The bigger issue is that TUI only offered a refund when they knew the story was going to played out on the BBC, on Tuesday Evening:-
'After the family contacted Rip Off Britain, TUI refunded their fares'
Presumably until then they had made no such offer?
Up until the media got involved it was a F--- off response, after media lots of back-peddling and humble pie and dosh thrown out to placate said passengers. The Airline wasn't doing anything illegal I think (although I am not familiar with UK regs), but given the issue it would have been sensible to refund them before it blew up (as they well knew it might).