High Court takes a flexible approach to enhanced costs consequences under Part 36

In Matière SAS v ABM Precast Solutions Ltd [2025] EWHC 2030 (TCC), the High Court took a flexible approach to the award of costs consequences under CPR 36. Although the claimant had succeeded on its claim and defeated the defendant’s counterclaim, the Court considered it would be unjust in the circumstances to apply the Part 36 costs consequences to both the costs of the claim and the counterclaim. While the claimant’s Part 36 offer was a “genuine offer to settle” its claim, the Court held it was not a genuine offer to settle the defendant’s counterclaim; acceptance of the offer would have amounted to “total capitulation” on the counterclaim. As a result, while the claimant was awarded the enhanced costs and interest under CPR 36 in relation to its claim, its costs of the counterclaim were awarded on the standard basis only.

Background

The facts of the case can be summarised as follows:

• The claimant sued for unpaid balances of £373,295 under a consortium agreement. The defendant asserted a counterclaim of a much larger amount (between £4.8M and £18.9M) for alleged breach of express obligations of good faith under the consortium agreement. Following the trial, the claimant was awarded the full sum claimed and the counterclaim was dismissed.
• The claimant had made a Part 36 offer to settle the whole proceedings for £350,000 which the defendant had not accepted. It was common ground that the Part 36 offer was valid and the judgment against the defendant was at least as advantageous to the claimant as its Part 36 offer, thereby triggering the consequences in CPR 36.17(4), which include enhanced costs and interest on costs.
• The issue for the Court to decide was whether the claimant should be awarded the enhanced costs consequences under CPR 36.17(4) in relation to its costs of both the claim and the counterclaim. The defendant argued that it would be “unjust” to do so in the circumstances as the claimant’s Part 36 offer was not “a genuine attempt to settle” the counterclaim and therefore, in accordance with CPR 36.17(4) and (5), the Court should not order enhanced costs for the counterclaim.

Decision

The Judge noted that there is a high burden on a party facing enhanced costs consequences under Part 36 to show that it would be unjust for the court to apply them. He held that the claimant’s Part 36 offer was an offer to settle the entire proceedings. However, in the circumstances, the Judge concluded that the offer was not a genuine attempt to settle the counterclaim, although it was a genuine attempt to settle the claim. The claimant had described the counterclaim as “unmeritorious and entirely speculative” and “bound to fail” and assigned nil value to it in the offer despite, in the Court’s judgment, the claimant knowing there to be a real risk that its breach of duty of good faith could have been established. The Judge also observed that the Part 36 regime is designed to incentivise constructive settlement offers, and an 'all or nothing' offer such as this would have amounted to a total capitulation if accepted. He held that it would not be reasonable to expect the defendant to accept nil for the counterclaim because of the efforts it had invested to pursue its counterclaim and that a previous settlement offer made by the defendant had valued the counterclaim at £5 million.

The Judge saw no reason why CPR 36.17(5) could not be interpreted “flexibly” to take account of this distinction between the claim and counterclaim in an appropriate case. Accordingly, in respect of the claim, Part 36 was applied, and costs were awarded on the more generous indemnity basis plus enhanced interest on costs from the expiry of the relevant period at the rate of 7% above base rate. (The claimant was also awarded the 10% uplift on the value of its claim and enhanced interest on the award under CPR 36.17(4)(a) and (d), which was not contested by the defendant.) In contrast, in respect of the counterclaim, the claimant was awarded costs on the standard basis with interest on costs from the expiry of the relevant period at 2% above base rate.

Key takeaways

The Part 36 regime aims to incentivise parties to realistically assess their chances of succeeding at trial and to make constructive settlement offers. The consequences which will be applied if an offeree fails to beat a Part 36 offer at trial, including enhanced costs and interest, are an important part of this regime. Although the courts retain a discretion not to award the Part 36 consequences where it would be “unjust” to do so in all the circumstances (including those set out in CPR 36.17(5)), it is a “formidable obstacle” for a losing party to persuade a court not to make the award.

Each case will turn on its own facts and circumstances, but this case illustrates that the courts may be prepared to take a flexible approach to whether it would be unjust to award enhanced costs and interest in respect of a claim and a counterclaim even if the overall outcome of the litigation is clearly in favour of the offeror.

In this case, an offer which attributed nil value to the defendant’s counterclaim, and which would amount to “total capitulation” on the counterclaim if accepted, did not amount to a “genuine attempt to settle” for the purposes of CPR 36.17(5). There have been other recent decisions where very high claimant offers were held to be genuine attempts to settle, and each case will depend on its facts. However, when formulating a Part 36 offer in respect of a claim, a counterclaim or a global offer for both, parties should consider how best to position the offer to maximise the chances of the enhanced costs and interest applying in full, including consideration of whether they could justify their offer as being a genuine offer to settle for the purposes of CPR 36.17(5).

With thanks to Megan Lyttelton for her assistance in preparing this post.