer. That raises the problematic prospect of subsections (3) and (4) both applying in circumstances where it is far from obvious that this is in the contemplation of the rule at all”.

29. While Collins Rice J did discuss 90/10 liability offers in general terms at [36]-[42], I do not understand her judgment as purporting to hold that Part 36 consequences cannot flow from such offers made in different factual circumstances from those before her, and any such finding would be obiter in any event. Collins Rice J’s analysis was based on the difficulty of comparing monetary offers with liability offers of this kind. While such a difficulty may arise in claims such as Mundy where liability and quantum issues are tried together and both liability and monetary offers have been made, the analysis does not apply in this case given that a split liability trial had been ordered and the only substantive offer made by either party was the Claimant’s 90/10 liability split offer.
30. Further, in Mundy at [36], Collins Rice J appeared to acknowledge that a 90/10 liability offer could be effective in cases where there was a “genuine question of issues-based liability”. There was, until judgment, a genuine prospect of a finding on split liability as between the parties in this case. I did not find that the contributory negligence argument in relation to the Dr Bopitiya claim was one that did not have “the slightest prospect of success” as in Mundy at [11] …
31. In any event, Mundy is distinguishable from this case because the manner in which the Claimant’s 90/10 offer applied to the causation issue had been made clear in correspondence and was reflected in the liability judgment.
32. For these reasons I do not accept that the reasoning in Mundy is applicable here. In my judgment the Claimant’s 22 December 2022 offer was a valid one for Part 36 purposes.

Hill J therefore did not have to decide whether or not Mundy was correctly decided (although some polite scepticism as to the correctness of Mundy is perhaps detectable). Nevertheless, she readily distinguished it, coming close to suggesting that it should largely be confined to its own facts.

Comment

There can be little doubt that the result in Mundy was correct. The claimant having recovered less than the defendant’s Part 36 offer, as a matter of basic fairness and common sense it is clear that he should pay the defendant’s costs from the date of expiry. Leaving aside the technicalities, the bottom line is that the claimant should have accepted the defendant’s offer and the costs thereafter flowed from his not doing so. It is entirely unsurprising that the court found the result contended for by the claimant “counter-intuitive, if not to a degree baffling” [49].

However, there are numerous difficulties with the reasoning by which the judge came to this result.

• Firstly, the reasoning is questionable as a matter of principled analysis. It might well be said that, by reference to the plain language of CPR 36.2(3), liability was indeed an issue that arose within the claim (it was something the parties contested) and that as a matter of basic logic a judgment for 100% liability is at least as advantageous as a proposal for 90% liability so as to satisfy CPR 36.17(1)(b).
• Even more basically, on any view, a percentage offer is precisely that; an offer. It is an invitation to compromise the disputed issue. It is difficult to see why the concept of an offer should be construed any more restrictively (indeed artificially so) for the purposes of Part 36.
• It may be added that the possibility of a claimant’s and defendant’s offer being simultaneously effective is inherent in the rules. CPR 36.2(3) provides that offers can be made in relation to the whole claim, part of it or any issue within it. Given the infinite variety of issues that can arise in a claim (many of them not monetary) this inevitably envisages and permits the scenario of cross-offers being effective.
• Secondly, the reasoning sits uneasily with other authority confirming that a percentage offer is an effective offer for the purposes of Part 36 providing that it contains some genuine and meaningful element of concession/consideration.
• In Huck v Robson [2002] EWCA Civ 398 [2003] 1 W.L.R. 1340 an offer of 95/5 was held to be effective. Overturing the first instance below that it would be unjust for the claimant to benefit from the offer because liability would never have been apportioned 95/5, Tuckey LJ said this at [70]:
• I do not think that the court is required to measure the offer against the likely outcome in a case such as this. In this type of litigation a Claimant with a strong case will often be prepared to accept a discount from the full value of the claim to reflect the uncertainties of litigation. Such offers are not usually based on the likely apportionment of liability but merely reflect the reality that most claimants prefer certainty to the ordeal of a trial and uncertainty about its outcome. If such a discount is offered and rejected there is nothing unjust in allowing the claimant to receive the incentives to which he or she is entitled under the Rules. On the contrary, I would say that this is a just result.
• A 95/5 offer was likewise held to be effective under Part 36 Club Racecourse Ltd v Willmott Dixon Construction Ltd [2016] and [2019] 11 WLUK 247 and Astbury v Manchester Airport Holdings Ltd. See also JMX v Norfolk and Norwich Hospitals NHS Foundation Trust [2018] EWHC 185 (QB) wherein a 90/10 percentage offer was held to be effective.
• Neither Huck not any of the cases following it were referred to by the judge in Mundy. (Chapman can now be added to this list).
• Whilst the judge referred to Seabrook v Adam [2021] EWCA Civ 382; [2021] Costs LR 505 as an illustration of the difficulties of applying a 90/10 liability offer to issues of causation, that case tends to contradict rather than support her reasoning. The reason why the percentage offer in Seabrook was not effective was that the claimant only established liability in respect of one of the two injuries which formed the subject matter of the claim. It is implicit in the Court of Appeal’s analysis that if (as in Mundy) there had only been one injury and the defendant had been held liable in respect of it, the claimant’s offer would have been effective.
• Thirdly, the judge’s reasoning would apply not only to somewhat token deductions such as that offered in Mundy but also to very substantial reductions reflecting significant litigation risks. For example, it is not uncommon in catastrophic peri-natal clinical negligence claims facing severe difficulties on breach and/or causation for a claimant to offer to accept, say, 40% of damages to be assessed. If that offer is rejected and the claimant goes on to establish liability in full, it is difficult to see why they should not obtain Part 36 benefits. Such a claimant would have offered an enormous discount which if accepted would have avoided significant expenditure of costs and court time. Part 36 offers function by placing the offeree costs at risk on costs; Matthews v Metal Improvements Co Inc [2007] EWCA Civ 215; [2007] C.P. Rep. 27 at [33]. It is difficult to identify any sound basis for disengaging that rationale in such circumstances.
• Fourthly, it would appear to follow from the judge’s reasoning that a Part 36 percentage offer would be effective in a case where there was a prospect of a liability split i.e. where contributory negligence is in play. Indeed, it is impossible to see any sensible argument that a Part 36 offer in respect of contributory negligence would not be legitimate. However, further problems flow from this:
• (a) It is very common, when both primary liability and contributory negligence are in issue, to make a percentage offer reflecting risks on both (e.g., if there was a 70% chance of establishing liability with a likely 50% reduction for contributory negligence a fair settlement value would be 35%). It will generally not be known what proportion of the offer relates to contributory negligence (which, following Mundy, is a proper subject matter for a Part 36 offer) and which relates to primary liability (which following Mundy is not). Even if this information were available, it is impossible to see how the “legitimate” element of the offer could be taken into account.
  (b) In this case, the defendant did in fact plead contributory negligence. However, HHJ Parkes KC disregarded this as he considered the plea to be hopeless. This leads to the surprising position that the defendant was better off having raised a hopeless contributory negligence case than it would have been had it raised a meritorious one (as the defendant did Chapman). It also appears to be directly contrary to Huck.
• Fifthly, the characterisation of a percentage offer as not legitimate for the purposes of Part 36 runs contrary to established litigation practice. Such offers are routinely made and accepted. Settlements thereby agreed are routinely approved where court approval is required. The fact that the claimant’s position in Mundy was singularly unattractive is not a reason to downgrade an entire species of well-established offers.
• Finally, it might be said that purposive and policy considerations point firmly in the other direction. Percentage offers are a valid means of compromising issues. Discouraging such compromises would not be consistent with the purposes of the overriding objective in general and Part 36 in particular. This is particularly so if one considers the not uncommon scenario of a preliminary trial on liability being ordered because damages will not be quantifiable for some time. A percentage offer might realistically be the only way to compromise such a trial. It is very difficult indeed to see why the rules should be construed so as discourage such offers.
• Moreover, there was no need for the judge to adopt such a restrictive approach to what constitutes a valid Part 36 offer in order to achieve the correct and just result. It is suggested that the better route to this result would have been simply to hold that it was unjust (save possibly for the period between the claimant’s and the defendant’s offers) to award the claimant Part 36 benefits. This indeed is what HHJ Parkes KC held in the alternative.
• This provides an answer to many of the concerns expressed by Collins Rice J. It was not an answer suggested by the claimant here, no doubt for the obvious reason that doing so would have, in effect, entailed inviting the appeal to be dismissed on an alternative basis. This is perhaps another reason (indeed possibly the real reason) why the analysis in Mundy is unsound.

Takeaway points

1. The courts might well need little persuasion that Mundy can be distinguished in the vast majority of cases involving percentage offers. Hill J evidently took little such persuasion in Chapman and her reasoning provides strong support for the proposition that Mundy should largely be confined to its own facts.
2. There is considerable scope for arguing that the reasoning in Mundy is wrong and should not be followed in those rare cases where it cannot be distinguished (albeit such an argument is of course not available in the county court).
3. Parties should therefore not disregard the possibility of making a percentage offer, albeit unless and until there is clear authority overruling Mundy they may be faced with the argument that such an offer is not effective.