Part 36 Consequentials | Enhanced Interest, Indemnity Costs And 100% Payment On Account

The High Court’s decision in Learning Curve (NE) Group Limited v Lewis & Anor [2025] EWHC 2491 (Comm) demonstrates the difficulty parties face when attempting to avoid Part 36 consequences after failing to beat a claimant’s offer, with the court rejecting challenges to offer validity, interest rates, cost basis, and payment on account quantum.

Background

The claim arose from a Share Purchase Agreement (SPA) dated 29 October 2021, under which the claimant, Learning Curve (NE) Group Limited, acquired shares from the defendants, Richard Huw Lewis and Melanie Probert. The claimant brought proceedings for breaches of warranty and under an indemnity clause in the SPA. In a judgment dated 4 August 2025 ([2025] EWHC 1889 (Comm)), the court found the defendants liable, and the claimant elected to enter judgment in the sum of £5,211,625 for breach of warranty. This sum was reduced by a prior payment of £783,325 made by the defendants under the indemnity, resulting in a net judgment debt of £4,428,300, which was payable by 19 September 2025.

Prior to the trial, the claimant had made a Part 36 offer on 7 February 2024, offering to settle for £5,211,625, which was not accepted by the defendants. Following the main judgment, the court addressed consequential matters, including the effect of the Part 36 offer, interest on the judgment sum, costs, permission to appeal, and a stay pending appeal. The parties provided written submissions, and the court determined these issues on the papers without a further hearing [§8, §11].

The Defendants’ Multi-Pronged Challenge

Following judgment in the claimant’s favour for the exact sum offered under Part 36, the defendants mounted challenges on multiple fronts, seeking to avoid or reduce the consequences under CPR 36.17(4). The court addressed each argument in turn.

Challenge 1 | The Offer Was Unclear

The defendants’ first argument was that the Part 36 offer lacked clarity because it offered £5,211,625 but was silent about the £783,325 already paid by the defendants under the indemnity in October 2022. They contended it was unclear whether the offer required payment of the full £5,211,625 in addition to the amount already paid, meaning the judgment (which credited the earlier payment) had not matched the offer [§19, §23].

The court rejected this argument. HHJ Russen KC held that the £783,325 was properly treated as a payment on account of the larger warranty claim. The offer’s silence on this sum was appropriate because the defendants’ counterclaim sought its return, meaning it could not be “appropriated” by either party until the counterclaim was resolved. The offer included settlement of the counterclaim, so acceptance would have resulted in the claimant retaining the £783,325 as part of the £5,211,625 total. The defendants had not requested clarification under CPR 36.9, and the court found no genuine ambiguity [§20-25].

Drawing on the reasoning in Macleish v Littlestone [2016] EWCA Civ 127 and Synergy Lifestyle Ltd v Gamal [2018] EWCA Civ 210, the court applied a presumption that the payment on account would be treated as made on account of the sum offered, absent contrary clarification. Any other interpretation would produce an “absurd result” [§25].

Challenge 2 | The Claimant’s “Shifting Case” Made Application Unjust

The defendants argued that it would be unjust to apply CPR 36.17(4) consequences because the claimant’s case on quantum had shifted significantly—from £6.8m in the claim form to £10.18m in particulars of claim to different valuations in expert evidence. They contended this uncertainty meant they could not properly evaluate the offer when made [§29-30].

The court found this argument backfired. Rather than supporting injustice, these points “reinforced the effectiveness of the Offer.” The claimant had not made good its pleaded case for £10m+, and the defendants would have “spared themselves both the continuing uncertainty over the level of their financial exposure, including ongoing interest, and the very significant legal costs incurred by both sides since the Offer was made” if they had accepted it [§30].

HHJ Russen KC cited the “formidable obstacle” test from Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch), endorsed by the Court of Appeal in Webb v Liverpool Women’s NHS Foundation Trust [2016] EWCA Civ 365. By making the offer a year before trial at just over half the pleaded sum, the claimant had given defendants a genuine settlement opportunity. The defendants “come nowhere close to overcoming the ‘formidable obstacle'” required to escape Part 36 consequences [§31-33].

Challenge 3 | Enhanced Interest Rate Too High

On interest, the defendants proposed that if enhanced Part 36 interest applied, it should be limited to 4% above base rate rather than the 8% sought by the claimant [§41].

The court awarded 8% above base rate for the period from 28 February 2024 (expiry of the relevant period) to 4 August 2025 (judgment date). This decision was supported by evidence from the claimant’s witness that the claimant had borrowed at rates equivalent to 4.5-7.14% above base since 2021, meaning 8% provided appropriate compensation while remaining within the 10% maximum under CPR 36.17(4)(a). The court noted that enhanced interest under Part 36 may include a “non-compensatory element” as an incentive to settle [§44-46].

For the earlier period (29 October 2021 to 28 February 2024), the court awarded 2% above base under section 35A of the Senior Courts Act 1981, rejecting the defendants’ proposal of 1% [§42, §44].

Challenge 4 | Costs Should Be Reduced by 50%

The defendants argued that the claimant’s costs recovery should be capped at 50% because the claimant had “deliberately exaggerated its claim” by pursuing £10m when the true value was approximately £5m. They also contended that any payment on account should exclude pre-budget incurred costs, limiting it to £846,206.50 [§52-53].

The court rejected this comprehensively. The existence of the Part 36 offer undermined the exaggeration argument—defendants had a clear opportunity to settle at the sum now established as correct. The claimant succeeded “on all material issues presented by the parties” and was entitled to full recovery [§54-55]. The court specifically noted that costs reserved from an earlier disclosure application should be included, as these would never have been incurred if the offer had been accepted [§57].

Challenge 5 | Payment On Account Too High

The court ordered payment on account at 100% of the approved budgeted costs (£1,257,382), departing from the common practice of 90% [§58].

HHJ Russen KC explained that the usual 90% approach reflects the protection CPR 3.18 gives to approved budgets on standard basis assessment—providing confidence that this percentage is unlikely to constitute overpayment. However, CPR 3.18 does not apply to indemnity basis costs. Citing Burgess v Lejonvarn [2020] EWCA Civ 114, the court held that where a significant portion of costs will be assessed on the indemnity basis, approved budgets become “prima facie irrelevant” to those costs [§59-60].

With total invoiced costs of £2,210,133 and a significant element on the indemnity basis, the payment on account of £1,257,382 represented only 57% of total costs incurred. The court was satisfied this was unlikely to constitute overpayment even allowing for reasonableness challenges [§61].

Final Elements | The Additional Amount and Interest on Costs

The court ordered:

• • • The additional amount of £75,000 under CPR 36.17(4)(d), payable within 6 weeks [§34]
    • Interest on costs at 2% above base until 28 February 2024 and 8% above base until 4 August 2025, with the Judgments Act rate thereafter [§63]

Permission to Appeal and Stay—Also Refused

For completeness, the defendants also sought permission to appeal on four grounds and a stay pending appeal. Permission was refused on all grounds, with the court finding no real prospect of success [§67-80]. The stay application was rejected as the defendants had not demonstrated “solid grounds of irremediable harm” and appeared able to access resources to meet their liabilities [§85-88].

Key Takeaway

This judgment illustrates that comprehensively challenging Part 36 consequences rarely succeeds. The “formidable obstacle” test means courts will apply the full range of CPR 36.17(4) benefits unless clear injustice can be demonstrated—and arguments that defendants could have avoided expense by settling will typically reinforce rather than undermine those consequences.

CPR 36.17 And The Just Rewards Of A Good Part 36 Offer

igh Court decision on full CPR 36.17(4) consequences including enhanced interest at 6% above base, indemnity costs, and additional amount. Directly relevant authority on when courts apply Part 36 benefits.

CPR 36.17 | Part 36 Offer To Accept £1 Was A Genuine Attempt To Settle

Court of Appeal guidance on the “formidable obstacle” test and when Part 36 consequences apply. Discusses the strict compliance required and high hurdle for escaping consequences.

CPR 36.17(5) | Costs Following Trial On Liability And The Effect Of An Extant Part 36 Offer

High Court decision on CPR 36.17(5) mandatory factors and when costs must be reserved. Explores the “formidable obstacle” threshold in split trial context.

CPR 44.2(8) | Payments On Account In Costs Budgeted Cases

Guidance on payment on account principles, including the standard 90% of budgeted costs approach and the relevance of CPR 3.18 on assessment.

When Part 36 Offers Demand Total Capitulation | Matière v ABM

Recent High Court decision on what constitutes a genuine Part 36 offer and when offers may be challenged as demands for capitulation rather than settlement.

When Is A Part 36 Offer Not A Part 36 Offer?

Court of Appeal guidance on Part 36 offer validity and construction, relevant to the offer clarity arguments in Learning Curve.