Background
This case involved a wine investment scheme in liquidation suing its former auditor for negligence across seven audit years (2012–2018). The liquidators claimed total damages ranging from £3.4 million to £8.4 million. Before trial, Crowe (the defendant auditor) made a Part 36 offer of £3.175 million plus costs in February 2025. The Company rejected this and made counter-offers of £6 million and later £7 million. After trial judgment on 27 March 2026, the Company recovered only £101,965.95 plus interest—approximately 1.6% of its maximum claim—and succeeded on only one of seven causes of action. The present judgment addresses the consequences for legal costs.
The Court’s Holding
Deputy Judge Richard Spearman held that despite recovering money, the Company was not the “successful party” for costs purposes. Applying the established test from *Roache v News Group Newspapers Ltd*, the court must ask “who, as a matter of substance and reality, has won?” The judge concluded Crowe was the successful party because: (1) the Company would never have brought litigation to recover £139,000; (2) the Company failed entirely on six of seven claims; and (3) the recovered sum bore no realistic relationship to the scale of the claim or the litigation. This was characterized as a “Pyrrhic victory.” The Company was ordered to pay 85% of Crowe’s costs up to expiry of the Part 36 offer (25 February 2025) to reflect that Crowe’s defence was not entirely successful.
For the period after 25 February 2025, the judge invoked CPR 36.17(3), which ordinarily requires the offeree who fails to beat a Part 36 offer to pay the offeror’s full costs. The Company argued this would be “unjust” because Crowe had pursued several weak points (limitation issues, a “circular payments” theory, flawed breach-of-duty arguments, and late or poorly-pleaded defences). The judge rejected this, holding that showing “injustice” is a “formidable obstacle” and cannot be satisfied merely because a defendant lost on some issues. The mere fact that litigation outcomes are harsh does not justify departure from the Part 36 regime. Crowe was awarded full costs from 25 February 2025 onward, plus interest on those costs.
Key Takeaways
- A claimant who recovers money may nonetheless be deemed unsuccessful for costs purposes if the recovery is minimal compared to the claim and the litigation would never have been brought for that sum alone.
- The Part 36 protective regime is strengthened: the burden to demonstrate “injustice” is formidable, and an offeror may enforce full post-offer costs consequences even if it lost on some trial issues.
- Courts will not undertake detailed “issue-by-issue” cost reductions to reflect partial failures by a successful-party defendant, as this would erode the effectiveness of settlement incentives.
- The test for identifying the successful party focuses on substantive reality, not technical recoveries, particularly in commercial disputes where the recovery is disproportionate to the case’s true value.
Why It Matters
This judgment reinforces the high bar for displacing Part 36 consequences and clarifies that claimants who recover trivial sums relative to their claims may face full adverse costs orders despite technical success. It will influence settlement strategy in professional negligence cases (especially against auditors, surveyors, and lawyers) where quantum is disputed. The ruling also demonstrates courts’ reluctance to permit satellite litigation over whether a party-opponent “really” deserved costs protection, preferring to apply clear incentive rules. For defendants in audit negligence cases, the judgment validates the use of early Part 36 offers even when liability seems probable but quantum is highly contested.