Eurotunnel is to be paid a staggering £33m by the government to settle a lawsuit over extra ferry services in the event of a no-deal Brexit.

The government has faced criticism over the way it had awarded contracts to three companies to provide additional ferry services and Eurotunnel had initiated legal action, arguing that the process for awarding the contracts had been secretive.

It emerged that one of the companies, Seaborne Freight, had no ferries despite being awarded a contract worth £13.8m to put extra services on between Ramsgate and Ofstend.

That deal was cancelled after the Irish company backing it pulled out.

As part of the agreement, Eurotunnel has agreed to make some improvements to its terminal.

In a statement accompanying the agreement, Transport Secretary Chris Grayling said: "While it is disappointing that Eurotunnel chose to take legal action on contracts in place to ensure the smooth supply of vital medicines, I am pleased that this agreement will ensure the Channel Tunnel is ready for a post-Brexit world."

In a statement, the government said: “As part of the agreement, Eurotunnel has also withdrawn its legal claim against the government, protecting the vital freight capacity that the government has purchased from DFDS and Brittany Ferries.”

Eurotunnel said in a statement the settlement would “ensure that the Channel Tunnel remains the preferred route for vital goods to travel between the EU and the UK”.

It added that under its deal with the government, “the development of infrastructure, security and border measures … will guarantee the flow of vehicles carrying urgent and vital goods and … will keep supply chains essential to both industry and consumers moving”.

Andy McDonald, shadow Labour transport secretary, called for Mr Grayling to quit: “His conduct as a minister is one of serial failure and routine incompetence. In any other sphere of life he would have been sacked long ago. I say yet again: this trail of destruction has gone on long enough. It’s time for Chris Grayling to go. "