Sanderson Orders Appropriate Where Claimant Aligns With Successful Defendant On Key Issue

The Commercial Court’s costs and interest determinations in aviation insurance mega-litigation demonstrate how courts apportion costs when claimants pursue alternative claims against different insurer groups, apply US Prime as default interest rate, and determine when unsuccessful defendants must bear successful defendants’ costs.

AERCAP IRELAND LIMITED v AIG EUROPE S.A. & OTHERS [2025] EWHC 2529 (Comm)

In Russian Aircraft Lessor Policy Claims (Consequentials), Mr Justice Butcher determined costs, interest, and permission to appeal following his substantive judgment of 11 June 2025 concerning aircraft lessors’ insurance claims for losses arising from the detention of aircraft in Russia. The court addressed how costs should be apportioned when claimants pursue alternative claims against different insurer groups and one primary case fails. AerCap recovered only 65% of its costs from War Risks Insurers despite winning $1 billion, reflecting that its primary case on the major ‘peril’ issue had failed. The court made Sanderson orders shifting successful All Risks Insurers’ costs to unsuccessful War Risks Insurers, but apportioned differently across claims: 65% in AerCap (where claimant actively supported all risks case) versus 100% in Merx (where claimant supported all risks insurers’ position). On interest, the court confirmed US Prime as the default rate for US dollar awards, rejecting challenges based on inadequately pleaded alternative rates and refusing compound interest absent proper pleading. Permission to appeal was refused. The judgment provides important guidance on costs strategy in multi-party insurance litigation where claimants advance alternative cases against different defendant groups.

As to the extent to which there should be qualifications of the basic costs orders indicated above, to take account of the parties' positions in relation to the issues which were in dispute, and the comparative importance of those issues in terms of the preparation and presentation of the case... I consider that AerCap's recovery against War Risks Insurers should be significantly reduced to allow for the fact that in relation to the very important issue of peril, which took up the bulk of the time at trial, AerCap's primary case was that the loss had been caused by an all risks peril... Moreover, AerCap was not neutral on the point, even during its evidence at trial, during which Mr Kelly in particular was keen to advance the case that the loss had been caused by an all risks peril.

Citations

Quorum v Schramm (No. 2) [2002] 2 Lloyd’s Rep 72 Interest may be awarded from the date of loss, but the court retains discretion to delay the commencement where justice so requires, particularly where the defendant had reason to investigate the claim. BP Exploration Co (Libya) Ltd v Hunt (No. 2) [1979] 1 WLR 783 Interest generally runs from the date of loss, but courts may award interest from a later date if defendants were not reasonably expected to pay or investigate the claim earlier. The Popi M [1984] 2 Lloyd’s Rep 555 Where a claimant advanced a substantially different claim from the one ultimately successful, interest may be awarded from a later date to reflect the insurer’s need to investigate alternate allegations. McLean Enterprises v Ecclesiastical Insurance [1986] 2 Lloyd’s Rep 216 Courts may delay the commencement of interest to allow insurers a reasonable period to assess and investigate unusual or complex claims. Kuwait Airways Corporation v Kuwait Insurance Co [2000] Lloyd’s Rep IR 678 Even in cases of insurance loss, interest may not run from the date of loss if the insurer required time to consider whether a valid claim was being made in light of uncertain facts. The Berwickshire [1950] P 204 Courts have awarded interest from the date of total loss in marine collision cases, even where damage was not definitively quantifiable until judgment. Owners of Leisbosch Dredger v Owners of SS Edison [1933] AC 449 Interest may be awarded from the date the plaintiff is deprived of their asset, irrespective of the precise quantification of loss at that time. The Aldora [1975] QB 748 In maritime salvage cases, interest is typically awarded from the date services were rendered, not the later date of judgment. Insurance Corporation of the Channel Islands v McHugh [1997] Lloyd’s IR 94 A breach by an insurer occurs from the date the insured event occurs, as insurance policies are contracts to indemnify against loss or liability. Lonestar Communications Corp LLC v Kaye [2023] EWHC 732 (Comm) US Prime is the default rate for US dollar interest awards in the Commercial Court, unless the claimant’s specific borrowing cost justifies a higher or lower rate. Equitas Ltd v Walsham [2014] Lloyd’s Rep IR 398 The court recognised that commercial borrowing normally incurs compound interest, and compound interest may be awarded where the claimant proves this is necessary to achieve fair compensation. Sagicor Bank Jamaica Ltd v Seaton [2022] UKPC 48 Compound interest is not routinely recoverable as damages unless the claimant proves actual loss on that basis; an award of compound interest requires specific pleading and evidentiary support. Serious Fraud Office v Litigation Capital Ltd [2021] EWHC 2803 (Comm) The successful party will generally recover their costs, but reductions may be made if the party failed on significant issues or raised unnecessarily complex arguments. Fox v Foundation Piling Ltd [2011] EWCA Civ 790 Judges should be cautious in departing from the general rule that the successful party is entitled to their costs, and should do so only where clearly justified. Travellers’ Casualty and Surety Co of Canada v Sun Life Assurance [2006] EWHC 2885 (Comm) In complex litigation, an issue-based costs adjustment is not required unless the issue was significant and clearly separable in terms of preparation and trial time. F&C Alternative Investments (Holdings) Ltd v Barthelemy [2011] EWHC 2807 (Ch) Where a party succeeds overall but fails on distinct issues, the court may adjust the award to reflect only the costs that were reasonably incurred in securing the successful elements. Summit Property Ltd v Pitmans [2001] EWCA Civ 2020 Costs orders requiring a successful party to pay some of the unsuccessful party’s costs are exceptional and must be justified by strong reasons. Viridor Waste Management Ltd v Revenue and Customs Commissioners [2016] EWHC 2502 (Admin) Deviation from the usual costs approach is only appropriate in exceptional circumstances and should not be used routinely to modify a successful party’s entitlement. Rowe v Ingenious Media Holdings Plc [2020] EWHC 235 (Ch) There is no default rule regarding whether defendants should be jointly and severally liable for costs; liability should reflect the nature and structure of legal obligations between parties. Irvine v Commissioner of Police of the Metropolis [2005] EWCA Civ 129 A court may award a successful defendant’s costs against an unsuccessful co-defendant through a Bullock or Sanderson order where the claimant’s claims were pleaded in the alternative and reasonably advanced. Besterman v British Motor Cab Co Ltd [1914] 3 KB 181 Where a claimant reasonably sues multiple defendants due to uncertainty as to liability, the court may protect the claimant from adverse cost orders by reallocating the costs burden. Mulready v JH & W Bell Ltd [1953] 2 All ER 215 A Bullock order is not appropriate where claims against multiple defendants are based on unrelated facts and legal grounds; it must be confined to alternative causes involving common factual or legal issues. Bankamerica Finance Ltd v Nock [1988] AC 1002 The availability of a Bullock or Sanderson order depends on whether the claims against defendants are alternative and exclusive; such orders are not suitable for cumulative or independent claims. LZLabs GmbH v IBM UK Ltd [2025] EWCA Civ 842 Permission to appeal will not be granted on broad or unfocused grounds that seek to reargue factual findings from trial; each ground must disclose a clear and potentially successful legal error. Fage UK Ltd v Chobani UK Ltd [2014] EWCA Civ 5 Appeals against factual findings or evaluative judgments will only succeed where there is a demonstrable error of principle or reasoning, not merely disagreement with the trial judge’s conclusions. Re Sprintroom Ltd [2019] EWCA Civ 932 Evaluative decisions of fact can only be set aside if there is an identifiable error of logic, inconsistency, or failure to consider relevant evidence which undermines the whole conclusion. Thompson v Christie Manson & Woods Ltd [2005] EWCA Civ 555 An appellate court should not cherry-pick issues in a fact-heavy case decided on complex expert evidence; the composite findings must be respected unless clearly flawed. Wheeldon Brothers Waste Ltd v Millennium Insurance Co Ltd [2018] EWCA Civ 2403 Appeals in technical or fact-intensive claims, such as those heard in specialist lists, face an exceptionally high hurdle and are only permitted where serious legal error has been established.

Track allocation housing disrepair CPR 46.13 settlement sum costs restriction SCCO

MRO fee markup cap 25% detailed assessment personal injury Senior Courts Costs Office

Security for costs refused CPR 25.27 very high probability success excessive estimate King's Bench

IPEC scale costs transfer Patents Court PD 30 para 9.2 costs caps Court of Appeal

Costs budget variation CPR 3.15A promptness significant development unfair prejudice Chancery Division

Costs budgeting inter partes proportionality high hourly rates AI disclosure Patents Court CPR 3E

Beneficiary personal liability section 71(3) Solicitors Act 1974 indemnity costs VAT self-supply SCCO

Summary assessment indemnity costs unless order payment on account disclosure default Chancery Division

Provisional assessment set aside CPR 3.1(7) points of dispute filing duty PD 47 para 14.3 SCCO

Fixed recoverable costs police claims CPR 26.9(10)(e) intentional tort exemption

Key Points

Where a claimant brings alternative claims against different defendants and succeeds against one but not the other, the court will exercise its discretion under CPR 44.2 to apportion costs, having regard to all circumstances including the parties’ conduct, the issues on which they succeeded or failed, and the reasonableness of their positions.
The court may order that liability for costs among co-defendants be several rather than joint, particularly where liability under the relevant insurance policy is several, and joint liability might create disproportionate exposure for certain defendants.
A successful party’s entitlement to costs may be reduced to reflect time and resources spent unsuccessfully pursuing major issues, especially where those issues dominated the litigation and the party had a substantive interest in the outcome.
A Sanderson order (requiring an unsuccessful defendant to pay the costs of a successful co-defendant) may be appropriate where claims against defendants are in the alternative, the issues are interconnected, and the successful defendant’s costs would have been incurred regardless of claimant strategy.
In assessing costs liability following settlement of certain claims, the recoverable costs of the successful party should be reduced by the proportion attributable to any settled co-defendants, to avoid duplication or unjust enrichment and to reflect commercial agreement.

"Thus, War Risks Insurers are correct to say that it was AerCap which first pleaded a positive case as to the loss being caused by an all risks peril, and it pursued All Risks Insurers by way of its primary case. AerCap also called expert and factual evidence designed to support that primary case. Yet, on the other hand, the issue of peril was very much one which was contested between the two sets of insurers. Even if AerCap had been neutral about peril, or put a war risks peril as its primary case (as DAE did), it seems highly likely that the same issue would have been debated, in much the same way, as occurred at the trial."

Key Findings In The Case

AerCap was awarded only 65% of its costs against the War Risks Insurers to reflect that a substantial portion of the litigation—particularly the peril issue—was contested on grounds where AerCap did not succeed, and where it pursued an all risks claim against the successful all risks insurers.
The court ordered that War Risks Insurers’ costs liability be several, not joint and several, based on their respective lines on the policy, to align with the underlying several contractual liability and prevent disproportionate exposure for any single insurer.
In respect of HFW All Risks Insurers’ costs, the court made a Sanderson order requiring War Risks Insurers to pay 65% of 90% of HFW AR Insurers’ costs in the AerCap claim, on the basis that the insurers’ dispute over peril necessitated the incurrence of those costs regardless of AerCap’s litigation strategy.
Costs recoverable by AerCap from War Risks Insurers were to be reduced proportionally to account for insurers who had settled before judgment (HDI and Swiss Re), reflecting commercial agreements and avoiding double recovery from non-settling defendants.
TMK 510, as the leading War Risks Insurer in the Genesis claim, was held entitled to recover only 65% of its costs due to its failure on most major issues in the litigation, despite being the successful party; in contrast, Genesis’s cost recovery from the other war risks insurers (D2-D6) was reduced to 85% of its total costs to reflect its losses on certain pleaded claims.

"In light of the nature of Prime, and of the default position, it appears to me that if a defendant wishes to contend that the rate to be awarded on a US$ sum is less than Prime, on the basis that the actual borrowing costs of the claimant are less than those which would be paid by US banks' 'most creditworthy customers', that would need to be put properly in issue by being pleaded. It would not be enough for the defendant, as War Risks Insurers did here, simply to deny that the claimant should recover interest at Prime... The spreadsheet I have referred to was not an adequate substitute for such an exploration, not least because it left unanswered questions as to whether the internal funding costs there specified reflected what would have been external funding costs, and as to whether the rates specified were reflective of what would actually have been the borrowing costs if loan arrangements had been made during the relevant period."

The Commercial Court’s decision in Russian Aircraft Lessor Policy Claims (Consequentials) [2025] EWHC 2529 (Comm) addresses costs apportionment, interest rate determinations, and Sanderson orders following the billion-dollar Russian aircraft insurance judgment handed down in June 2025.

Background

The proceedings concerned six consolidated claims by aircraft lessors against insurers following the loss of aircraft in Russia after the invasion of Ukraine. The substantive judgment on 11 June 2025 ([2025] EWHC 1430 (Comm)) determined coverage issues, with the court finding that losses fell under ‘war risks’ rather than ‘all risks’ cover.

Following that judgment, several parties settled: DAE and Falcon with all insurers, and Merx with its war risks insurers. A consequentials hearing on 15-16 September 2025 resolved outstanding issues concerning interest, costs, and permission to appeal in the remaining AerCap, Merx, and Genesis claims.

The costs issues were particularly complex because claimants had pursued alternative claims against both ‘all risks’ and ‘war risks’ insurers. AerCap’s primary case throughout trial was that losses were caused by all risks perils, meaning all risks insurers were liable. When this failed and war risks insurers were found liable instead, difficult questions arose about who should bear the costs of the successful all risks defendants.

Costs Issues Before the Court

The court faced three main categories of costs issues across the remaining claims:

- - First, the incidence of costs: which parties should pay costs to whom, and in what proportions? This required determining how to apportion costs where claimants had brought alternative claims against different insurer groups, and how to reflect partial success on various issues.
  - Second, Sanderson and Bullock orders: where claimants succeeded against war risks insurers but failed against all risks insurers, should the war risks insurers be required to pay the all risks insurers’ costs (either directly via a Sanderson order, or indirectly via a Bullock order requiring claimants to pay then recover from war risks insurers)?
  - Third, interest: what was the appropriate start date for pre-judgment interest, what rate should apply to US dollar awards, and should interest be simple or compound?

Key Principles and Application

1. Cost Consequences When Primary Case Fails

AerCap recovered approximately $1 billion from war risks insurers. It sought to recover 81% of its total costs, arguing that only 19% related to the ‘peril issue’ on which its primary case failed. War Risks Insurers argued AerCap should recover only 30% of costs, reflecting the significance of the peril issue at trial.

The court found AerCap should recover 65% of its costs. The reduction reflected that the peril issue—whether losses were caused by all risks or war risks perils—occupied the bulk of trial time, and AerCap’s primary case throughout was that all risks insurers were liable. Although AerCap argued it was merely putting war risks insurers to proof, the court found AerCap was “not neutral on the point” and actively advanced the all risks case, including through witness evidence. [§45(i)]

The court rejected AerCap’s narrow quantification of peril-related costs, stating that while only c.20% of costs might be referable solely to peril issues, this “does not reflect the importance of the issue of peril in the case and at the hearing” and failed to account for costs that, though theoretically relating to other issues, “in reality related principally to peril.” [§45(i)]

Practical significance: Claimants pursuing alternative claims against different defendant groups risk substantial costs reductions even when ultimately successful, if their primary case on a major issue fails. The court will look to the substance and importance of issues, not just narrow cost allocation exercises.

2. Sanderson Orders: When Alternative Claims Create Costs Shifting

The Sanderson/Bullock Distinction

Both orders shift costs of successful defendants to unsuccessful defendants, but through different mechanisms. A Sanderson order requires the unsuccessful defendant to pay the successful defendant directly. A Bullock order requires the claimant to pay the successful defendant, then recover those costs from the unsuccessful defendant. The court generally prefers Sanderson orders unless there are concerns about the unsuccessful defendant’s ability to pay. [§54]

AerCap: 65/35 Split

For AerCap, the court ordered a 65/35 split: war risks insurers would pay 65% of all risks insurers’ costs via Sanderson order, with AerCap bearing 35%. The court reasoned that while the peril issue would likely have been contested between the two insurer groups even if AerCap had been neutral, AerCap had actively pursued all risks insurers as its primary case and called evidence supporting that case. The split reflected that war risks insurers were primarily responsible for the peril debate, but AerCap bore some responsibility for pursuing its primary case. [§53]

Merx: 100% Sanderson Order

By contrast, for Merx the court ordered war risks insurers to pay 100% of all risks insurers’ costs directly via Sanderson order. The distinguishing feature was that Merx, unlike AerCap, had actively supported all risks insurers’ case on peril at trial, describing it as “irresistible” in opening submissions and relying on all risks insurers’ factual and expert witnesses. [§65] War Risks Insurers were therefore solely responsible for incurring those costs.

Genesis: Split Sanderson Order

For Genesis, the court made a Sanderson order requiring unsuccessful war risks insurers (D2-D6) to pay their shares of all risks insurers’ costs directly, but required Genesis to pay the share referable to the successful lead war risks insurer (TMK 510). [§77(v)]

Key Principles Established

The court’s approach establishes that Sanderson orders in multi-party insurance litigation depend on:

- - Whether claims were genuinely alternative or whether claimant actively supported one case over another
  - The extent to which different defendant groups were responsible for contested issues
  - Whether unsuccessful defendants can fairly be said to have caused successful defendants’ costs to be incurred

As the Court of Appeal stated in Irvine v Commissioner of Police [2005] EWCA Civ 139 (cited at [§50]), these are “strong orders” requiring careful assessment of whether it would work injustice to make unsuccessful defendants liable for successful defendants’ costs.

3. US Prime as Default Interest Rate and Pleading Requirements

The court’s treatment of interest rate arguments reinforces the default position established in Lonestar Communications Corp LLC v Kaye [2023] EWHC 732 (Comm).

The Default Rule

The court confirmed that US Prime is the default pre-judgment interest rate for US dollar awards in the Commercial Court. As explained in Lonestar, US Prime represents the rate offered by US banks to their most creditworthy customers. [§19-20]

Challenging the Default

War Risks Insurers argued AerCap’s actual borrowing costs were lower than Prime, relying on a spreadsheet showing average costs of borrowing for AerCap entities of approximately 6% (Prime minus 2.5%). The court rejected this argument because: [§21]

- - Defendants must plead that the claimant’s actual borrowing costs are lower than Prime
  - War Risks Insurers had merely denied Prime was appropriate, without pleading a positive case
  - The spreadsheet was inadequate: it showed mainly internal group funding, left questions about when facilities were entered into and whether rates were fixed or floating, and these issues had not been explored at trial
  - Without proper pleading, there was “no proper exploration of whether there is a category of corporate borrowers who pay lower rates than US banks’ most creditworthy customers”

Compound Interest

The court rejected AerCap’s claim for compound interest, finding there was “no adequate plea or proof by AerCap that its losses should be calculated by reference to the cost of borrowing on the basis of compound interest.” [§27] Following Sagicor Bank Jamaica Ltd v Seaton [2022] UKPC 48, compound interest as damages requires proper pleading and proof, not merely assertion that commercial borrowing is on compound terms.

Practical significance: Parties seeking to depart from US Prime (whether higher or lower) must plead their case and adduce proper evidence. Disclosure documents prepared for other purposes will not suffice. The court will not investigate borrowing costs absent proper pleading creating a live issue for trial.

4. Payments on Account and Proportionality

The court ordered unusually low payments on account in several instances, reflecting concerns about proportionality:

- - AerCap: 45% of recoverable costs (rather than typical 50%), given “unusually serious issues as to the reasonableness and proportionality” of its £81 million claimed costs [§59]
  - TMK 510: 45% of recoverable costs, given “surprising scale” of over £2.2 million attributed to the Genesis action alone and questions about allocation between claims [§78(iii)]
  - Swiss Re: No interim payment for either Merx or Genesis claims, despite entitlement to costs, due to “surprising magnitude” of costs claimed [§74, §79]

Permission to Appeal Refused

The court refused permission to appeal on all 23 grounds advanced by War Risks Insurers and 5 grounds by Chubb. Applying the principles from LZLabs GmbH v IBM UK Ltd [2025] EWCA Civ 842, the court found none had a realistic prospect of success. Many grounds were challenges to factual findings or evaluations of expert evidence, where the threshold for appeal is particularly high. The court criticised the “kitchen sink” approach, noting that settling parties (DAE, Falcon, Merx) had removed some potentially more promising grounds, leaving mainly attempts to relitigate what was determined at trial. [§85-88]

Practical Implications

This judgment provides important guidance for practitioners in complex multi-party insurance litigation:

For Claimants: Carefully consider costs risks when pursuing alternative claims against different defendant groups. Success against your secondary target may result in costs recovery substantially below 100% if your primary case on major issues fails. Early Part 36 offers reflecting the alternative case may protect position.

For Defendants: When seeking to challenge default interest rates, plead the case properly and adduce evidence rather than relying on disclosure documents. Spreadsheets prepared for other purposes will not establish actual borrowing costs.

For All Parties: Sanderson orders shifting costs between defendants depend heavily on who drove contested issues and whether claimant actively supported one defendant’s case over another. Clear evidence of case positioning throughout trial is crucial.

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