HT-2022-000255 - [2025] EWHC 2030 (TCC)

The approach which should be adopted is helpfully set out in Webb v Liverpool Women’s NHS Foundation Trust [2016] EWCA Civ 365:

“[37] In deciding what costs order to make under 36.14, the Court does not first exercise its discretion under Part 44. Its only discretion is that conferred by Part 36 itself. The alternative construction requires the Court first to exercise its discretion under Part 44, on the basis of all the circumstances of the case, and then to exercise its discretion under Part 36, again having regard to all the circumstances of the case. This makes no sense.

[38] It follows from the above, and in particular that Part 36 is a self-contained code, that the discretion under 36.14 relates not only to the basis of assessment of costs, but also to the determination of what costs are to be assessed. I agree with the Judge that Part 36 does not preclude the making of an issue-based or proportionate costs order. However, a successful claimant is to be deprived of all or part of her costs only if the court considers that would be unjust for her to be awarded all or that part of her costs. That decision falls to be made having regard to "all the circumstances of the case". In exercising its discretion, the Court must take into account that the unsuccessful defendant could have avoided the costs of the trial if it had accepted the claimant's Part 36 offer, as it could and should have done. The principles were aptly summarised by Briggs J (as he then was) in Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch):

"13.

… For present purposes, the principles which I derive from the authorities are as follows:

a)

The question is not whether it was reasonable for the claimant to refuse the offer. Rather, the question is whether, having regard to all the circumstances and looking at the matter as it affects both parties, an order that the claimant should pay the costs would be unjust: see Matthews v Metal Improvements Co. Inc [2007] EWCA Civ 215 , per Stanley Burnton J (sitting as an additional judge of the Court of Appeal) at paragraph 32.

b)

Each case will turn on its own circumstances, but the court should be trying to assess "who in reality is the unsuccessful party and who has been responsible for the fact that costs have been incurred which should not have been.": see Factortame v Secretary of State [2002] EWCA Civ 22, per Walker LJ at paragraph 27.

c)

The court is not constrained by the list of potentially relevant factors in Part 36.14(4) to have regard only to the circumstances of the making of the offer or the provision or otherwise of relevant information in relation to it. There is no limit to the types of circumstances which may, in a particular case, make it unjust that the ordinary consequences set out in Part 36.14 should follow: see Lilleyman v Lilleyman (judgment on costs) [2012] EWHC 1056 (Ch) at paragraph 16.

d)

Nonetheless, the court does not have an unfettered discretion to depart from the ordinary cost consequences set out in Part 36.14. The burden on a claimant who has failed to beat the defendant's Part 36 offer to show injustice is a formidable obstacle to the obtaining of a different costs order. If that were not so, then the salutary purpose of Part 36, in promoting compromise and the avoidance of unnecessary expenditure of costs and court time, would be undermined."

Paragraph 13(d) was the source of Mr Lewis’s submission that ABM faced a “formidable obstacle” to the obtaining of a different costs order to that set out in Part 36.17(4).

I turn first to the submission that the Part 36 Offer was not a genuine offer to settle the proceedings, as regards the counterclaim.

Mr Lixenberg’s first point is that, on its proper construction, the offer was not an attempt to settle the counterclaim at all. Read in context, I do not accept that the passage from the Part 36 Offer relied on by Mr Lixenberg (“disregarding in its entirety, of course, your client’s unmeritorious and entirely speculative counterclaim”) demonstrates that the offer was not an attempt to settle the counterclaim at all. That statement was there to make a different point and was part of an explanation as to why the offer was being made, namely disproportionality. By contrast, the operative part of the offer, which defined its ambit, was clearly to:

“settle the entire proceedings, including the whole of the claim and your client’s counterclaim”.

So, in my judgement, there can be no doubt that the offer was an attempt to settle the claim and counterclaim.

The next question is whether the Part 36 Offer was a genuine attempt to settle the proceedings of which the counterclaim formed part. As the notes to the White Book explain (at 36.17.6), paragraph 5(e) was introduced to deal with the problem of claimants making very high settlement offers (often as much as 95% of the value of the claim) not in a genuine attempt to settle the claim but to place the defendant at risk of indemnity costs pursuant to r.36.17(4). It continues:

“In AB v CD [2011] EWHC 602 (Ch), the claimant sought an order under what is now r.36.17(4) on the basis that it had succeeded in full and thereby obtained a judgment “at least as advantageous” as a Part 36 offer seeking 100% recovery. Henderson J refused to order Part 36 consequences, observing that the concept of settlement involved “an element of give and take” and that a settlement offer must involve some genuine element of concession. He castigated the “offer” in that case as a demand for “total capitulation”.

The notes to the White Book indicate that judges are likely to take a broad-brush view when assessing whether the offer was a genuine attempt to settle the proceedings. It states there is nothing wrong with very high offers in extremely strong cases but, where that arises, claimants would do well to explain why such a small discount is being offered. Cases cited in the White Book include Jockey Club Racecourse Ltd v Willmott Dixon Construction Ltd [2016] EWHC 167 (TCC) in which a 95% offer was effective in an ‘open and shut’ case and Mundy v TUI UK [2023] EWHC 385 in which effect was not given to a 90% offer where there was no possibility of finding contributory negligence.

I have found helpful the analysis in Yieldpoint Stable Value Fun LP v Kimura Commodity Trade Finance Find Ltd [2023] EWHC 1512 (Comm), also referred to in the White Book. In that case Mr Stephen Houseman KC, sitting as a Judge of the High Court, said this:

“14.

CPR 36.17(5)(e) itself was inserted by rule amendment taking effect in April 2015, as explained in White Book 2023 at 36.17.6. This provision is not confined to so-called '100% offers' made by claimants seeking to avail themselves of CPR 36.17(4) when they obtain a monetary judgment " at least as advantageous " as their own prior offer: CPR 36.17(1)(b). Nor is it necessary to show that an offer is being used as a " tactical step " in this context; cf. Huck v. Robson [2002] EWCA 398; [2003] 1 WLR 1340. As has been observed, all Part 36 offers are made for tactical purposes - such procedural behaviour is both encouraged and supported in the interests of promoting settlement of disputes. That said, an offer which is a cynical attempt to manipulate the Part 36 regime and apply pressure on an adversary is unlikely to be effective for such purposes.

15.

The burden of proof or persuasion under CPR 36.17(5)(e) rests upon the offeree. Proof of injustice under CPR 36.17(4) is a " formidable obstacle " to an offeree who finds themselves on the wrong side of a judgment: see Webb v Liverpool Women’s NHS Foundation Trust [2016] EWCA Civ 365; [2016] 1 WLR 3899.

16.

The cases decided under CPR 36.17.(5)(e) invariably concern what may be described as a 'very high claimant offer', i.e. an offer involving a very small or negligible discount against the gross value of the claim and/or waiver of accrued interest: see Telefónica UK Ltd v The Office of Communications [2020] EWCA Civ 1374; [2020] Costs LR 1461 per Phillips LJ at [49]. I was referred to authorities in which judges have concluded that a very high claimant offer was a genuine attempt to settle the proceedings in the specific circumstances of a case.

17.

There is a danger in glossing the words of the rule itself, not least the risk of circularity by reference to whether or not the consequential enhancements in CPR 36.17(4)(a)-(d) will or will not become available in the event that such offer is not accepted and the claimant equals or betters it at trial. Stepping back, however, it is clear that the Part 36 regime incentivises the making (and acceptance) of constructive offers of settlement, i.e. those which can be said to have a meaningful impact upon the chances of avoiding a trial or further consuming curial resources towards trial.

18.

The summary in the White Book at 36.17.6 is helpful. I adopt the " broad brush " approach endorsed in that commentary. A trial judge is uniquely placed to operate within such evaluative margin: they will have a feel for how strong the claim was, especially in an 'all or nothing' situation like the present case, and (therefore) how close the successful claimant was to 'losing' or failing to equal or better its own offer.

19.

The fact that a judge in another case upheld a 99.7% offer (Rawbank SA v Travelex Banknotes Ltd [2020] EWHC 1619 (Ch); [2020] Costs LR 781) or a 95% offer (Jockey Club Racecourse Ltd v Willmott Dixon Construction Ltd [2016] EWHC 167 (TCC); [2016] 4 WLR 43) or a 90% offer (JMX v Norfolk & Norwich Hospitals NHS Foundation Trust [2018] EWHC 185 (QB; [2018] 1 Costs LR 81) does not inform, still less dictate, how I should approach my evaluation of the Part 36 Offer in the present case. These decided cases provide illustrative guidance, no more.”

In my evaluation of the present case, the relevant considerations here are as follows. The value of the claim was a relatively small one compared to the value of the counterclaim as originally pleaded, less than 8%. Whilst recognising that counterclaim was pleaded as a set off, the fact pattern and the issues which fell for consideration under the claim and counterclaim respectively were entirely discrete. Whilst the offer did not permit ABM to accept an offer in respect of the claim alone, separate from the counterclaim, it is clear to me that the most obvious way of construing the offer was that it represented an offer to accept c.88% of the value of the claim including interest (Footnote: ¹) but allowed nothing for the counterclaim. There is nothing on the face of the offer to suggest it made any monetary allowance, other than nil, for the counterclaim. The statement relied on by Mr Lixenberg, set out above, informs the interpretation that a nil allowance was made.

Mr Lewis submits that Matière was right to be confident in its defence on the merits of the counterclaim. I do not agree. A key reason why I disagree is that Matière knew (or should be taken to have known) that the nature of its own conduct was of a type that was likely to place it in breach. The fact that, at the time of the offer, the correct legal basis of the duty had not been set out by ABM should not have played a significant part in its thinking because there was always a risk that that basis could have been improved upon. In any event, at the date of the offer, Matière could not have been so confident about its prospects that the counterclaim would fail that it was worth offering a nil amount in respect of it. An offer of ‘nil’ in respect of the counterclaim, if accepted, would have amounted to total capitulation.

I reach the conclusion that the offer was not a genuine attempt to settle the proceedings to the extent that the proceedings included the counterclaim. On the other hand, it was a genuine attempt to settle the claim. I see no reason why the provisions of CPR 36.17(5)(e) cannot be interpreted flexibly to take account of this distinction in an appropriate case.

Having reached the conclusion that the Part 36 Offer was not a genuine offer to settle the entire proceedings but was, instead, only a genuine offer to settle the claim, I remind myself that CPR 36.17(5)(e) requires me to consider all the circumstances of the case. The genuineness of the offer is only one of the consequences to be considered.

The parties were not agreed as to whether, in the context of the counterclaim, I should be considering all the circumstances of the case by reference to the standard set out in Part 36, as Matière submitted, or by reference to Part 44, as ABM submitted. The difference between them is because Part 36 requires a demonstration of injustice (seen as a formidable obstacle) in respect of the relevant circumstances whereas Part 44 has no such requirement. Mr Lixenberg submitted that, once I had decided that the full consequences of Part 36 should not apply to the counterclaim then the requirements in CPR 36.17(5) should cease to apply to the counterclaim and I should be guided by Part 44 alone in that respect. I do not agree. In my view, I should apply CPR 36.17(5) in the ordinary way.

I am wholly unpersuaded by Mr Lixenberg’s submission that the information available to ABM at the time of the Part 36 Offer is a factor to be taken into account. He prayed in aid that disclosure had not yet happened so ABM could not properly evaluate the extent of dealings between Matière and EKJV to which it was not privy. On ABM’s case, it was both reasonable and necessary for ABM to consider disclosure, witness evidence and even to test the evidence at trial before it could evaluate the merits of its position.

Whenever a Part 36 Offer is made, the offeree will not have as much information available to it as will ultimately have been available to the Court at the end of the trial process. But that can rarely be a relevant reason in the sense contemplated by CPR Part 36(5)(c). To engage that provision, one would expect the offeree to show why the information unavailable to it mattered to its decision not to accept the offer at the time it was made.

ABM’s submission fails for three reasons. Firstly, it was surely for ABM to determine the robustness, or otherwise, of its own counterclaim. On the basis of the information it already had, ABM decided to issue a counterclaim having, presumably, evaluated that it was a claim worth pursuing. Its own pleading, supported by a statement of truth, alleged breach, causation and loss. ABM pleaded that case without the information which it now contends was lacking in April 2022 and which it says precluded its ability to determine whether a ‘nil’ offer was worth accepting. Secondly, shortly before trial, but long after the disclosure which it lacked at the time of the Part 36 Offer, ABM offered to accept £5m in respect of its counterclaim. It is, therefore, fanciful to suggest it might have accepted the ‘nil’ offer made in April 2022 if it had had access to more information at an earlier stage. Its own offer shows that ABM had a degree of confidence about its counterclaim and, moreover, did not need the trial process to evaluate its prospects. Thirdly, at the time of the Part 36 Offer, ABM already had sufficient information of its own to enable it to consider whether to accept a ‘nil’ offer in respect of the counterclaim. It was copied in on, or provided by Matière with, email exchanges which indicated EKJV’s views on contracting with ABM/Matière JV and concerns over ABM. It therefore had enough material to evaluate the risks it faced on causation. Further, ABM was able to evaluate for itself the reasons given in the termination letter, without further information from Matière. Yet further, it was ABM alone who was in a position to evaluate that its case may fail because it was never in a position to fund the Scunthorpe factory.

I now address the point that Matière did not succeed on all the material issues that arose in the case, as reflected in the Court’s judgment. At paragraph 27 of Webb, the Court of Appeal approved an observation of Gloster J, as she was, in HLB Kidsons (a firm) v Lloyds Underwriters [2007] EWHC 2699 (Comm), in which she said:

“[11] There is no automatic rule requiring reduction of a successful party’s costs if he loses on one or more issues. In any litigation, especially complex litigation such as the present case, any winning party is likely to fail on one or more issues in the case.”

In my judgment, it is not enough for ABM to point to its successes at trial in demonstrating the scope of Matière’s contractual obligations and breaches by Matière. These were just stepping stones along the way to proving the loss of chance contended for. ABM failed at the one of the last stepping stones, in respect of causation, for three separate reasons. I do not consider it appropriate to divide the case into separate issues of obligation, breach, causation and loss when they all formed part of a single claim for damages for loss of a chance. As Matière point out, this is not a case in which ABM was successful in making recovery on a discrete head of claim or loss, or in defending a head of claim.

A further reason for rejecting the suggestion that I should take account of these features was the considerable degree of overlap between the evidence necessary to establish that Matière breached its duty of good faith and that, concurrently, such breaches did not cause the loss contended for. The narrative which occupied much of the judgment addressed both together such that, when it came to causation, not much further elaboration was needed: see [299]. This reflected the position both in evidence and in submissions at the trial.

Even if I had been minded to take account of ABM’s success in respect of sub-issues, they did not all go in ABM’s favour. The case on contractual interpretation which succeeded at trial only did so by reason of a new legal approach developed at trial and ABM did not even succeed in respect of all its breaches. ABM’s case on breach also relied on matters which ought to have been the subject of amendment. Its alternative claim for the account also failed in its entirety.

Taking into account the two preceding paragraphs, any reduction in costs would not have been anywhere near 70%, as sought by ABM. However, it is not necessary to address any assessment.

Separately, there remains the question of whether Matière’s conduct, both in its underlying sense and in respect of its subsequent failure to admit it in the context of proceedings, warrants a reduction in the amount of costs to which it is entitled. ABM’s submission is that Matière’s conduct, and its pursuit of the denial of breach, occasioned additional legal costs and fuelled the dispute. It is also said that the Court in any event ought to mark its disapproval of Matière. On 5 October 2023, ABM’s solicitors wrote to Matière’s solicitors inviting them to admit breach of contract but, on 13 October 2023, Matière’s solicitors said they had no intention of doing so.

ABM draws to my attention the observations of Foxton J in ABFA Commodities Trading Ltd v Petraco Oil Company SA [2024] Costs LR 623 in which he said:

“[17] As to the second, there are two reasons why the court may wish to make an order addressing the consequences of dishonest conduct in litigation: to mark its disapproval of that conduct, and to reflect the causative effect of the dishonesty on the length and cost of the trial (Sulaman v Axa Insurance plc [2009] EWCA Civ 1331, [17] – [18]. My decision not to enforce the Undertaking to the full extent of Petraco’s loss reflected the first of those factors, but not the second. Petraco’s dishonest case on its knowledge clearly prolonged the case and occasioned additional legal costs. It also served to fuel the dispute, leading to an understandable sense on VTB Commodities’ part that it had been “wronged” and was entitled to recompense.”

In Hutchinson v Neale [2012] EWCA Civ 345 the Court of Appeal stated that there was no general rule that a finding of dishonest conduct by the successful party will replace the usual starting point that costs should follow the event. What is required is an evaluation of the nature and degree of the misconduct, its relevance to and effect upon the issues arising in the trial and its tendency to create an unwarranted increase in the costs of the action to either or both of the parties. That is the approach which I intend to follow.

I accept, of course, that it is open to the Court to reduce Matière’s costs of the counterclaim to take account of the conduct which the Court has concluded was unacceptable. I did indeed conclude that Matière acted dishonestly and deceived ABM in various ways. It also acted in breach of the duty of good faith. However, in all the circumstances, I have concluded that it is not appropriate for the Court to ‘mark its disapproval’ of Matière’s conduct either in respect of the original narrative or by reason of its failure to admit to it in the subsequent litigation. Whilst dishonesty can never be justified, this conduct was not at the most egregious level. It was, to a degree, caused by the position which EKJV sought to impose upon it. It was also inherent in the nature of the allegations made by ABM that these sorts of issues would have to be investigated. I do not regard this case as one in which Matière’s conduct materially fuelled the dispute beyond what it otherwise would have entailed, given the pleaded case against it. As I have also said, there was a good deal of overlap between the evidence of breach (caused by Matière) and the evidence in respect of causation so it is not a case in which the dishonest conduct materially added to the length of the trial process. I accept there will have been a modest increase in the time taken at trial caused by that part of (particularly) Mr Matière’s evidence which I did not accept but I do not consider it sufficient to reflect that in any separate way.

I do not consider there are any other relevant features to weigh in the scales in considering whether it would be unjust to apply the full effect of CPR Part 36.17(4).

Whilst recognising the formidable nature of the obstacle (see above) I am wholly satisfied that the feature in CPR 36.17(5)(e) is sufficient, in and of itself, to mean that it would be unjust to apply the full effect of CPR 36.17(4) in respect of the Part 36 Offer.

I therefore decline to order that ABM should pay indemnity costs in respect of the counterclaim. Instead, it will be liable to pay costs of the counterclaim on a standard basis, to be assessed if not agreed.

If I were required to determine all the circumstances of the case within the ‘routine’ context of Part 44 alone (i.e., without facing the “formidable obstacle” posed by the unjustness criterion in CPR 36.17(4)), I would reach the same conclusion that it was not appropriate to make any reduction in the costs to which Matière was otherwise entitled.

In conclusion, in respect of costs, I decide that Matière will be entitled to its costs of the claim on a standard basis up to the relevant date and on an indemnity basis thereafter but that Matière will be entitled to its costs of the counterclaim on a standard basis throughout.