UK Construction and Law

An unbeaten Part 36 offer brought indemnity costs, ten per cent over base rate and a 214,000 pound payment on account

By Staff Writer  |  25 August 2026

A claimant that offered to take 65,000 pounds and recovered 86,140 pounds took the full consequences of rule 36.17, and the court added indemnity costs for the period before the offer as well. The same ruling approved an increase to the claimant's costs budget applied for after judgment on liability had been handed down.

The underlying claim was a commercial one between a small vehicle repair business and a supplier of commercial lathes, and nothing in it touches construction. The consequences ruling does, because it works through the costs machinery that decides the value of a construction claim once liability has been settled, and it does so on facts that will be familiar to anyone who has run one.

The claimant pleaded losses of about 356,000 pounds and recovered 86,140 pounds. A year before trial it had offered under Part 36 to accept 65,000 pounds, with a relevant period expiring on 14 November 2024. It had therefore beaten its own offer, and rule 36.17(4) applied unless the court considered it unjust to make the orders.

The attempt to escape the offer

The defendant argued that part of the damages related to lost work from a trade customer that had never appeared in the statements of case, and that stripping it out left an award of 62,276.50 pounds, which is 2,723.50 pounds below the offer. The judge rejected the arithmetic first: the offer had included interest to the expiry of the relevant period, and even on the defendant's own preferred interest rate the reduced award plus interest came to about 73,000 pounds. He rejected the pleading point second, holding that the loss itself was pleaded and that there is no requirement to plead evidence, and noting that the defendant had never offered the lower figure it now said was the true value.

The burden of showing that the Part 36 consequences would be unjust is a formidable one, and losing an argument about quantum does not discharge it.

Conduct, and what it cost

The ruling opens with an account of how the litigation was run. The judge recorded that there had been far less co-operation than he was used to, that the claim was issued in December 2023 but not tried until the autumn of 2025, and that the main responsibility lay with the defendant and its legal team.

Every possible point has been taken in the defence of this claim, very many of them either bad or irrelevant.

His Honour Judge Paul Matthews, sitting as a Judge of the High Court in Bristol

Cross examination had also revealed that relevant records were destroyed by the defendant after the dispute arose, without that being mentioned in the disclosure reports, and that the defendant's engineering expert had revised his opinion after someone in the defendant's legal team suggested he reconsider his report. Taken together, those matters were held to be sufficiently out of the norm to justify indemnity costs for the whole period before the offer expired, on top of the indemnity costs the rule gives for the period after it.

Interest ran at 5 per cent over base rate from 1 June 2021 to the expiry of the relevant period, on the footing that a small business would have borrowed at least that. It then ran at 10 per cent over base rate, the maximum, from 14 November 2024 to the damages judgment on 3 July 2026. The judge declined to accept that dishonesty is needed before the maximum rate can be awarded, and said the award was made more by way of encouragement to do better in future than as a penalty.

The budget point, which is the useful one

After circulating a draft judgment dealing with liability and quantum, the judge withdrew the quantum half and called for further submissions. The claimant applied to revise its costs budget upwards by 19,710 pounds, taking it from 275,201.79 to 294,911.79 pounds. The defendant relied on the line of authority holding that an application to amend an approved budget after judgment is a contradiction in terms. The judge distinguished it: the trial had not concluded, the extra work was caused by his own decision rather than by either party, and the application was made before the submissions had even been received. His decision to call for those submissions was itself a development within rule 3.15A, giving rise to the need to incur further costs. The revised budget was approved, the defendant was ordered to pay 90 per cent of the claimant's costs, and a payment on account of 214,000 pounds was ordered, being 80 per cent of the budgeted estimated costs and 65 per cent of the incurred costs.