Are Courts Bound By Summary Assessment Principles When Ordering Pro Bono Costs Under Section 194?

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The High Court’s decision in EJW Builders Ltd v Marshall [2025] EWHC 2898 (Ch) illustrates the court’s cautious and discretionary approach to assessing pro bono costs under section 194 of the Legal Services Act 2007 — emphasising proportionality, adherence to guideline rates as a benchmark, and the need for clear justification where claimed figures exceed them.

Background

The claim was commenced by claim form on 27 June 2023 by EJW Builders Limited and Eammon Joseph Wynne against Audrey Elizabeth Marshall, Edward Joseph Marshall, and their joint trustees in bankruptcy. Though the trustees were named as defendants, they played no part in the trial [§1]. The claimants alleged the existence of a partnership or joint venture agreement with the first and second defendants concerning the redevelopment of a former hotel in Trowbridge, Wiltshire, into four townhouses. They sought a one-third share of the profits, which they valued at up to £3.2 million. The properties ultimately sold for a total of £2,540,000, with £438,000 transferred to the defendants, though the defendants contended these funds were used to pay other debts and that no profits existed.

The matter proceeded to trial before HHJ Paul Matthews on 30 September and 1 October 2025. In an earlier ex tempore judgment ([2025] EWHC 2765 (Ch)), the court dismissed the claim, finding no partnership or joint venture agreement. The court determined in that trial judgment that the claimants’ only entitlement was to £825,000 under a JCT contract. Consequently, an order was made for the claimants to pay costs in respect of the first and second defendants’ pro bono representation to the Access to Justice Foundation, pursuant to section 194 of the Legal Services Act 2007. These costs were to be summarily assessed on the standard basis if not agreed. As the parties failed to agree, this subsequent judgment ([2025] EWHC 2898 (Ch)) concerns the costs assessment. The costs judgment was handed down at 10:30 am on 3 November 2025. The court conducted a paper assessment applying a broad brush approach rather than a detailed or summary assessment [§1, §24].

Costs Issues Before the Court

The primary issue for determination was the assessment of the sum payable to the Access to Justice Foundation under the pro bono costs order. This involved applying CPR rule 46.7, which requires the court to assess a sum equivalent to the costs that would have been payable had the representation not been provided free of charge. Under CPR 46.7(3)(b), the court applies Parts 44-47 with modifications to reflect that the costs are notional [§4, §7]. The judge stressed this was not a line-by-line scrutiny but a broad brush assessment [§24]. The assessment necessitated consideration of the reasonableness of the notional costs, including the solicitors’ hourly rates, the time claimed for various categories of work, and counsel’s fees. Specific challenges were raised by the claimants regarding the application of London guideline hourly rates, the exceedance of those guidelines, alleged excessive attendances, and disproportionate time claimed for document work.

The Parties’ Positions

The defendants, through their solicitors, submitted a costs schedule claiming notional profit costs of £334,829 and counsel’s fees of £58,500, totalling £393,329 (no VAT being payable) [§12]. The solicitors’ fees were based on hourly rates of £1,205 and £860 for grade A fee-earners, £860 for a grade B fee-earner, and £350 for a grade D fee-earner. All claimed rates exceeded the applicable London band 2 guideline hourly rates [§19]. The work included 89.3 hours for attendances on the defendants, 31.9 hours for attendances on opponents, and 263 hours for work on documents.

The claimants challenged the schedule on several grounds. They argued that London guideline hourly rates should not apply, as the case had no connection to London and could have been handled by a provincial firm, relying on Truscott v Truscott [1998] 1 WLR 132. They contended that the claimed rates exceeded the applicable guideline rates for London band 2 without justification, citing Samsung Electronics Co Ltd v LG Display Co Ltd [2022] EWCA Civ 466. The claimants also submitted that the attendances on the defendants and opponents were excessive and that the time claimed for document work, including reviewing core documents and preparing witness statements, was disproportionately high given the case’s straightforward nature.

The Court’s Decision

The court, applying a broad brush approach as endorsed in Manolete Partners plc v White (No 2) [2025] 1 WLR 1094, exercised its discretion under section 194, assessing £117,000 as the appropriate payment to the Access to Justice Foundation. In doing so, the court considered the discretionary nature of pro bono costs orders under section 194 of the Legal Services Act 2007 and the dual legislative purposes: levelling the litigation playing field by exposing both parties to costs risks, and providing funding to support organisations offering free legal help to those in need (citing Manolete at §20) [§9, §17, §20]. Applying Manolete, the court emphasised it should “err on the side of caution” when determining the amount payable [§9, §25-26].

On the issue of guideline hourly rates, the court treated a Truscott reasonableness test as artificial in this case because representation was allocated by the legal charities Advocate and Law Works [§10, §17]. The court found it reasonable for the defendants to accept pro bono representation given the potential costs liability evidenced by the claimants’ budget of £182,848.65 [§18]. The court applied London band 2 rates but reduced the solicitors’ notional profit costs to reflect the guideline rates for London band 2, as no justification was provided for the exceedance. The allowed rates were the 2025 London band 2 guideline hourly rates: £413 for grade A, £319 for grade B, and £153 for grade D fee-earners [§19].

The court found the claimed attendances excessive and reduced them to 60 hours for attendances on the defendants, 20 hours for attendances on opponents, and 17 hours for attendance at the hearing [§20, §24]. It also significantly reduced the time for work on documents from 263 hours to 117 hours, criticising the lack of delegation to junior fee-earners, noting that both partners did all the document work with none by the two junior associates [§21-22], and the disproportionate time spent on tasks such as reviewing core documents and preparing witness statements.

Counsel’s fees of £58,500 were allowed in full, as the court accepted that this sum covered advisory work, interlocutory hearings, and trial preparation, and no specific challenge was made to the trial fee [§23].

Ultimately, the court assessed the notional costs at £58,500 for solicitors’ work and £58,500 for counsel’s fees, resulting in a total of £117,000 [§24]. Emphasising the discretionary nature of pro bono costs orders and the need to err on the side of caution, the court concluded this sum was appropriate for the payment to the Access to Justice Foundation [§25-26].

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CPR 3.15(8) | £870 Hourly Rate And £90,000 Brief Fee For Leading Counsel Deemed Disproportionate In £1.2m Claim

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The High Court’s decision in Pontis Finance LLP v Karam, Missick & Traube LLP [2025] EWHC 2298 (Ch) demonstrates how courts can address excessive hourly rates through broad-brush phase reductions without breaching CPR 3.15(8)’s prohibition on fixing rates.

The case concerned a professional negligence claim brought by Pontis Finance LLP, a lender, against the defendant firm of solicitors, Karam, Missick & Traube LLP. Pontis had agreed to lend approximately £812,500 to an individual purporting to be Stefano Brugnolo, secured by a charge on a Mayfair property. The defendant firm acted for the borrower. Pontis’s case was that the defendant’s client was an impostor and that the firm had failed to perform adequate identity checks. Having advanced the loan monies, which were then paid to the impostor, Pontis claimed it had no prospect of recovery. The claim was for the return of the loan monies, interest, and associated fees, totalling approximately £1.2 million.

Following a Costs and Case Management Hearing (CCMC) on 21 February 2025, the court ordered the parties to file updated costs budgets. The intention was for the court to rule on these budgets promptly on the papers. Due to an administrative oversight, this ruling was significantly delayed from March to September 2025 [§6-8]. Consequently, costs for several phases of the litigation, most notably the Disclosure phase, transitioned from being future costs to incurred costs, thereby limiting the court’s ability to budget for them effectively [§9, §11.1].

Costs Issues Before the Court

The court was required to determine the reasonable and proportionate budgeted costs for the phases where it retained jurisdiction, specifically the Trial Preparation and Trial phases. The court could not set budgets for the Disclosure phase (as costs were now incurred), nor for Witness Statements and Settlement/ADR phases (due to uncertainty about what work had been completed) [§11]. The central issue was whether the overall figures claimed were proportionate, with a particular focus on the Claimant’s use of solicitors’ hourly rates that substantially exceeded the applicable guideline rates and the instruction of both a King’s Counsel and a junior barrister. The court had to assess proportionality by reference to the factors in CPR 44.3(5), primarily the sums in issue (£800,000 to £1.2 million) and the complexity of the litigation [§15].

The Parties’ Positions

The Claimant argued that the case involved complex legal issues concerning whether a duty of care was assumed to a non-client, the nature of any undertakings given, and potential breaches of trust. It submitted that the majority of the budgeted work was appropriately focused on the Trial Preparation and Trial phases and that the use of both leading and junior counsel was justified. The solicitors’ high hourly rates were presented as a reflection of the firm’s expertise.

The Defendant contended that the claim, valued at approximately £1.2 million, was towards the lower end of the scale for Chancery Division litigation and was not sufficiently complex to be categorised as “very heavy commercial work.” It argued that the case would substantially turn on its facts. The Defendant submitted that the Claimant’s solicitors’ hourly rates were excessive and unjustified, and that instructing both leading and junior counsel was disproportionate, particularly as a managing associate was also budgeted to attend trial.

The Court’s Decision

The court found that the Claimant’s overall incurred and budgeted costs of £489,891.31 were disproportionate for a claim of this nature and value [§31]. The case was assessed as being of moderate complexity, turning largely on its facts, and not qualifying as “very heavy commercial work” [§22]. Consequently, the appropriate guideline band for assessing solicitors’ hourly rates was London Band 2, not Band 1 [§35].

The court acknowledged that its role under CPR 3.15(8) was to approve phase totals, not to fix or approve specific hourly rates [§23]. However, following the approach in GS Woodland Court GP1 Ltd v GRCM Ltd [§26], it held that the combination of excessive rates and the number of hours billed could render a phase total disproportionate. The court therefore made broad, downward adjustments to the phase totals to reflect this.

For the Trial Preparation phase, the Claimant sought £136,550. The court found the number of solicitors’ hours (110) to be reasonable but the rates charged were substantially above the London Band 2 guidelines [§39]. It also found the aggregate counsel brief fees of £90,000 to be disproportionate [§44]. Applying a broad-brush approach, the court approved a budget of £115,000 for this phase [§48].

For the Trial phase, the Claimant sought £88,700. The court identified that the Claimant had erroneously budgeted for four days of counsel refreshers for a four-day trial; only three days were permissible, as the brief fee covers the first day [§51]. Furthermore, the solicitors’ rates were again deemed excessive. The court also disallowed most of the costs for an unexplained Grade D fee earner charged at £400 per hour [§58]. Considering all elements, the court approved a budget of £50,000 for this phase [§60].

The court declined to set budgets for the Witness Statements and Settlement/ADR phases due to the uncertainty over how much work had been incurred during the delay, rendering it impossible to distinguish between incurred and future costs [§11.2, §11.5]. The parties were advised to apply for a further costs management hearing if they wished to budget for these phases.

GS Woodland Court GP1 Ltd v GRCM Ltd [2025] EWHC 285 (TCC)

Key authority on how courts apply downward adjustments to phase totals where excessive hourly rates render them disproportionate

CPR 3.18(b) | Underspend Does Not Constitute Good Reason To Depart From An Approved Budget

Explores the interplay between budgeting and detailed assessment, relevant to understanding how courts control costs through budgeting

CPR 3.15A | Costs Budget Revisions | Significant Developments And The Need To Act Promptly

Details the requirements for varying costs budgets, relevant given the administrative delays that affected budgeting in Pontis Finance

2021 Guideline Hourly Rates, Use of Counsel And Division Of Common Costs

Discusses the application of guideline hourly rates and the use of both leading and junior counsel, directly relevant to the excessive rates and counsel fees issues

How Relevant Are The Guideline Hourly Rates?

Examines judicial attitudes to guideline rates being exceeded, providing context for understanding when rates significantly above guidelines may be justified

CPR 3.14 | Late Costs Budget | Relief From Sanctions Denied

Illustrates the consequences of failing to comply with budgeting requirements, contrasting with the administrative issues in Pontis Finance

 

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PD57AD | Costs Consequences Of Disclosure Guidance Applications | When Matters Become Formal And Contested

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In Voltaire Capital Holdings Limited & Ors v Watson & Ors [2025] EWHC 1948 (Comm), Nigel Cooper KC (sitting as a Deputy Judge) departed from the default costs position for disclosure guidance applications under PD57AD, ordering the unsuccessful applicant to pay £63,267 in costs. This decision provides valuable guidance on when courts will treat supposedly informal disclosure guidance hearings as contested applications warranting inter partes costs orders.

The Default Costs Position Under PD57AD

Paragraph 11.5 of Practice Direction 57AD establishes a clear default position: costs of disclosure guidance applications are costs in the case unless otherwise ordered. This reflects the intended informal and cooperative nature of the disclosure guidance procedure, which envisages:

    • Maximum 60-minute hearings with 30 minutes pre-reading
    • Legal representatives with direct disclosure responsibility rather than counsel
    • Resolution through guidance rather than formal determination

The Practice Direction aims to foster a “new culture of disclosure stressing the imperative nature of party cooperation” – an aspiration that carries direct costs implications.

When Guidance Becomes Litigation | The Costs Turning Point

The judge identified several factors that transformed this disclosure guidance application into something warranting departure from the default costs position:

Scale and Complexity

    • 2.5+ hour hearing (versus standard 60 minutes)
    • 900-page hearing bundle including 261 pages of correspondence
    • Substantial skeleton arguments (16 and 39 pages)
    • Instruction of counsel, including leading counsel for the claimants

Nature of Contest The judge found the application was “conducted in a manner consistent with a heavily contested disclosure application rather than an application for informal guidance envisaged by PD57AD.” This characterisation proved crucial to the costs decision.

Relative Success The court conducted a detailed analysis of success:

    • Claimants substantially succeeded on the main issues
    • More hearing time spent on issues where claimants succeeded
    • Volume of documents from ordered searches significantly smaller than sought
    • Second Defendant’s limited success occupied minimal hearing time

The Costs Assessment | Significant Reductions Applied

The summary assessment demonstrates the court’s rigorous approach to costs recovery even for successful parties:

Solicitors’ Costs

    • Claimed: £59,862.75
    • Assessed: £46,000
    • Key reductions:
      • Hourly rates exceeding guideline rates without sufficient justification
      • £4,000 specific reduction for excessive time on witness statement preparation

Counsel’s Fees

    • Claimed: £34,297 (including leading counsel)
    • Assessed: £24,000
    • £10,000 reduction reflecting that leading counsel was unnecessary for the hearing

Final Calculation

    • Total assessed: £70,297
    • 10% reduction for opponent’s limited success: £63,267
    • Overall reduction: approximately 33% from amount claimed

Key Costs Principles Emerging

Procedural Defaults and Costs

The court dismissed the respondent’s reliance on the claimants’ failure to serve a statement of costs before the hearing (contrary to PD44 paragraph 9.5(4)(b)). The judge found:

    • Both parties could foresee costs applications would follow
    • The default caused no difficulty to either party or the court
    • Late submission did not prevent the claimants seeking costs

This pragmatic approach suggests procedural defaults in costs procedure may not defeat otherwise meritorious costs applications.

Attribution of Delay

The court rejected arguments that claimants’ delays necessitated the hearing, finding it “impossible to assign any responsibility for any delay.” This reinforces the difficulty of establishing causation for costs purposes where both parties contribute to procedural history.

Proportionality in Success

The 10% reduction for the opponent’s limited success demonstrates the court’s nuanced approach to “relative success” – even substantially successful parties may face reductions where opponents achieve discrete wins.

Implications for Costs Practice

This decision reinforces several important costs principles:

For Disclosure Applications

    • Courts will look beyond labels to substance when determining costs
    • Default positions are starting points, not immutable rules
    • The scale and manner of conduct matters more than the procedural vehicle

For Summary Assessment

    • Guideline rates remain starting points requiring justification for departure
    • Courts will scrutinise time spent on specific tasks
    • Necessity of leading counsel must be demonstrable, not assumed

Strategic Considerations

    • Parties escalating “informal” procedures risk adverse costs consequences
    • Providing hit counts and engaging cooperatively may influence costs outcomes
    • Limited success on discrete issues can reduce costs recovery even for substantially successful parties

The Broader Context | Costs and Cooperation

This judgment sits within the broader framework of disclosure reform emphasising cooperation and proportionality. The costs consequences here serve as a reminder that parties who transform cooperative procedures into adversarial contests may face financial penalties.

The decision also demonstrates the interplay between different costs regimes – whilst PD57AD creates specific defaults for disclosure guidance, the court retains discretion to apply general costs principles where the nature of proceedings warrants it.

Conclusion

Voltaire Capital Holdings provides clear guidance on when courts will depart from default costs positions in disclosure contexts. The message for practitioners is straightforward: approach disclosure guidance as intended – cooperatively and proportionately – or risk bearing the costs consequences of unnecessary escalation. The 33% reduction in assessed costs further reinforces that even successful parties must demonstrate both necessity and proportionality in their costs claims.

Probate Costs Recoverable Where Grant Obtained Exclusively For Litigation

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Background

These proceedings concerned the assessment of costs arising from the British Steel Coke Oven Workers Litigation, a substantial body of claims brought by workers (or their estates) against Tata Steel UK Ltd and its predecessors. The claims, which began in 2012, related to respiratory diseases and skin cancer allegedly caused by exposure to emissions at coke oven plants. Following an application in 2015, a Group Litigation Order was made in 2017 by Senior Master Fontaine.

The litigation involved over 200 claimants represented by two firms of solicitors – Hugh James and Irwin Mitchell – in roughly a 3:1 proportion. The GLO proceedings continued until 2022, when an order was made for the claimants to pursue their claims through an agreed scheme. All claims were concluded by 2024 for an aggregate sum of approximately £3.5 million.

The common costs up to the implementation of the scheme had been agreed at £8.5 million, with further common costs from 2022 to 2024 remaining unresolved. To address the individual costs of claimants efficiently, the parties selected 20 sample claimants (12 from Hugh James and 8 from Irwin Mitchell) with the intention that court decisions on these cases could be extrapolated to all claimants. Based on the sample bills, the defendant calculated that individual costs across all claimants might total £8 million.

On 7 February 2025, the court made directions for the determination of four preliminary issues, with provision for detailed line-by-line assessment of four sample bills at a later date. The hearing of the preliminary issues took place over three days in April 2025 before Senior Costs Judge Rowley.

Costs Issues Before the Court

The court was required to determine four preliminary issues agreed between the parties:

    • First, the appropriate hourly rates for the solicitors’ work on individual costs. Both firms claimed identical rates that remained unchanged throughout the 12-year period of the litigation, with Grade A at £315, Grade B at £278, Grade C at £233, and Grade D at £147. The defendant offered significantly lower rates of £261, £218, £178, and £126 respectively.
    • Second, the recoverability of costs for obtaining evidence from co-workers. This issue arose particularly in Hugh James bills, where substantial time was claimed for taking witness statements from colleagues of the claimants. The defendant initially challenged whether such work constituted individual costs or common costs (which had already been agreed), before shifting to argue about the extent rather than the principle of such work.
    • Third, the recoverability of probate costs. Approximately half the test cases included claims for obtaining grants of probate or letters of administration, with profit costs ranging from nil to just under £2,000 and disbursements from £10 to £655. The defendant challenged whether these costs were properly recoverable in the litigation.
    • Fourth, the recoverability of items claimed as “MailMerge” by Hugh James. These comprised 223 items totalling 22.2 hours across the 12 Hugh James claimants. The defendant contended these represented automated correspondence that should be treated as common costs.

Additionally, the court was asked to consider the proper categorisation of costs as individual or common costs, as defined in the GLO. Individual costs were those “incurred in respect of any individual claimant in relation to matters which are personal to that claimant”, whilst common costs were “all costs other than Individual Costs”.

The Parties’ Positions

On hourly rates, the claimants argued that the rates claimed were justified by reference to the seven factors in CPR 44.4. They emphasised the complexity of longtail industrial disease litigation, the specialist expertise required, and the value of the claims (averaging £87,000 on their calculation). They relied on Master McCloud’s 2019 summary assessment where similar rates had been allowed. The claimants also criticised the defendant’s conduct in requiring individual proof of each claim despite the GLO framework.

The defendant contended for lower rates based on the 2021 Guideline Hourly Rates, arguing these already incorporated an enhancement from the 2010 rates. They emphasised that the 2022 scheme had streamlined the claims process, reducing complexity. The defendant argued that the global settlement value of £3.5 million (with individual claims ranging from £3,700 to £31,000) indicated lower value claims requiring lower rates. They also suggested that common costs work might justify higher rates than individual costs work.

Regarding co-worker evidence, the claimants maintained that witness statements were necessary to prove individual claims, particularly for the 15 deceased workers among the 20 sample cases. They argued that the defendant’s own position, as expressed in Matthew Harrington’s witness statement, required individual proof of exposure for each claimant, making co-worker evidence essential for individual costs.

The defendant’s position evolved from initially challenging all co-worker evidence as common costs to accepting the principle but questioning the extent. They argued that general evidence about plant conditions should be treated as common rather than individual costs, particularly given the disparity between Hugh James and Irwin Mitchell’s approaches.

On probate costs, the claimants argued that where grants were obtained exclusively for litigation purposes, the reasonable costs were recoverable. They provided witness evidence detailing estate sizes and explaining why grants would not otherwise have been required. The defendant relied on Mosson v Spousal (London) Ltd, arguing that probate costs could not be recovered as damages and questioning how claimants could prove grants were obtained exclusively for litigation.

For MailMerge items, Hugh James explained these were not fully automated letters but required individual “topping and tailing”. They claimed these at 2 minutes per item rather than the standard 6 minutes for routine correspondence. The defendant maintained these were archetypal common costs, being standardised correspondence to groups of claimants using Microsoft Word’s mail merge feature.

The Court’s Decision

Senior Costs Judge Rowley allowed the hourly rates as claimed. He rejected the defendant’s argument that the 2022 scheme had simplified these cases, finding that claimants still needed to prove duty, breach, and causation individually. The judge concluded that “these claims were no different from claims which were regularly brought by firms instructed by trades unions against large manufacturing employers on behalf of their individual members.”

The judge found no justification for different rates between common and individual costs work, noting that the defendant’s own solicitors charged the same rates for both types of work. He considered the claims to have “all the complexity of longtail disease litigation” and that the specialist expertise of Grade C and D fee earners who conducted most of the work justified the rates claimed.

On co-worker evidence, the judge found entirely in favour of the claimants. He held that evidence supporting deceased claimants’ cases was properly categorised as individual costs, even if it might have secondary benefits for other claims. The judge stated: “The primary purpose of the evidence was to provide sufficient information for the individual claimant to be able to establish the breach of duty and the damage caused. That should be sufficient for it to be claimed as individual costs.”

The judge rejected any attempt to apportion co-worker evidence between individual and common costs, finding such division would be impractical and inappropriate. He specifically referenced the example of David Ferris’s witness statement, which was originally produced for his own claim but later amended to support another estate’s claim, illustrating the difficulty of any meaningful apportionment.

Regarding probate costs, the judge established that these were recoverable where grants were obtained for litigation purposes. He set a relatively low evidential threshold, stating: “If the personal representative or administrator attended court on the assessment of their costs, it would require no more than their confirmation that the grant had been obtained for the litigation for the costs of so doing to be allowed in principle.” The detailed witness evidence provided by the solicitors was found more than sufficient to establish these claims.

On the MailMerge issue, the judge accepted Hugh James’s explanation that these were not fully automated letters. He approved the two-minute charging approach, previously endorsed by Nelson J in Giambrone v JMC Holidays Ltd, as “a reasonable approach to picking up the time on the individual case without claiming full routine letters.” This allowed recovery as individual costs whilst recognising the partially standardised nature of the correspondence.

The judge declined to make definitive rulings on the specific categorisation challenges in the Bennett and Dawson cases, providing only provisional indications given the limited submissions made. These matters were left for determination at the subsequent detailed assessment hearings.

Employment Tribunal Properly Considered Ability To Pay When Awarding Costs Despite Family Impact

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Background

The case involved Mr M Willis, the former managing partner of GWB Harthills LLP, a firm of solicitors. In 2018, the claimant was diagnosed with cancer and went on sick leave, receiving payments from a permanent health insurance (PHI) scheme. A dispute arose regarding whether the claimant was entitled to profit share payments into his pension alongside PHI benefits. The claimant submitted his first claim to the Employment Tribunal on 16 April 2020, which was partially admitted by the respondent in November 2020. A consent judgment on liability was entered on 6 January 2021. A second claim was lodged on 7 June 2021 and heard between 19 and 26 June 2021, resulting in dismissal on 3 May 2022. A remedy hearing for the first claim took place from 3-6 October 2022, with deliberations concluding on 21 December 2022. The Tribunal made no award in the claimant’s favour and was highly critical of his conduct, particularly his dishonesty in giving evidence. Both parties applied for costs, and the Tribunal ordered the claimant to pay the respondents’ costs, capped at £210,000, to be assessed by the County Court on a standard basis.

Costs Issues Before the Court

The key costs issues before the Employment Appeal Tribunal (EAT) were whether the Employment Tribunal had properly exercised its discretion in awarding costs, specifically in relation to the claimant’s ability to pay. The appeal focused on three grounds:

(1) whether the Tribunal failed to properly consider the claimant’s ability to pay when deciding to award costs;

(2) whether it failed to account for the impact of the costs order on the claimant’s wife and children; and

(3) whether it wrongly included an estimated £340,000 profit share in assessing the claimant’s ability to pay.

The Parties’ Positions

The claimant argued that the Tribunal erred by not adequately considering his financial circumstances, including his limited liquidity, substantial debts, and the potential impact on his family if forced to sell the family home. He also contended that the Tribunal wrongly relied on an uncertain profit share entitlement, which had not been paid due to ongoing disputes. The respondents maintained that the Tribunal had correctly assessed the claimant’s ability to pay, noting his substantial equity in the family home and the likelihood of future profit share payments. They emphasised the claimant’s unreasonable conduct, including dishonesty, which justified the costs order.

The Court’s Decision

The EAT dismissed the appeal, upholding the Tribunal’s costs order. It found that the Tribunal had properly considered the claimant’s ability to pay at both the discretionary and quantum stages. The Tribunal’s broad assessment of the claimant’s means, including his half-share in the family home and potential profit share, was deemed sufficient. The EAT rejected the argument that the Tribunal should have explicitly addressed the impact on the claimant’s family, noting the significant capital value of the property. It also held that the Tribunal was entitled to consider the estimated profit share, despite its uncertain realisation, as part of a forward-looking assessment of the claimant’s financial position. The EAT concluded that the Tribunal’s approach was lawful and within its discretion under Rule 84 of the Employment Tribunal Rules 2013.

Mental Health Issues Don’t Equal Legal Incapacity | Court Criticises Ombudsman’s Conflation But Upholds Decision On Poor Costs Communication

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Background

The case of Aina Khan Law Ltd v The Legal Ombudsman & Anr [2025] EWHC 1319 (Admin) concerned a judicial review challenge by the claimant law firm against a decision of the Legal Ombudsman dated 12 February 2024. The Ombudsman had upheld aspects of a complaint made by the Interested Party (IP), requiring the claimant to repay £51,192.60. The central issue was whether the claimant had adequately assessed the IP’s capacity when taking instructions and conducting litigation on her behalf in family proceedings.

The IP had instructed the claimant in September 2020 following the breakdown of her marriage and allegations of child abuse against her husband. The claimant’s attendance notes recorded the IP’s mental health history, including a diagnosis of ADHD and prescribed amphetamines, as well as her distress and allegations of coercive control. Over time, concerns grew about the IP’s capacity, culminating in a psychiatric report by Dr Isaacs in December 2020 confirming she lacked litigation capacity due to a paranoid psychosis. The Ombudsman’s decision criticised the claimant for failing to assess capacity adequately from the outset and for excessive costs.

Costs Issues Before the Court

The court was required to determine whether the Ombudsman’s decision on costs was rational and lawful. The key costs-related issues were:

  1. Whether the claimant’s failure to assess the IP’s capacity properly rendered the retainer invalid, affecting the recoverability of fees.
  2. Whether the claimant provided adequate and timely costs updates to the IP, particularly after exceeding initial estimates.
  3. Whether the Ombudsman’s award of £51,192.60 (comprising a £35,500 refund for poor costs communication and a 20% reduction for the invalid retainer) was disproportionate or irrational.

The Parties’ Positions

Claimant’s Submissions:
The claimant argued that the Ombudsman’s decision was irrational, particularly in conflating mental health issues with a lack of capacity. It contended that the Ombudsman misconstrued Dr Isaacs’ capacity certificate, which did not conclusively state the IP lacked capacity from August 2020. The claimant also challenged the finding that costs updates were inadequate, asserting that informal updates were provided. It further argued the award was disproportionate to the firm’s turnover.

Defendant’s Submissions:
The Ombudsman maintained that its decision was rational and within its broad discretion under the Legal Services Act 2007. It emphasised that the claimant should have conducted a more thorough capacity assessment given the IP’s vulnerabilities. On costs, it defended the finding that the claimant failed to provide timely updates when estimates were exceeded, justifying the £35,500 refund. The 20% reduction was separately justified by the failure to assess capacity properly.

The Court’s Decision

The court held that the Ombudsman’s decision was irrational in part. Key findings included:

  1. Capacity Assessment: The Ombudsman erred by conflating mental health issues with a lack of capacity and failing to consider the nuanced context of the IP’s instructions. The claimant’s consultations with counsel and the IP’s psychiatrist were reasonable steps to assess capacity. The Ombudsman’s reliance on hindsight (Dr Isaacs’ December 2020 certificate) was flawed.
  2. Costs Updates: The Ombudsman’s finding that the claimant provided inadequate costs updates was not irrational. The claimant had failed to inform the IP promptly when costs exceeded initial estimates (£43,500 and £75,000).
  3. Remedy: The court quashed the £15,692.60 award (20% reduction) linked to the flawed capacity finding but upheld the £35,500 refund for poor costs communication.
  4. Costs of the Claim: The claimant was awarded 40% of its costs (£19,036), reflecting partial success and criticism of its late evidence filing.

The court refused permission to appeal, concluding the Ombudsman’s decision was irrational only in its approach to capacity, not in its broader reasoning on costs.

Indemnity Costs Awarded For Unsubstantiated Fraud Allegations In Original Pleading.

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Background

The case of Logix Aero Ireland Limited v Siam Aero Repair Company Limited [2025] EWHC 1283 (KB) arose from a commercial dispute involving the sale of two Pratt & Whitney 127 aircraft engines. The parties had entered into a Letter of Intent (LOI) on 4 July 2024 (signed by the defendant) and 9 July 2024 (signed by the claimant), which was partially subject to the execution of subsequent Sale and Purchase Agreements (SPAs). Negotiations were conducted primarily by email. From 29 July 2024, a fraudster intercepted and manipulated email communications between the parties, leading the claimant to pay the purchase price of USD 824,900 into the fraudster’s bank account rather than the defendant’s. The defendant, having not received payment, refused to release the engines.

The claimant issued proceedings on 21 October 2024, seeking declarations, damages, and/or delivery up of the engines. The defendant applied on 27 December 2024 to strike out the claim under CPR 3.4(2)(a) and/or for reverse summary judgment under CPR 24.3, arguing the claim had no reasonable prospects of success. The defendant also sought indemnity costs due to the claimant’s original pleading, which included unsubstantiated allegations of fraud. The claimant subsequently submitted a draft Amended Particulars of Claim (draft APC), which removed the fraud allegations and reframed the claim around breach of a confidentiality clause and apparent authority.

Costs Issues Before the Court

The key costs-related issues before Mrs Justice Heather Williams were:

  1. Whether the defendant was entitled to indemnity costs due to the claimant’s original pleading, which included unsubstantiated allegations of fraud.
  2. The appropriate costs order following the court’s determination of the strike-out and summary judgment applications.

The Parties’ Positions

Defendant’s Submissions on Indemnity Costs:
The defendant argued that the claimant’s original Particulars of Claim improperly alleged fraud without sufficient evidential basis. The pleading included speculative assertions (e.g., para 11) suggesting the defendant’s complicity in the fraud, despite the claimant having no concrete evidence to support this. The defendant contended that such allegations were inappropriate and warranted indemnity costs under CPR 44.3(1), as they fell outside ordinary and reasonable conduct of litigation.

Claimant’s Submissions on Indemnity Costs:
The claimant accepted that the original pleading did not meet the strict requirements for pleading fraud but argued that it was an honest attempt to set out suspicions based on the limited information available at the time. The claimant emphasised the urgency of issuing proceedings due to French interim seizure orders and the lack of pre-action disclosure from the defendant. It was submitted that the inclusion of the fraud allegations did not justify an indemnity costs order.

The Court’s Decision

Indemnity Costs:
The court held that the claimant’s original pleading was inappropriate. The allegations of fraud were inadequately particularised and lacked a proper evidential foundation, contrary to the principles set out in Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1. The court rejected the claimant’s justification for the pleading, noting that the urgency of the French proceedings did not necessitate the inclusion of unsubstantiated fraud allegations. The defendant was awarded indemnity costs in relation to the original Particulars of Claim.

ATE Policy Deemed Insufficient Security For Costs Due To Fraud Avoidance Risk And Drafting Deficiencies

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Background

The case of Lloyds Developments Limited v Accor HotelServices UK Limited concerned an application by the Defendant, Accor, for further security for costs against the Claimant, Lloyds, which was in administration. The dispute arose from agreements related to the construction and management of a hotel in Glasgow. Prior to this application, Lloyds had already provided £900,000 in security pursuant to an order by Mrs Justice O’Farrell in July 2022, followed by a further £425,000 ordered by Mrs Justice Jefford in May 2024. An additional £600,000 was due to be paid six weeks before the trial, scheduled for November 2026. A further £75,000 was agreed under a Consent Order dated 2 May 2025, subject to potential substitution with an alternative form of security. The total security provided or ordered stood at £2,000,000. Accor sought an additional £1,162,336, while Lloyds accepted liability for a further £617,336 and proposed providing this via an After the Event (ATE) insurance policy rather than a payment into court.

Costs Issues Before the Court

The key costs issues before the court were: (1) whether an ATE insurance policy could adequately substitute for a payment into court as security for costs; (2) the sufficiency of the proposed ATE policy’s terms, including concerns about avoidance for fraud, termination of funding agreements, and sanctions clauses; and (3) the quantum of further security to be provided, including disputes over specific cost categories such as disclosure, expert reports, and trial preparation.

The Parties’ Positions

Accor’s Submissions: Accor argued that the proposed ATE policy was inadequate due to: (a) a clause allowing the insurer to avoid payment if the litigation funding agreement was terminated, which Accor contended was opaque and risky; (b) the potential for the insurer to avoid the policy if Lloyds’ claim was found to be dishonest or fraudulent; and (c) boilerplate exclusions for sanctions under foreign laws, which Accor argued introduced unnecessary uncertainty. Accor also sought a higher quantum of security, disputing Lloyds’ proposed reductions for specific cost categories.

Lloyds’ Submissions: Lloyds accepted the need for further security but contended that the ATE policy, including an Anti-Avoidance Endorsement (AAE), provided sufficient protection. It argued that the policy’s terms were standard and that the risk of avoidance for fraud was overstated. Lloyds also disputed the amount of additional security sought by Accor, proposing a lower figure based on proportionality and the assumption of a 70% recovery rate on costs.

The Court’s Decision

The court held that the ATE policy, in its current form, did not provide equivalent security to a payment into court due to two main deficiencies: (1) the lack of clarity in the policy’s wording regarding the insurer’s ability to avoid liability for fraudulent inception, and (2) a drafting lacuna in the definition of “Insured Liability” arising from the change of policyholder from Lloyds to its litigation funder. The court noted that while ATE policies with AAEs could be sufficient (as seen in Saxon Woods Investments Ltd v Costa), the general wording of the AAE in this case did not expressly exclude avoidance for fraud, creating a real risk of dispute. The court also rejected Accor’s concerns about sanctions clauses as fanciful in this context.

However, the court granted Lloyds 10 days to revise the policy to address these issues. If the revised policy met the court’s requirements, it could be accepted in lieu of a payment into court for the outstanding security (£600,000 plus the £75,000 amendment-related security). The court also determined the quantum of further security, awarding £882,336, accounting for adjustments to specific cost categories such as disclosure, expert reports, and trial preparation.

Finally, the court declined to order the release of funds already paid into court, as there was no evidence of a material change in circumstances or hardship justifying such a step. The parties were given 17 days to agree on the adequacy of any revised policy, failing which the court would determine the matter on written submissions or at a short hearing.