Wine Enterprise (in liquidation; the “Company”) brought a claim in the High Court (the “Court”) against its former auditors (“Crowe”) in relation to seven audit years, contending, among other things, that Crowe had dishonestly assisted the Company’s directors in what was alleged to be a “Ponzi” scheme. The Company claimed damages ranging between approximately £3.35 million and £8.42 million. It ultimately recovered only c.£100,000 plus interest, roughly 1.6% of the maximum sum claimed. Crowe had made a CPR Part 36 offer of £3.175 million plus costs and a separate Calderbank offer of £3.78 million inclusive of costs, both of which the Company rejected. The Company instead advanced settlement proposals of its own, the last of which was a £7 million inclusive costs offer in September 2025.
The High Court’s decision
The Court identified Crowe as the successful or ‘winning’ party, taking into consideration that: (1) of the seven audit years, the Company was successful in its claims in relation to only one; (2) the Company failed on several issues which took up a substantial amount of court time; (3) the amount recovered was far below the sums sought; and (4) the Company would not have brought the claim for only c.£100,000.
The Court ordered the Company to pay 85% of Crowe’s costs up to the expiry of the relevant period for acceptance of Crowe’s Part 36 offer, and all of Crowe’s costs plus interest thereafter. It declined to award Crowe indemnity costs, holding that, although the rejection of the Part 36 offer was, in hindsight, a mistake, it was not unreasonable to do so at the time.
In its reasoning, the Court stated that the correct approach when determining which party should pay the costs of the case was for the Court to ask itself “Who was essentially the winning party?”, as seen in cases such as Roache v News Group Newspapers Ltd [1998] EMLR 161 and Medway Primary Care Trust v Marcus [2011] 5 Costs LR 808. On that basis, the Company’s limited success (recovering c.£100,000) did not disturb Crowe’s status as the successful party for the purposes of CPR 44.4(2). To reflect the fact that Crowe had not been entirely successful, the Company should pay a proportion (85%) of Crowe’s costs of the proceedings up to the expiry of the Part 36 offer.
For the period after the expiry of the Part 36 offer, the Company had failed to better Crowe’s Part 36 offer at trial. Under CPR 36.17(3) and (4), the default position in those circumstances is that the defendant is entitled to costs from the expiry of the relevant period, and interest on those costs, unless it is unjust to do so.
The Company accepted that it was liable to pay costs on the standard basis after the expiry of the Part 36 offer. Additionally, the Court considered that: (1) the terms of the Part 36 offer were realistic; (2) the offer was made long before trial; (3) the Company had not suggested that it lacked material information with which to consider the Part 36 offer when it was made; and (4) the Part 36 offer was a genuine attempt at settlement. Importantly, under CPR 36.17(5), the Company had the burden of showing injustice, which the Court considered to be “a formidable obstacle” that the Company had not overcome.
Accordingly, the Court had no basis to find it unjust to make the usual costs order in accordance with CPR 36.17(3).
On the other hand, the Court concluded that Crowe was not entitled to indemnity costs. Of particular importance was the observation by Christopher Clarke LJ in Excalibur Ventures LLC v Texas Keystone Inc [2013] EWHC 4278 that “the fact that a claimant loses a massive claim and does so badly is not of itself a reason for ordering indemnity costs”. The Court agreed with the Company that its claim had not been “speculative, weak, opportunistic or thin”, and that it was not unreasonable for the Company to have rejected the Part 36 offer, although, with hindsight, it was plainly a mistake to have done so.
The decision illustrates that costs will reflect the overall outcome of the proceedings and the consequences of failing to beat a Part 36 offer, while indemnity costs require something more than a substantial defeat or a mistaken refusal to settle.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]
