In the recent decision in Mundy v TUI [2023] EWHC 385 (CH), the High Court considered how a rejected offer to settle liability on a 90%/10% basis ("90/10 offers") fitted with the provisions of CPR 36.17.
The court concluded that the Appellant in this case had attempted to use a 90/10 offer to unilaterally impose an insurance policy to reverse the losses otherwise provided for by CPR 36.17, and that this should not be allowed as it was contrary to both the letter and spirit of CPR 36.17.
Mr Mundy (the "Appellant") went to Mexico on an all-inclusive holiday arranged by TUI (the "Respondent").
The Appellant developed food poisoning during his holiday and brought a claim against the Respondent for a breach of
contract. The County Court ruled in the Appellant's favour; he was awarded £3,700 in general damages and £105.60 in special damages.
During submissions, it transpired that the parties had sought – but ultimately failed – to agree a settlement to the Appellant's claim. The Appellant made two Part 36 offers on 2 November 2018. The first was a money offer of £20,000, " net of acceptance of any liability offer". The second was an offer "to settle the issue of liability on the basis of 90%/10% in favour of the Claimant". The Respondent did not accept either offer.
On 28 November 2019, the Respondent made a Part 36 offer to settle the whole claim for £4,000. The Appellant did not accept the offer.
When costs were considered, the County Court found that the Appellant had "fail[ed] to obtain a judgment more advantageous than [the Respondent's] Part 36 offer" and handed down a split costs order accordingly: the Respondent would pay the Appellant's costs up to 19 December 2019 (the date of the expiry of the Respondent's offer), with the Appellant paying the Respondent's costs thereafter.
The Appellant was granted permission to appeal the costs judgment to the High Court, in part on the basis that the practice of making 90/10 offers to secure costs benefits appeared to be widespread, and a High Court authority on the issue would be beneficial.
Part 36 of the CPR aims to encourage parties to try to settle their disputes by attaching costs consequences to offers to settle made in accordance with this provision. The cost consequences of a rejection of a Part 36 offer are set out in detail at CPR 36.17:
References to "more advantageous" mean better in "money terms" by any amount (CPR 36.17(2)).
The Appellant challenged the costs judgment on the basis that the County Court:
The High Court dismissed the appeal.[1] In reaching her conclusion, Justice Rice considered:
Counsel for the Appellant explained that 90/10 offers were increasingly deployed by claimants who were confident of success on the issue of liability. Such offers, so the argument goes, are designed to induce a defendant to concede liability and proceed to trial on issues of quantum alone. A 90/10 offer presents both the 'carrot' of "retaining 10% of the damages ultimately rewarded" if a defendant agrees to it, and the 'stick' of "facing the adverse consequences of CPR 36.17" if they reject the offer and lose on liability.
The Appellant argued that winning 100% on liability was more advantageous to it than the 90/10 offer which the Respondent had rejected, and therefore the Respondent should be subject to the adverse consequences provided for by CPR 36.17.
However, Justice Rice considered that there were significant issues with fitting a 90/10 offer into the terms of the CPR 36.17 mechanism.
Justice Rice observed that, applying the Appellant's logic, a 90/10 offer would cut across the binary structure of CPR 36.17(1) by giving rise to a scenario in which: (i) a claimant could have failed to beat a defendant's money offer; and (ii) still have beaten or equalled their own liability offer. This would engage the otherwise mutually exclusive cost consequences in both CPR 36.17(3) and CPR 36.17(4).
The Appellant sought to overcome this apparent contradiction by submitting that, before trying to answer the question at CPR 36.17(1)(a) (i.e., has the claimant failed to obtain a judgment more advantageous than the defendant's Part 36 offer?), it was necessary to first consider the question at CPR 36.17(1)(b) (i.e., is the judgment against the defendant at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer?). If the answer to the second question is "yes", the Appellant submitted that the cost consequences of CPR 36.17(4) would need to be applied before the question at CPR 36.17(1)(a) was answered. Applying this logic, the Appellant submitted that he was entitled to a 10% uplift on his damages award pursuant to CPR 36.17(4)(d)(i). The award (inclusive of the uplift) would increase to £4,186.16, thereby "beating" the Respondent's Part 36 offer.
The High Court noted that this approach: (i) would allow the 'failure' of a money offer to be rescued by the 'success' of a 90/10 offer; and (ii) would not resolve cases where the uplift does not take the total award above a defendant's offer. The court also rejected the Appellant's secondary argument, that there were no difficulties with applying CPR 31.17 if the settlement offers were taken chronologically such that priority would be given to the earlier offer.
Justice Rice went on to summarise the "fundamental" incompatibility of 90/10 offers with CPR 36.17. Firstly, a 90/10 offer is not an offer to settle the claim on quantifiable financial terms. The purpose of CPR 36.17 was to facilitate a "straightforward comparison between what a defendant offered and what a claimant got 'in money terms'". Secondly, it could enable a claimant – who otherwise failed to beat a money offer to settle their claim – to recoup a substantial premium for 'winning' a case. Justice Rice likened the 90/10 offer to a "unilaterally imposed insurance policy to reverse the losses otherwise provided for by CPR 36.17", which she concluded was an attempt to use CPR 36.17 "against itself". Accordingly, the appeal was dismissed
The default provisions of CPR 36.17 cannot be expected to be diluted by considerations relating to rejected 90/10 liability offers to the extent that it loses the very clarity, simplicity and predictability on which its incentivising effects depend.
The High Court's ruling provides welcome clarity for practitioners. Although the court did not reject the use of 90/10 offers in their entirety, it did conclude 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. The High Court's assessment that these offers are "contrary to [the] letter and [the] spirit" of CPR 36.17 provides a salutary warning to practitioners, who would be well-advised to ensure that their clients' Part 36 settlement offers are issued on quantified, 'money' terms. This will facilitate a "like-for-like" comparison between parties' offers and ensure that clients continue to benefit from the potential cost consequences arising under Part 36 of the CPR.
