Part 36 costs consequences and liability-only offers: a key development
Smithstone v Tranmoor Primary School [2026] EWCA Civ 13
In Smithstone, the Court of Appeal addressed a key point of principle and uncertainty concerning cost consequences for liability-only Part 36 offers and marked a significant development for practitioners. The Court confirmed that Part 36 costs consequences can indeed be triggered by liability-only Part 36 offers, overturning and clarifying the position outlined in Mundy v TUI UK Ltd [2023] EWHC 385 (Ch). This decision is likely to prompt a rise in the use of such offers.
Judgment was handed down on 16th January 2026 by Lord Justice Bean, with Lord Justice Phillips and Lord Justice Stuart-Smith concurring.
Background
The Claimant was a child who suffered a minor injury whilst at school in September 2018, and the claim was accordingly entered into the Low Value Fixed Costs regime by virtue of its modest value.
A Part 36 offer was made by the Claimant to settle liability on a 90/10 basis on 13 December 2018. This was rejected six days later by the Defendant. The matter, once proceedings had been issued, was allocated to the Fast Track and listed for trial in November 2020.
The Claimant made a without prejudice offer of settlement in March 2020 for £3,500, which was never accepted.
The Defendant’s witness failed to appear at trial and the claim was settled at Court for £2,650. The Claimant being a child, the settlement required approval by the Court, which was granted by Deputy District Judge Khan. The Claimant contended that the case fell outside the fixed costs regime as CPR 36.17 was engaged, which provides for its adverse cost consequences to apply:
Costs consequences following judgment
(1) This rule applies where upon judgment being entered—
(a) a claimant fails to obtain a judgment more advantageous than a defendant’s Part 36 offer; or
(b) judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer……
(2) For the purposes of paragraph (1), in relation to any money claim or money element of a claim, “more advantageous” means better in money terms by any amount, however small, and “at least as advantageous” shall be construed accordingly.
[…]
DDJ Khan determined that the fixed costs regime applied, seemingly on the basis that the Claimant’s offers “did not bite” for CPR 36.17, that it was not unreasonable for the Defendants to import their defenceup to the day of trial for purposes of assessment, settlement at the door of Court is “not unusual”, and the settlement sum agreed upon was much lower than the Claimant had ever proposed.
Over three years later, the Claimant was granted permission to appeal against this costs decision by His Honour Judge Baddeley, who later heard the appeal in August 2024.
HHJ Baddeley dismissed the appeal on the basis that he was bound by Mundy (outlined below) and observed that there was never a concession or apportionment of liability; “A global settlement was put to the deputy district judge, albeit without any discussion of discounts from full liability damages” [21].
Mundy v TUI UK Ltd [2023] EWHC 385 (CH)
In Mundy, the claimant proposed two offers to settle; one to settle liability on a 90:10 percent basis in favour of the claimant, and the other to accept £20,000 in full and final settlement of the whole claim. A counteroffer was made later by the defendant to pay £4,000 in full and final settlement.
At trial, the Judge found in favour of the claimant, but awarded total damages of £3,805.30. The judge ordered that the defendant pay costs up to the date of expiry of the defendant’s offer and the claimant pay the defendant’s costs thereafter. The claimant appealed on the ground that adverse costs consequences pursuant to CPR 36.17(1) should be applied, since the 100% win on liability was more advantageous than the 90:10 percent liability offer the defendant had rejected.
The subsequent appeal was dismissed by Mrs Justice Collins-Rice who found that allowing adverse cost consequences pursuant to CPR 36.17(1) for a 90:10 split liability offer risked a situation where a claimant could fail to beat a defendant’s financial offer and have beaten their own liability offer; in this scenario, as the Court of Appeal summarised:
“This would engage both CPR 36.17(3) and CPR 36.17(4) which are otherwise mutually exclusive. Both parties would thus recover costs for the same periods, but only the Claimant would receive the enhancements in CPR 36.17(4)”.
Mrs Justice Collins-Rice expressed concern that 90:10 liability offers could be used as a “unilaterally imposed insurance policy to reverse the losses otherwise provided for by CPR 36.17”. Fitting such an offer into the terms of CPR 36.17(1)(b) would, she outlined, strain the carefully balanced language of the provision and undermine the “clarity, simplicity and predictability” essential to the “incentivising effects” of the same. Further, a 90:10 liability offer did not amount to an offer to settle the claim on quantifiable financial terms, preventing comparison between the defendant’s offer and the claimant’s actual award.
The appeal
There were four issues for determination by the Court of Appeal:
1. Was there a ‘judgment’?
2. If so, can a 90:10 offer engage the provisions of CPR 36.17(4)?
3. If so, on the facts of this case, was the outcome “at least as advantageous to the Claimant as the proposals contained in the Claimant’s Part 36 offer”?
4. If not, is it unjust to confine the Claimant’s solicitors to recovering fixed costs?
The second issue was the “key” focus of the appeal [31], and its determination likely the most impactful in practice.
1. Was there a ‘Judgment’?
The Court considered whether or not the N24 form headed ‘General Form of Judgment or Order’ was, in fact, a judgment suitable for CPR 36.17(1). The Court dealt with this briefly and Lord Justice Bean concluded at [30] that he had “no doubt that it [was] both a judgment and an order”, considering “any attempt to distinguish between the two terms in describing” the Form was “misconceived”. The form itself, and in particular paragraphs 4 and 3 thereof, could accurately be described as either a judgment or an order.
2. Liability offers and CPR 36.17
The Court overruled Mundy “on the issue of principle” [35]; that principle being Mrs Justice Collins-Rice’s “obiter” suggestion “that a 90:10 liability offer is ineffective as a matter of principle to engage CPR 36.17”. The Court firmly disagreed with this principle, preferring the policy considerations outlined in Huck v Robson [2002] EWCA Civ 398 andBroadhurst v Tan [2016] EWCA Civ 94, neither of which, it was noted with regret, were cited in Mundy [34].
In Huck, the Court of Appeal held that the claimant’s offer to accept a 95:5 split on liability was effective so as to entitle the claimant to indemnity costs after the defendant was held 100% liable and it was considered irrelevant that the trial judge could not have so apportioned liability since it nonetheless provided the defendant with a “real opportunity for settlement”. However, the Court added that if any such liability offer was self-evidently nothing more than a “tactical step designed to secure the benefit of the incentives provided by the Rule”, the judge would have discretion to refuse indemnity costs [71], Huck.
In Broadhurst, Lord Dyson MR observed that the policy underpinning what is now CPR 36.17 aims to provide claimants with “generous incentives to make offers” and defendants “with countervailing incentives to accept them” [31], Broadhurst.
The crux of the Court’s reasoning for overruling Mundy is at [34]:
“Whether litigation is complex and of high value, or straightforward and of relatively modest value, the courts should, and the Civil Procedure Rules do, encourage settlement of specific issues where the case as a whole cannot be settled. In a case where liability is to be tried before quantum the benefits of a liability-only offer in saving costs and court time are obvious, but even in a fast track case where all contested issues will be resolved by a district judge or deputy district judge in the course of a single hearing, liability-only or quantum-only offers are still to be encouraged […] The 90:10 offer was in my view to be treated as a genuine offer to compromise, just as the 95:5 offer was treated in Huck v Robson”.
Was the outcome “at least as advantageous” to the Claimant as the Claimant’s Part 36 offer?
The Court observed that the “difficulty” facing the Claimant’s was that there never was a determination of liability to compare to the Part 36 offer; the Defendant had made no admissions as to the same, nor had DDJ Khan made any findings on liability. However, the Court made clear that if the Defendant had made such an admission, or DDJ Khan had found the Defendant 100% liable, “there would [have been] a case for awarding the Claimant, pursuant to CPR 36.17, costs relating to the issue of liability from the date of the Claimant’s 90:10 offer” [36].
Was this an unjust result?
The Court firmly concluded that confining the Claimant’s solicitors to recovering fixed costs was not an unjust result and there were no reasons to depart from the fixed costs regime. Lord Justice Bean emphasised that even if the Claimant had made an offer whichengaged CPR 36.17, it would not have been unjust for the Defendant to bear the additional costs prescribed by the Rule [37].
Conclusion
In summary, the judgment has established that Part 36 consequences can follow a liability-only offer but only where liability has been determined or admitted so that the offer can be meaningfully compared to the judgment.
Claimant practitioners must note that if Part 36 offers have been validly made with respect to liability early in proceedings and claimants wish to apply the cost consequences of Part 36 to a later settlement, they must ensure that liability is apportioned in that settlement. For 36.17 to bite in favour of claimants, the apportionment must be at least as advantageous as their original Part 36 offer.
