Smithstone v Tranmoor Primary School: Court of Appeal clarifies Part 36 costs in settled claims

The Court of Appeal has provided important guidance on the operation of CPR 36.17 in cases involving liability-only settlement offers, overruling aspects of Mundy v TUI UK Ltd whilst ultimately dismissing the appeal on its facts.

The claimant, a pupil aged 10, sustained a minor injury when his fingers became trapped in a door at the defendant school in September 2018. After issuing proceedings, the claimant made a Part 36 offer in December 2018 to settle liability on a 90/10 basis, which the defendant rejected. The defendant denied liability and pleaded contributory negligence.

At trial in November 2020, when the defendant's witness failed to attend, the parties negotiated a global settlement of £2,650. Deputy District Judge Khan approved this sum but confined the claimant's solicitors to fixed costs, finding nothing exceptional to warrant departure from the fixed costs regime. The claimant's subsequent appeals challenged this costs decision.

The Mundy decision

In Mundy v TUI UK Ltd, Collins Rice J had suggested that 90:10 liability offers were fundamentally incompatible with CPR 36.17, describing them as attempts to use the rule "against itself". That decision had been treated as binding by HHJ Baddeley at first instance.

The Court of Appeal's analysis

Lord Justice Bean, giving the leading judgement with which Lords Justices Phillips and Stuart-Smith agreed, addressed several key issues.

First, the court confirmed that the order made by DDJ Khan constituted a "judgement" for the purposes of CPR 36.17, rejecting the defendant's argument that a settlement approval under CPR 21.10 could not engage the costs consequences.

More significantly, the court overruled Mundy on the question of principle. Lord Justice Bean emphasised that liability-only offers should be encouraged, whether in multi-track cases with separate liability trials or in fast-track matters. The policy considerations identified in Huck v Robson and Broadhurst v Tan remained applicable—such offers provide genuine opportunities for settlement and reflect the commercial reality that claimants often prefer certainty over the uncertainties of litigation.

The court treated the 90:10 offer as a genuine compromise, analogous to the 95:5 offer upheld in Huck v Robson.

However, this finding of principle did not assist the claimant on the facts. Critically, liability was never determined. The defendant neither admitted liability nor was found liable by the court. The global settlement of £2,650 could not be characterised as an outcome "at least as advantageous" to the claimant as the 90:10 apportionment proposed in the Part 36 offer. Without a determination on liability more favourable than 90:10, CPR 36.17(4) could not be engaged.

The court also rejected the claimant's alternative submission that it was unjust to confine recovery to fixed costs. The defendant's conduct in defending the claim to trial did not, without more, justify departure from the fixed costs regime.

Implications

This judgement clarifies that whilst liability-only Part 36 offers remain valid tools for encouraging settlement, their costs consequences under CPR 36.17 require actual determination of the relevant issue. Global settlements that avoid determination of liability, even where advantageous terms are secured through negotiation, will not automatically trigger the enhanced costs provisions.

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