In Matière SAS v. ABM Precast Solutions Ltd,[1] the High Court held that a Part 36 offer made by the claimant represented a genuine offer to settle the claim but effectively offered nothing in respect of the counterclaim. Accordingly, despite having decisively won both the claim and the counterclaim, the claimant was not entitled to the huge costs benefits arising under Part 36 in respect of the costs of the counterclaim.
Background
The parties had entered into a joint venture to bid for a large subcontract on the UK HS2 project. The claimant, Matière, had brought proceedings against the defendant, ABM, for unpaid invoices in the sum of £373,295 due under the agreement. ABM counterclaimed for damages for breach of good faith obligations under the agreement. The counterclaim was initially quantified at £4.8 million and subsequently increased to £18.92 million.
Following service of ABM’s defence and counterclaim, Matière made a Part 36 offer in the following terms:
… [O]ur client is aware that the costs of these proceedings will quickly become disproportionate to the value of their claim (disregarding in its entirety, of course, your client’s unmeritorious and entirely speculative counterclaim, which is bound to fail). …
In the circumstances, we are instructed to make the following offer of settlement pursuant to Part 36 of the Civil Procedure Rules (the “Offer”).
The Offer is made by our client as claimant in these proceedings. It is therefore intended to have the consequences set out in Section I of CPR Part 36 …
Our client is prepared to settle the entire proceedings, including the whole of the claim and your client’s counterclaim, for the sum of £350,000 (the “Settlement Sum”) to be paid to our client in full and in cleared funds within 14 days of acceptance of this Offer.
Following the trial, the High Court awarded Matière the full amount of the invoices claimed. In respect of the counterclaim, the court held that Matière had breached its duty of good faith, but that the counterclaim failed on causation and, accordingly, was dismissed in its entirety. Matière, therefore, won and was awarded more than the £350,000 it had offered. The question for the court was whether Matière was entitled to costs consequences arising under Part 36 in respect of all its costs.
The Part 36 regime
Part 36 of the Civil Procedure Rules rewards parties for making genuine offers to settle. If a party makes an offer to settle and subsequently equals or beats that offer at trial, the court will usually order that the party is entitled to its costs on an indemnity basis and interest on those costs at a rate of up to 10%. Where the offeror is the claimant, the court also will usually award interest and an uplift (up to £75,000) on any sum awarded.
To reap the benefits, however, the offer must be a genuine offer to settle and compliant with the requirements of Part 36.
In this case, ABM argued that Matière’s offer was not a genuine offer to settle the counterclaim, and that Matière should therefore not benefit from the Part 36 costs consequences in relation to the costs of the counterclaim.
The High Court’s decision
The judge was of the view 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 but allowed nothing for the counterclaim. He concluded that, “there is nothing on the face of the offer to suggest it made any monetary allowance, other than nil, for the counterclaim”.
Having reached that conclusion, the judge considered it would be unjust to apply the full effect of Part 36 in respect of all Matière’s costs. Further, he stated that he could see no reason why the provisions of Part 36 could not be interpreted flexibly to take account of this distinction. Accordingly, he awarded Matière its costs of the claim on an indemnity basis (plus enhanced interest) and of the counterclaim on the standard basis (without enhanced interest).
Takeaway
Given the amount of costs that can be incurred in large-scale litigation, the reward for making a well-judged Part 36 can be tremendous, and they are an extremely important strategic tool in any litigator’s armoury. On the flip side, misjudging an offer can be a costly mistake.
The lesson here is clear: When a case involves a counterclaim, extra care should be taken to ensure that any Part 36 offer is (if possible) demonstrably a genuine attempt to settle both the claim and the counterclaim. Where it may appear that no (or very little) concession is being made in respect of the counterclaim, the offeror must explain the composition of the offer and (if necessary) why such a small amount is being offered in respect of the counterclaim.
[1] [2025] EWHC 2030 (TCC).
Contributors
Alex Radcliffe