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Payment on Account Percentage Where Budgets Are Massively Exceeded | Overspend By Paying Party As Evidence Costs Were Reasonably Incurred

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The King’s Bench Division’s decision in Winehouse v Parry & Gourlay [2026] EWHC 1970 (KB) addresses the calculation of interim payments on account where indemnity costs have been awarded and the receiving parties have departed substantially from their approved costs budgets without making variation applications under CPR r.3.15A.

Background

The claim was brought by Mr Mitchell Winehouse, suing as personal representative of the estate of his daughter Amy Jade Winehouse, the singer and songwriter who died on 23 July 2011. The defendants, Ms Naomi Parry and Ms Catriona Gourlay, had been close friends and associates of Amy Winehouse during her lifetime. Following her death, 141 items of property came into the defendants’ possession and were subsequently sold at Julien’s Auctions in Los Angeles in 2021 and 2023. The claimant alleged that the defendants were not entitled to possess or sell those items and were therefore liable to the estate for the proceeds of sale.

A six-day trial took place on 8 to 12 December 2025 and 27 January 2026 before Sarah Clarke KC sitting as a Deputy Judge of the High Court. The substantive judgment, handed down on 20 April 2026, found for both defendants on all issues and dismissed the claimant’s claims in their entirety. Every disputed issue of fact and law was resolved against the claimant, including findings that he and his witnesses had given unreliable evidence on material points.

Critically, the court found that the claimant and his witnesses knew prior to the 2021 auction that the defendants were selling a number of significant disputed items in that auction, and that contemporaneous emails and documents in the claimant’s possession proved this beyond doubt. This knowledge, and the evidence proving it, meant that the claim should never have been commenced and should have been withdrawn long before trial.

Following receipt of the embargoed draft judgment, the parties were unable to agree an order on costs and consequential matters. By an order dated 20 April 2026, the court adjourned the hearing generally and set a timetable for the exchange of costs schedules and the filing of written submissions and responsive submissions on the incidence, basis, quantum and interim payment of costs. The court indicated it would determine all issues on the papers unless an oral hearing was directed. Detailed submissions and responsive submissions were received from all parties, accompanied by approximately 500 pages of documentary evidence. A further costs issue was raised by the claimant’s solicitor by email shortly before the judgment on costs was finalised, to which the defendants’ solicitors responded. The court determined all costs issues on the papers.

Costs Issues Before the Court

Four distinct costs issues required determination. First, the incidence of costs: whether the general rule under CPR r.44.2 that costs follow the event should apply, or whether the court should depart from it and make no order as to costs. Second, the basis of assessment: whether costs should be assessed on the standard or indemnity basis. Third, the quantum of any interim payment on account under CPR r.44.2(8): specifically, what percentage of budgeted and unbudgeted costs should be ordered by way of interim payment, having regard to the approved costs budgets and the very substantial departures from those budgets by all parties. Fourth, whether any interim payment orders should be stayed pending a prospective application to the Court of Appeal for permission to appeal.

The costs budgeting position was central to the interim payment calculation. A costs management order had been made. The first defendant’s approved budget was £218,730 inclusive of VAT, against total costs as at 28 April 2026 of £715,361.98 inclusive of VAT, leaving unbudgeted costs of £496,631.98. The second defendant’s approved budget was £194,485.20 inclusive of VAT, against total costs of £487,132.15 inclusive of VAT, leaving unbudgeted costs of £292,646.95. Neither defendant had made a budget variation application under CPR r.3.15A. The claimant’s own total costs as at 28 April 2026 were £951,080.28 inclusive of VAT, against an approved budget of £160,850 inclusive of VAT, representing an overspend of approximately £790,000.

A further discrete issue arose very late in the costs proceedings when the claimant’s solicitor raised by email a challenge to the recoverability of the second defendant’s costs, relying on references to a conditional fee agreement and a social media statement by the second defendant suggesting she had secured third-party funding. The claimant submitted that the conflicting accounts raised a question as to whether some or all of the costs claimed by the second defendant were properly recoverable, and that any interim payment in respect of those costs would be particularly prejudicial given her alleged impecuniosity.

The Parties’ Positions

The claimant accepted that the defendants were the successful parties and that the usual starting point would be a costs order in their favour, but contended that this was an exceptional case in which the court should make no order as to costs. His primary submission was that the defendants had withheld explanations for their possession of the disputed items for several years, had failed to engage meaningfully with ADR until a very late stage, and had by their conduct driven the case to trial and caused costs to escalate beyond the approved budgets. He submitted that the defendants should not be permitted to recover costs caused by their own unreasonable conduct.

In the alternative, the claimant submitted that any costs orders should be made on the standard basis and reduced by 75% of each defendant’s total costs. On interim payments, the claimant proposed that any order should be limited to 90% of budgeted costs and 50% of unbudgeted costs, and that payment should be stayed pending determination of any application to the Court of Appeal for permission to appeal. The claimant argued that there was a real risk of injustice if interim payments were made and subsequently could not be recovered from the defendants given their alleged impecuniosity.

The defendants submitted that the claimant’s defeat was total and comprehensive and that there was no basis to depart from the general rule. They further submitted that the claimant’s conduct was unreasonable to a high degree and took the case out of the norm within the meaning of Excelsior Commercial and Industrial Holdings Ltd [2002] EWCA Civ 879, justifying an indemnity costs order in favour of both defendants. In support of that submission, the defendants relied on a range of conduct findings made in the substantive judgment, including the speculative and thin nature of the claim as issued, the late addition of serious allegations of deliberate concealment and breach of fiduciary duty, the aggressive pursuit of those allegations to the end of trial, the claimant’s courting of press publicity, and the finding that the claimant had told a newspaper journalist he had gone to the police when he knew he had not.

On interim payments, the defendants sought approximately 80% of each defendant’s total costs inclusive of VAT, submitting that there were good and unavoidable reasons why the defendants had been forced to depart from their budgets and that there was a high degree of confidence that a sum in excess of that figure would be recovered on detailed assessment. They submitted that payment should be made within 14 days and that no stay should be granted.

In response to the late CFA and third-party funding challenge, the second defendant’s solicitor confirmed that the second defendant was and remained personally liable for the total amount of her legal fees, that a CFA had at one point been agreed but had never been put into effect, and that the social media statement about third-party funding had been optimistic and premature as no funder had in fact materialised. Both defendants had provided signed costs schedules. The first defendant’s solicitor corroborated that account.

The Court’s Decision

The court ordered the claimant to pay the costs of both defendants on the indemnity basis, to be assessed if not agreed, with no reduction of 75% or any other amount. Interim payments were ordered in the sum of £569,330.99 to the first defendant and £394,521.89 to the second defendant, both payable within 14 days. No stay was granted. The court also refused the claimant’s application for permission to appeal.

Indemnity Costs

Applying the principles in Excelsior and as summarised by Coulson LJ in Thakkar v Mican [2024] EWCA Civ 552, and the concurring remarks of Lady Carr CJ in that case, the court was satisfied that the claimant’s conduct was unreasonable to a high degree and outside the ordinary and reasonable conduct of proceedings. The court found that the claimant had pursued a claim that was speculative, weak, opportunistic and thin, had issued proceedings without any positive factual case, had pleaded his claim in vague and sloppy terms, and had abandoned his claim to a number of items shortly before trial having failed to apply any critical thought to the list of items he was claiming. The court further found that the claimant had significantly expanded his claim at a very late stage by adding allegations of deliberate concealment and breach of fiduciary duty, both of which were dismissed, and that these late additions significantly expanded the seriousness of the allegations, the scope of the evidence, the issues in dispute and the length of the trial.

The court found that the claimant had made grave, unjustified and demonstrably false allegations of dishonesty and deceit against both defendants and pursued these aggressively to the end. The allegations included deliberate concealment (put on the basis that the defendants had deliberately deceived the claimant by lying to him about their possession of the disputed items and their intention to auction them), breach of fiduciary duty (based on the assertion that the first defendant had deliberately, knowingly and repeatedly deceived the claimant in order to derive significant, improper, financial gain), and theft (allegations made within days of the 2021 auction that the defendants had deliberately removed items from the estate’s lockup without the estate’s knowledge or consent). The court found these claims to be totally unfounded and was extremely critical of the claimant for making them.

The court further found that the claimant deliberately courted publicity in a way that was calculated to exert pressure on the defendants and cause significant damage to their reputations. He gave an exclusive statement to The Sun newspaper published on 3 November 2023 (the day after the claim was served) which plainly alleged that the defendants had sold items that they were not entitled to sell and which did not belong to them, for the purpose of achieving significant financial gain and thereby depriving the Amy Winehouse Foundation of funds. At a court hearing in July 2024, the claimant’s instructed counsel stated in open court in front of members of the press that there was “evidence of suspicious circumstances surrounding these auctions”. In an article in the Sunday Times Magazine published on 14 April 2024, the claimant stated that he had “gone to the police” about the case and repeated this on oath at trial. However in cross-examination he conceded that this was untrue and the court found that it could not see how “telling a newspaper journalist that he had gone to the police when he knew he had not, can be anything other than deliberate and when coupled with his accusation that the defendants had stolen the Items from the lockup, was plainly intended to damage the defendants’ reputations and probably also to put pressure on them to give him the proceeds of sale of their Items”.

The court rejected the claimant’s submission that the trial of this litigation was caused by the defendants’ refusal to accept his offers of settlement or mediation. A review of the pre-trial correspondence demonstrated the aggressive and unpleasant way in which the claimant’s solicitor pursued the defendants and made offers of settlement which only ever amounted to requiring the defendants to concede his claim and make payments of money to him, whilst leaving him free to continue to publicly make serious accusations of dishonest, deceitful behaviour against them. At no point did the claimant ever properly consider the explanations provided by the defendants, nor the inherent weakness of his own case. On the contrary his response was to disbelieve the defendants and make additional, even more serious allegations against them shortly before trial.

The court found that the defendants were fully entitled to defend their personal and professional reputations to the end, and that they had no other realistic option given the claimant’s serious and damaging allegations, his aggressive conduct throughout, his refusal to accept their explanations, his unrealistic settlement offers and the real risk that he would thereafter be free to continue making public allegations of deceit and dishonesty against them.

As Lady Carr CJ observed in Thakkar, an unnecessarily aggressive approach to litigation is unacceptable. The court found that the claimant’s high degree of unreasonable conduct extended into every facet of the proceedings: pre-trial, at trial, and in respect of his unreasonable and unrealistic approach to the issue of costs. The court noted that the claimant’s costs submissions themselves demonstrated that he had no insight into his own failings and continued to conduct the litigation in a similar vein, making baseless allegations against the defendants in an attempt to avoid the obvious costs consequences of the total failure of his claim.

No Costs Reduction

The court declined to reduce the amount of costs payable by the claimant by any amount. The claimant would be liable for the total costs incurred by both defendants subject to assessment if not agreed. The court found that the claimant’s high degree of unreasonable conduct, extending into every facet of the proceedings (pre-trial, at trial, and in respect of his unreasonable and unrealistic approach to the issue of costs), fully justified the making of indemnity costs orders in favour of both defendants with no reduction. The court noted that quantum would ultimately be a matter for a costs judge to determine on detailed assessment.

Interim Payments | The Court’s Reasoning

In assessing what was a reasonable amount for interim payment under CPR r.44.2(8), the court estimated the likely level of recovery on an indemnity costs basis by each defendant and allowed a margin for error. The court took into account that the claimant’s total costs as at 28 April 2026 amounted to £951,080.28 (inclusive of VAT) against budgeted costs of £160,850 (inclusive of VAT), an overspend of approximately £790,000. The court found it inevitable that the defendants were also forced to significantly exceed their budgeted costs to meet the unreasonable way in which the claimant deliberately litigated and pleaded his claim. It was notable however that the claimant’s total costs were significantly higher than the total costs incurred by either defendant.

The court applied the principle that where indemnity costs have been ordered, doubts as to whether the item of cost in question was reasonably incurred, or reasonable in amount, are resolved in favour of the receiving party (CPR r.44.3(3)). The court considered that the additional costs incurred by the defendants, over and above the costs budget, were reasonably incurred as a result of the claimant’s unreasonable conduct of this litigation and that the vast majority of these costs were therefore likely to be recovered. The court also took into account that the defendants’ costs would undoubtedly have increased from the figures quoted in their April 2026 costs schedules due to the way in which the claimant had chosen to unreasonably litigate the issue of costs.

The court further considered that there were good reasons why the first defendant’s total costs were significantly higher than the costs of the second defendant. The court estimated that the reason the trial overran by three days (taking six court days to complete rather than the three days listed) was largely due to the additional allegations of deliberate concealment and breach of fiduciary duty and the significant time taken up in evidence and submissions dealing with the facts and law caused by these matters. These matters would inevitably have significantly increased the time and costs expended by the defendants pre-trial. This applied to both defendants but was particularly relevant in respect of the total costs incurred by the first defendant, as she was alleged by the claimant to have been the person mainly responsible for the deliberate concealment, and was directly involved in all the evidence and matters relevant to this issue. In addition, she alone faced the allegation of breach of fiduciary duty.

Taking all these factors into account, the court considered that the likely level of recovery for each defendant would be the full amount of budgeted costs and at least 85% of unbudgeted costs. Allowing a margin for error, the court reduced the interim payment figure to 90% of budgeted costs and 75% of unbudgeted costs, both inclusive of VAT. This in the court’s view arrived at a reasonable amount for each defendant to receive by way of interim payment.

For the first defendant, this resulted in an interim payment order of £569,330.99, calculated as £196,857 (90% of budgeted costs inclusive of VAT) plus £372,473.99 (75% of unbudgeted costs inclusive of VAT). For the second defendant, this resulted in an interim payment order of £394,521.89, calculated as £175,036.68 (90% of budgeted costs inclusive of VAT) plus £219,485.21 (75% of unbudgeted costs inclusive of VAT).

The Late Challenge to Recoverability

The court dealt briefly with the claimant’s late challenge to whether the second defendant was in fact liable to pay the costs she claimed to have incurred. The claimant relied on an assertion that the second defendant had apparently made on social media in March 2024 that she had secured a third-party funder, a statement by her solicitors in December 2024 that the second defendant “has a CFA with this firm”, and a later statement in her costs submissions that “a CFA was agreed at one point but no costs were incurred under it. Ms Gourlay was obliged to pay them regardless of the outcome. She is heavily indebted to her solicitors.”

The court found that the claimant’s attempt to raise this further issue so late in the day was unimpressive and provided further evidence that he was continuing to drive up the costs of all parties by raising new, weak arguments to bolster his already weak costs submissions, and find a way to avoid paying the costs orders to which the defendants were fully entitled. The court accepted the explanations provided by the defendants and their solicitors. In particular the court noted that both defendants had provided signed costs schedules which carried obligations of truthfulness, not only on the defendants but also their solicitors. It would be a grave and serious matter to give misleading information in these schedules and in the defendants’ submissions to the court regarding the quantum of costs incurred, the basis for those costs and the second defendant’s liability to pay. The court made it clear that it fully accepted the figures given in the costs schedules of both defendants, and the explanations provided by them and their solicitors regarding the basis of their liability to pay these costs. This was consistent with the court’s findings at trial that the defendants were and are credible and truthful witnesses.

The court further noted that the defendants’ solicitors had conducted the difficult litigation properly and appropriately, despite coming under significant and unreasonable pressure from the claimant and his solicitors, including being bombarded with aggressive and unpleasant correspondence and serious allegations of impropriety against the first defendant and her solicitor, which the court found to be unfounded and improper.

Time for Payment and No Stay

The court ordered the claimant to pay both interim payment orders within 14 days of the date of the order, in accordance with CPR r.44.7. The claimant plainly had ready access to the funds to satisfy these orders and there was no reason why the defendants or their solicitors should wait longer than that to receive these funds, particularly given both defendants’ parlous financial situations which had been caused by the claimant’s unreasonable behaviour.

The court declined to stay the interim payment orders pending any application to the Court of Appeal for permission to appeal. The court adopted the defendants’ submissions that the risk that the claimant may succeed on appeal was limited, and in any event his grounds related only to the Category B disputed items, meaning that there was no appeal against the court’s dismissal of his claim in respect of the Category A and Category C items. In those circumstances, in the unlikely event that the claimant was granted permission to appeal and ultimately succeeded to this limited extent, he would still be liable for substantial adverse costs orders.

Conclusion

The decision illustrates the court’s approach to interim payments on account where indemnity costs have been awarded and both sides have massively exceeded their approved budgets without making variation applications. The court treated the paying party’s own overspend (approximately £790,000 against a budget of £160,850) as affirmative evidence that the receiving parties’ departures from budget were reasonably incurred, particularly where those departures were caused by the paying party’s unreasonable conduct. By applying the indemnity costs principle in CPR r.44.3(3) that doubts are resolved in favour of the receiving party, and estimating likely recovery at 100% of budgeted costs plus at least 85% of unbudgeted costs before applying a margin for error, the court arrived at interim payment orders representing 90% of budgeted and 75% of unbudgeted costs. This is a substantially higher recovery rate on unbudgeted costs than would ordinarily be expected, and reflects both the indemnity basis of assessment and the court’s finding that the excess costs were caused by the paying party’s unreasonable litigation conduct.

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Indemnity Costs After Discontinuance And Apportionment Of Costs Liability Between Multiple Claimants

Costs on Discontinuance, Indemnity Costs, New Costs Blog, Payment on Account

The Business and Property Courts’ decision in Stuart Allen & Ors v East Lindsey District Council [2026] EWHC 1863 (Ch) addresses when costs following discontinuance should be assessed on the indemnity rather than standard basis under CPR r 38.6, and how costs liability should be allocated in multi-party litigation where claimants pursue individual claims based on similar allegations.

Background

The claim arose from a dispute between the owners or former owners of caravans stationed at the Kingfisher Caravan Park in Ingoldmells, Skegness, and East Lindsey District Council, the freehold owner of the park. The council, through companies to which it had delegated the relevant functions, granted licences to caravan owners to keep their caravans on the site. Until 2017, those licences had been granted annually. Following events in the period after that, new licence terms were entered into in 2020, comprising a licence agreement and an extension agreement. The claimants challenged whether the council was entitled to impose those new terms.

The issues raised included whether the council had, through representations made on its behalf, estopped itself from imposing new terms. The claimants sought declaratory relief on that basis, and also advanced claims that the council had failed to comply with its public law duties and/or had breached their ECHR property rights. All claims were defended.

Proceedings were issued on 9 November 2021. The defendant initially applied to strike out, which Mr Ingham, appearing for the claimants, characterised as essentially an attempt to regularise the way in which the allegations were pleaded. That application was resolved by a consent order made by Deputy Master Marsh on 17 February 2022. Following that order, 89 claimants were identified as pursuing claims, as set out in the schedule to the order.

A costs and case management conference took place on 14 May 2024 before Master Brightwell. At that hearing, a direction was given that ten test claimants would be identified, with five to be selected by each side. The remaining claims were stayed in the meantime. Difficulties then arose in ascertaining the identity of those ten claimants, leading to a further application by the defendant, heard on 14 March 2025. At that hearing, the court varied the provisions for identifying the test claimants, allowed claimants to indicate they did not wish to continue if so advised, and made an unless order providing that non-compliance would result in automatic strike-out.

Following the March 2025 order, a trial date was fixed and the defendant proceeded to prepare for trial, including preparing its own evidence for exchange in accordance with the court’s directions. The claimants did not exchange any evidence. Shortly before the trial, which had been listed for November 2025, the remaining claims were discontinued on or around 22 September 2025. Deputy Master Arkush made an order on 29 September 2025 giving directions to enable the defendant to make a costs application. Master Brightwell extended time for compliance with that order, and the matter came before him on 13 May 2026.

It is worth noting that, by the time of the hearing, only the defendant had filed evidence and a skeleton argument. The claimants had instructed counsel late in the day, and no skeleton argument or evidence had been filed on their behalf.

Costs Issues Before the Court

The defendant, East Lindsey District Council, applied for costs orders in two distinct respects. The starting point was CPR r 38.6, which provides that a discontinuing party is liable to pay the defendant’s costs up to the date of discontinuance on the standard basis, unless the court orders otherwise. The defendant sought a different order in two respects.

The first issue concerned the basis of assessment. The defendant sought an order that costs be assessed on the indemnity basis rather than the standard basis, relying on the conduct of the claimants throughout the proceedings and, in particular, during the period leading up to discontinuance.

The second issue concerned the allocation of costs liability as between the 89 individual claimants. Because this was multi-party litigation in which each claimant pursued their own individual claim rather than a single common claim, the court was required to determine how costs liability should be apportioned across the claimant group. The defendant’s draft order divided the costs of the claim into seven distinct periods. For periods 4 and 6, which covered the phases immediately following the first CCMC and the second order respectively, and during which the bulk of the work was carried out in relation to test claims (ten test claimants having been identified in each case), the defendant proposed that costs be payable jointly and severally by the test claimants for the relevant period. For all other periods, the proposal was that costs be payable jointly and severally by all claimants who had not already discontinued at an earlier date.

A further issue arose following the substantive costs determination: whether the court should order a payment on account of costs, and if so, in what amount and on what basis, having regard to the different periods and the different bases of assessment applicable to each.

The Parties’ Positions

On the allocation of costs liability between the claimants, Mr Ingham was largely neutral. He recognised the potential for conflict between different classes of claimant, namely those who were test claimants at any given point and those who were not. He did not advance a positive case for a different order to that proposed by the defendant in paragraphs 1 to 7 of the draft order.

Mr Lees KC, for the defendant, submitted that on analysis there were, in this case, no individual costs; all costs for each of the identified periods were effectively common costs. He supported that submission in particular by reference to the fact that the claimants had never served any witness evidence, meaning that the allegations made by individual claimants had never been fully articulated and could not therefore have been individually addressed by the defendant. He submitted that the proposed seven-period structure, with joint and several liability limited to the test claimants for periods 4 and 6, was the fairest available order, given that the non-test claimants’ claims had been stayed during those periods.

On the question of indemnity costs, Mr Lees advanced three broad points. First, he relied on what he characterised as a general failure by the claimants to prosecute their claims properly, most notably in the final period when no evidence was exchanged and the claims were then discontinued without prior warning, shortly before trial. He did not rely on the fact of discontinuance itself, but on the timing of it and the context of earlier defaults. He also referred to the claimants’ initial objection to the defendant having any role in selecting test claimants, and the subsequent reluctance to proceed once the defendant’s nominated claimants had been identified. Second, he noted, with a light touch, that earlier costs orders made in the proceedings remained unpaid. Third, he submitted that the claim had been pleaded in a scattergun fashion, with a lack of specificity, and that because witness evidence had never been produced, the defendant had remained uncertain as to the precise case it had to meet.

Mr Ingham submitted that none of the factors identified by the defendant, individually or cumulatively, crossed the threshold required for an indemnity costs order. He argued that the fact of discontinuance was, if anything, a point in the claimants’ favour, and that public policy considerations militated against penalising claimants who discontinue by imposing indemnity costs.

On the question of a payment on account, Mr Lees sought payments calculated at 90 per cent of budgeted costs for periods falling within the costs budget, and 50 per cent for costs incurred in earlier periods before the budget was set. Mr Ingham raised concerns about the overall level of costs, particularly in relation to the costs of the application itself, but did not advance a specific alternative figure.

The Court’s Decision

Allocation of Costs Between Claimants

On the allocation of costs liability between the claimants, Master Brightwell accepted the general principles applicable to multi-party litigation, drawing on the Court of Appeal’s decision in Stumm v Dixon (1889) 22 QBD 529, as summarised in the recent decision of Nicklin J and Senior Master Cook in Lawrence v Associated Newspapers Ltd [2025] EWHC 3207 (KB). The principle derived from Stumm v Dixon is that each defendant is liable for all costs properly incurred by the plaintiff in maintaining the action, except as to costs caused solely by a separate defence available only to that defendant. The same principle applies, mutatis mutandis, to claimants.

The court also had regard to the analysis of Nugee J in Rowe v Ingenious Media Holdings plc [2020] EWHC 235 (Ch), which distinguished between cases where claimants have a true joint claim and cases where a number of claimants join forces to bring what is in effect a single claim or group of claims, and cases where each claimant has their own individual claim. As Nicklin J and Senior Master Cook observed in Lawrence, circumstances may range from large scale GLO or quasi-GLO claims involving hundreds or thousands of claimants, where each claimant is not connected and has their own individual claim, to cases where the claimants have effectively combined together to present claims based upon common allegations against a single defendant.

Master Brightwell found that this was not a true single claim where various claimants were entitled to pursue the same cause of action. After the 2022 order, 89 different claimants had each pursued their own claim in relation to their own caravan, or former caravan, albeit based upon similar allegations. It seemed inevitable that each claimant would have had their own case as to what was said to them and as to the nature of the representations that were made.

In principle, this was a claim where the common costs should be paid jointly and severally by the claimants as a whole or perhaps between the test claimants at any given time, and where any individual costs should be borne by the claimant to whom those costs related. Mr Lees submitted that in the circumstances of this case there were, on analysis, no individual costs; all of the costs for each of the given periods were common costs. That point was supported particularly by the submission that the claimants never served any evidence, so the allegations made by individual claimants did not fall to be addressed or simply could not be addressed by the defendant, they never having been fully set out.

Master Brightwell considered from the submissions that Mr Lees was probably correct that a very large proportion of the costs were common costs. However, the court did not have all of the information that passed between the parties, nor all of the information contained in any disclosure documents that were considered, and had not been taken to all aspects of the witness statements that were prepared on behalf of the defendant. In relation to the two periods which seemed to be the most significant periods, identified as periods 4 and 6, when there were test claims, he did not consider it appropriate to close off the possibility of claimants arguing that identifiable costs were individual to other claimants and therefore that they should not be jointly and severally liable for the whole.

With that modification, the court made the order sought by the defendant in paragraphs 1 to 7 of the draft order. In relation to periods 4 and 6, the costs liability would be limited to the test claimants. That was the order sought by the defendant and the claimants did not contend for a different order. Mr Lees fairly submitted, and the court accepted, that that was likely to be the fairest order to the claimants, for the simple reason that the claims for the non-test claimants were stayed during the material period. Master Brightwell accepted there would be cases where it would not be appropriate to make that order and where all of the claimants should remain liable for common costs. However, in circumstances where the claimants had not responded to the application with evidence or made any argument for such an order, it did not seem appropriate to consider making one.

Indemnity Costs

The court then turned to the principal argument, which was whether the costs should be ordered on the standard or on the indemnity basis. The court has a broad discretion which is to be guided by principle as to what order to make on costs. The test as to when indemnity costs may be ordered has been stated in broad terms as whether the conduct of the paying party is outside the norm or unreasonable to a high degree. Master Brightwell noted that there is no requirement that the paying party’s conduct is deserving of moral opprobrium or even exceptional. The purpose of an indemnity costs order is to compensate the receiving party for costs they have incurred as a result of the conduct of the paying party and not to punish. It follows from this that there must be some connection between the costs that have been incurred by the receiving party and the conduct of which complaint is made.

Master Brightwell considered it appropriate to stand back and consider both the proceedings as a whole and the conduct of the claimants in the individual periods that had been identified in the draft order.

Mr Lees’ submissions were divided essentially into three points. First, he relied in general terms on what he characterised as a general failure on the part of the claimants to prosecute their claims in any proper way, most particularly in the final period when, without prior warning, there was no provision of evidence on behalf of the claimants and the claims were then discontinued. He made clear that he did not rely on the fact of discontinuance itself but on the time at which that was done, shortly before the trial, and in light of the other defaults which had occurred previously. He referred to the fact that initially the claimants had objected to the defendant having any role in the selection of test claimants and that when claimants were put forward by the defendant there was then a lack of willingness to proceed with the claim.

Master Brightwell observed that this, to some extent, exemplified the difficulties which solicitors may have when acting on behalf of a large number of claimants who each themselves have what may be a moderately small claim but, when all the claims are put together, the claim is far more substantial. It also showed the difficulties that may be experienced when claimants who are pooling costs, and perhaps a relatively small amount of costs each, become aware of the burdens which will be placed on them personally in relation to the proceedings. However, if the claimants wished to rely on such points in order to explain their conduct during key periods of this litigation, they ought to have filed evidence in response to the costs application.

Master Brightwell accepted, having dealt with the case management of this claim since the beginning of 2023, that there had been repeated missed deadlines on the part of the claimants and it had clearly proved difficult for the defendant to pin down which claimants were pursuing claims and what each claimant’s case on the facts was or was going to be.

The second point Mr Lees made, as he indicated with a light touch, was that costs orders which had been made earlier in the proceedings had not been met. They remained unpaid. That itself might not be outside the norm, but it was a point that could be viewed together with the points made in relation to conduct.

The third general point made on behalf of the defendant related in broad terms to the merits of the claim and the way in which the claim had been presented. Mr Lees described the allegations made as being of a scattergun nature. He commented that there was a lack of specificity in the way in which the claim had been pleaded and, because witness evidence had not been produced, the defendant had remained unaware of the precise allegations it had to meet.

In relation to the period in which the defendant was preparing for trial, Master Brightwell considered there was some force in this third point, although he noted that an order was made for simultaneous exchange of evidence rather than provision for service of evidence on behalf of the claimants first (i.e. the defendant was also going to have to prepare its own evidence without sight of the claimants’ evidence). Furthermore, as far as the earlier applications made in these proceedings were concerned, costs orders had already been made dealing with them. The first application was resolved by consent. Whilst Mr Lees indicated that the defendant quite properly took into account the fact that it was using public money in defending the proceedings and therefore decided not to pursue further interim applications, the conventional way in which issues about the way in which the claim is presented are resolved is by interim applications. As far as the complaint of lack of specificity in the particulars of claim was concerned, it is open to a defendant to make a request and/or seek an order under Part 18 for further information.

As far as the final point was concerned, i.e. the complaint about the way in which the claim was pleaded or the merits of the claim, Master Brightwell did not consider that it had been established that the claimants behaved unreasonably to a high degree. That left the first point, to be considered together with the fact that outstanding costs orders had not been met.

Mr Ingham submitted that none of the factors identified by the defendant crossed the threshold for the imposition of indemnity costs and that the same was true when one viewed the factors as a whole. He suggested that the fact the claims were discontinued was in fact a point in the claimants’ favour rather than a point against them, and that for public policy reasons claimants who discontinue should not be penalised by the making of indemnity costs orders.

Master Brightwell considered the position more nuanced than that. A claimant who discontinues their claim in good time when they become aware of impediments to their claim should not generally be penalised through the making of an indemnity costs order. However, Mr Lees made clear that was not really the basis upon which the defendant made this application. It was the fact of discontinuance viewed through the lens of everything else that had occurred. It seemed to the court that, at least for a significant part of the latter period during which this claim had been proceeding, the conduct of the claimants had indeed been unreasonable to a high degree and outside the norm. The impression the court had was that there was no serious attempt to prepare the claim for trial, even though the defendant was preparing for trial, and the claimants had not sought in evidence to rebut that impression.

Taking into account to the extent possible the fact that a multi-party claim of this kind would present challenges and difficulties for the claimants’ solicitors, there had for a significant period been a failure properly to communicate, most notably in the final period, after the March 2025 order was made. That, in Master Brightwell’s judgment, led directly to the defendant incurring costs which would have been avoided if the claimants had through their solicitors properly considered the viability of the claims at an earlier stage.

With all of these points in mind, and standing back, Master Brightwell did not consider the claimants’ conduct was outside of the norm in the early periods, and in any event the fact the court had already made costs orders in relation to matters in those periods militated quite strongly in favour of a standard costs order governing the claim generally then. He accepted there would have been a period after the first CCMC when the parties were considering their position and identifying principal claimants. In that period it did not seem to him there should be an indemnity costs order either. The period where he did consider there should be such an order was period 6. It was clear that was when the bulk of the work was carried out by the defendant. For the reasons he had given, he considered that the costs incurred by the defendant in that period could be related to the conduct of the claimants which was outside of the norm and was subject to criticism accordingly.

Period 7 Master Brightwell considered to be in a different category. The mere fact that a party does not file any evidence, whilst he accepted it was of a piece with earlier conduct, did not itself mean that costs were incurred by the defendant other than costs which it would have to have incurred in any event in making the application. So the costs would be on the standard basis for period 7.

Payment on Account

When ordering costs be subject to detailed assessment the court is required to consider whether to direct that a payment be made on account of those costs. Master Brightwell’s concern about that order was the possibility that individual claimants might wish to pursue arguments that part of the costs were individual and not common costs. That was an issue which arose in relation to periods 4 and 6. That consideration, therefore, did not arise in relation to the other periods. As an order had been made that the claimants were to be liable jointly and severally, subject to identifying each element of costs with the relevant period, there was no reason not to order a payment on account.

As far as the periods other than 4 and 6 were concerned, Master Brightwell was satisfied the figures sought, which had been calculated on the basis essentially of 90 per cent of budgeted costs, where they fell within the budgeted costs, and 50 per cent for costs incurred previously, were in line with authority and appropriate. Whilst Mr Ingham had referred to the level of costs generally, particularly in relation to the costs of the application itself, there was no reason to suppose that those deductions were inappropriate in a case which had been costs managed.

As far as periods 4 and 6 were concerned, which were all budgeted costs, and where the figures currently in the draft order reflected 90 per cent of the budgeted costs incurred, Master Brightwell considered that a greater reduction was required. Following discussion with counsel on this point, he considered the sum for those payments should be 60 per cent of the budgeted costs, so 60 per cent of the sums attributable to those periods would be payable on account. That might be slightly overgenerous to the claimants, but in circumstances where he did not have clear sight on precisely what work was done by the defendant, it seemed appropriate to resolve the doubt in favour of the claimants and to leave further argument for detailed assessment.

Discontinuance Costs After Resisting Application

Indemnity Basis Costs Following Discontinuance

CPR 38.6: Discontinuance And Costs – The Legal Principles

CPR 38.6 | Post-Discontinuance Conduct Can Be Considered

Joint Several Costs Liability | Lawrence v ANL

Several Liability Security For Costs | Rowe v Ingenious [2020]

TMC Legal provides advice on indemnity costs and CPR Part 44 for solicitors across England and Wales.

Indemnity Costs Awarded Against Professional Parties Who Engaged In Conduct Intended To Deceive the Court | Complicity in Sham Documents

Indemnity Costs, New Costs Blog, Payment on Account, Trustees & Estates

The High Court’s decision in Teixeira v Moaven [2026] EWHC 1542 (Ch) addresses the costs consequences where professional parties were found complicit in creating sham declarations of trust intended to deceive the court.

Background

This judgment, handed down by Master Bowles (sitting in retirement) on 30 June 2026, concerns the costs consequences following a five-day trial in which certain declarations of trust were found to be sham documents. The substantive judgment, reported at [2026] EWHC 1215 (Ch), had been handed down on 22 May 2026.

The underlying dispute centred on four properties held in the sole name of Amir Abbas Moaven (Abbas). On 19 April 2012, at a time when Abbas was gravely ill, he executed a series of documents described as declarations of trust (the Declarations of Trust). Those documents purported to confirm the existence of informal trust arrangements between Abbas, his brother Amir Ahmed Moaven (Amir), and their mother Shokouh Nazemi Tehran (Mrs Nazemi), whereby all three were said to have pooled their assets and to hold them in equal one-third shares. The purpose of the Declarations of Trust was to reduce the apparent size of Abbas’ estate, so as to diminish the claims of his wife, the Claimant Gabriela Mozerle Teixeira (Gabriela), their two children, Elis Teixeira Moaven (Elis) and Amir Aryan Moaven (Aryan), and to avoid taxation on the full value of his estate.

Following trial, Master Bowles determined that no such informal pooling arrangement had ever existed, that the Declarations of Trust were sham documents with no legal or equitable effect, and that the extensive evidence given by Amir at trial was a fiction designed to support the false narrative contained in the recitals to those documents. The Second Defendant, Behzad Faiz (Mr Faiz), was Abbas and Amir’s longstanding accountant. The Third Defendant, Marios Robert Pittalis (Mr Pittalis), was their longstanding conveyancing solicitor. All three, together with Abbas, were found to have been complicit in the creation and execution of the sham Declarations of Trust.

The procedural history leading to the trial was set out in detail at paragraphs 18 to 53 of the substantive judgment. In brief, Amir, Mr Faiz and Mr Pittalis had originally been named as executors of Abbas’ will. By order dated 23 July 2020, they were removed as executors and directed to account for the assets of the estate in their hands. They had failed to account properly, including in respect of rents accruing to the estate that had been paid instead to Mellcraft Ltd, a company controlled by Amir and incorporated by Mr Faiz as a receptacle for those rents. Simon Treherne (Mr Treherne) and Helen Bunker (Ms Bunker) were appointed by the court in 2020 as independent administrators of the estate in substitution for the removed executors.

By order of 2 May 2025, permission was granted to the independent administrators to bring proceedings as to the validity and effectiveness of the Declarations of Trust and as to the beneficial interests of Abbas’ estate, Amir and Mrs Nazemi in the properties (the Declarations of Trust claim). By the same order, Gabriela was given permission, later extended to Elis and Aryan, to bring proceedings under the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act), with the validity of the Declarations of Trust and the beneficial ownership of the properties to be determined within the context of both sets of proceedings. By order of 11 November 2025, the issues as to validity and beneficial ownership arising in both sets of proceedings were directed to be determined together, with Gabriela, Elis and Aryan acting as claimant in respect of those issues across both sets of proceedings.

By order of 3 June 2026, consequential upon the substantive judgment, the 1975 Act proceedings brought by Gabriela, Elis and Aryan were brought to a conclusion by way of settlement with the independent administrators. The costs application was heard on 3 June 2026, with the costs judgment handed down on 30 June 2026.

The Personal Interest of the Removed Executors

As accounting parties, Amir, Mr Faiz and Mr Pittalis each had a direct interest in the outcome of the trial. The extent of their accounting obligations as removed executors was necessarily dictated by the true extent of Abbas’ estate. If the Declarations of Trust had been upheld, their liability would have been substantially reduced.

By the court’s order of 11 November 2025, the independent administrators had been given permission to prosecute an account against the removed executors on the basis of wilful default. Amir had been in rent-free occupation of one of the properties (Holland Park) throughout his eight-year executorship. If Holland Park formed part of Abbas’ estate, all three removed executors were accountable for occupation rent. If the Declaration of Trust in respect of Holland Park had been valid, no such accountability would arise. Similarly, rents from another property (Harrow Road) had been diverted to Mellcraft Ltd. Had the relevant Declaration of Trust been upheld, the removed executors would have been accountable for only one third of the diverted rents rather than the whole.

More broadly, a number of leasehold properties had been transferred by the removed executors to Amir and Mrs Nazemi, in apparent breach of the self-dealing rule, and sold, traded or rented out by Amir, with rents paid into Mellcraft Ltd. If those leaseholds were shown to have formed part of Abbas’ estate, Amir, Mr Faiz and Mr Pittalis would be accountable to the estate for all losses. A finding that the Declarations of Trust reflected the truth of the pooling arrangements averred by Amir would have reduced the removed executors’ liability by two thirds. All three would have been well served had the case advanced by Amir succeeded.

Costs Issues Before the Court

The court was required to determine a number of distinct costs issues arising from the outcome of the trial.

The first and most fundamental issue was whether Amir, Mr Faiz and Mr Pittalis should be ordered to pay the costs of both Gabriela and her children and the independent administrators, and if so, on what basis. Costs on the indemnity basis were sought by both sets of receiving parties against all three of the removed executors. It was submitted that liability should be joint and several as between Amir, Mr Faiz and Mr Pittalis.

The second issue concerned the scope of the costs recoverable by each receiving party. Gabriela and her children’s claim was for the entirety of their costs of the proceedings, their claim having been fully resolved by the order of 3 June 2026. The independent administrators’ position was more limited: their entitlement to costs was confined to the costs of the trial leading to the substantive judgment, and did not extend to costs referable only to the general administration of the estate. A question arose as to whether costs described in their costs summary as “administrative” were properly referable to the trial and therefore recoverable as trial costs.

The third issue was whether the costs orders should be subject to any percentage reduction to reflect concerns raised by the paying parties as to duplication of work and resources between the two sets of legal advisers pursuing the same litigation objective, and as to any uplift in costs arising from the delay in initiating the Declarations of Trust claim, given that the dispute had been identified as early as 2013 but proceedings were not issued until July 2024.

The fourth issue was the quantum of any payments on account of detailed assessment, including the appropriate starting point and any further adjustments to reflect the concerns identified above. The question of the time allowed for payment also arose, given the substantial sums involved.

A further discrete issue arose in relation to Mr Pittalis specifically. His counsel submitted that, having been deceived by Amir’s dishonesty, he should bear no liability for the costs of either receiving party, and that Amir should instead be directed to pay his costs. In the alternative, it was submitted that his liability should be assessed on the standard basis, should not be joint and several, and should reflect only the costs attributable to his own conduct by way of a percentage of the overall costs.

The Parties’ Positions

Amir Ahmed Moaven

Through counsel, Ms Pemberton, Amir accepted liability for costs in respect of both Gabriela and her children and the independent administrators. It was candidly accepted that his conduct in advancing an entirely dishonest defence was manifestly outside the norm of acceptable litigation behaviour, and that he had no answer to the contention that costs should be assessed on the indemnity basis. Ms Pemberton also accepted that Amir’s costs liability should be joint and several with Mr Faiz and Mr Pittalis. She raised a question as to whether liability should also be shared by Mrs Nazemi’s estate, though the court noted that it was for those claiming costs to elect from whom costs were sought, and that if Amir wished to seek contribution or indemnity from Mrs Nazemi’s estate, he should have taken appropriate steps to do so.

Ms Pemberton’s primary submission on quantum was that the costs incurred by both receiving parties had been unreasonably incurred by reason of duplication and the unnecessary use of excessive resources, and that any costs order should be subject to a percentage discount to reflect that unreasonableness. She also raised the concern that costs had been inflated by the delay in prosecuting the challenge to the Declarations of Trust, and that this too should be reflected in a percentage reduction in recoverable costs.

Marios Robert Pittalis

Mr Pittalis’ position changed in the course of the proceedings. His earlier witness statement of 14 August 2025 had, at paragraph 15, entirely omitted any mention of the circumstances in which the Declarations of Trust had come into being and the fact that various alternatives, containing factually inconsistent recitals, had been prepared and executed before eventually alighting upon the formulation chosen to be advanced by way of the Declarations of Trust. His position at that stage, reflecting in essence the position advanced by Amir, was that he had simply drafted the Declarations of Trust as requested by Abbas.

His later witness statement of 30 January 2026, while for the first time acknowledging the context and circumstances in which the Declarations of Trust had come into being, nonetheless continued to assert their validity and contended that Gabriela and her children’s claims as to their validity should be dismissed. Reflecting that position, his skeleton argument robustly contended that Gabriela and her children’s claims as to the Declarations of Trust were ill-founded and that those claims should be dismissed.

By the end of the trial, all that had dissipated and Mr Pittalis was put forward by his counsel, Ms O’Neill, simply as someone who had become innocently involved in giving effect to Amir’s (and Abbas’) dishonest scheme. Reflecting that position, Ms O’Neill contended that her client should not have to pay any part of the costs of either Gabriela and her children, or those of the independent administrators. She contended, further, that her client, having been deceived by Amir’s dishonesty and duplicity, Amir should be directed to pay her client’s costs. In the alternative, she contended that any costs liability should reflect the difference in culpability as between her client and Amir and Mr Faiz, that his liability should not be joint and several, should be assessed on the standard and not indemnity basis, and should reflect, by way of a percentage of the overall costs, the costs attributable to Mr Pittalis’ conduct.

Behzad Faiz

Mr Faiz, although warned of the likelihood that costs would be sought against him, elected to take no part in the hearing on 3 June 2026, neither attending nor affording himself representation. He lodged a short statement as to his involvement as executor in respect of Abbas’ estate, which did not touch upon the circumstances or his own conduct in respect of the creation and execution of the Declarations of Trust.

The Court’s Decision on Liability for Costs

Amir Ahmed Moaven

The court accepted Ms Pemberton’s concession that Amir was liable for costs on the indemnity basis, jointly and severally with Mr Faiz and Mr Pittalis. His conduct in advancing an entirely fictional and dishonest case was manifestly outside the norm of acceptable litigation behaviour.

Marios Robert Pittalis

The court rejected Ms O’Neill’s submissions that Mr Pittalis had been deceived by Amir and should bear no liability. It was perfectly plain from the substantive judgment and from Mr Pittalis’ own detailed attendance notes of 17, 18 and 19 April 2012 that Mr Pittalis knew exactly what was going on and was fully involved in the creation and then selection of the sham Declarations of Trust.

He knew, as nobody else except Amir and Mr Faiz did before he gave his evidence at trial, that the multiple declarations of trust that he had prepared, setting out different and entirely inconsistent factual recitals, had been executed by Abbas. He knew, also and necessarily, that those recitals, given their inconsistency, could not each of them represent the truth. He was himself fully involved in the discussion on 18 April 2012 of the clutch of declarations then to hand, as to which declaration best served Abbas’ purpose in purportedly diminishing his estate, and which of those declarations were best capable of being sustained. As the court observed, the truth or falsehood of the declarations was never an issue in that debate. The declarations, and ultimately the Declarations of Trust, were, consistently with Mr Pittalis’ own conduct in 2002 when he drafted declarations of trust purportedly transferring all of Abbas’ then assets to his mother to preclude any matrimonial claims by Gabriela, never anything more than dispensable and interchangeable pieces of paper designed to obscure or hide the true facts from those concerned with Abbas’ estate. They were never intended to reflect or give effect to the truth.

Far from being duped by Amir, Mr Pittalis was complicit with Amir and with Mr Faiz in the creation and execution of the sham Declarations of Trust and complicit, therefore, in the creation of the state of affairs that had given rise to the trial. Notwithstanding that fact and his full and detailed knowledge of all the circumstances leading to the execution of those Declarations of Trust, Mr Pittalis chose both to give, in his 14 August 2025 witness statement, an abbreviated and misleading account of the provenance of the Declarations of Trust and, even after his disclosure in August 2025 of his attendance notes, to continue to assert the validity of the Declarations of Trust. His position only changed when, under forensic examination at trial, the true position as to the Declarations of Trust became indisputably clear.

In these circumstances, the court could see no reason at all as to why Mr Pittalis should not be liable in costs for his role in the conduct that, in complicity with Amir and Mr Faiz, had given rise to the trial. Correspondingly, given that complicity, there was no reason at all as to why that liability should not be joint and several with Amir and Mr Faiz. There was no sensible basis for any order that his costs, or any part of them, should be paid by Amir. Mr Pittalis was not an innocent bystander. He was a full participant in the creation of the sham Declarations of Trust and someone who had his own interest in asserting the validity of the Declarations of Trust. It had always been open to Mr Pittalis (or indeed Amir and Mr Faiz) to tell the truth about the Declarations of Trust and thereby obviate or reduce the need for the trial. They had each elected not to do so.

Behzad Faiz

The only distinction between Mr Faiz’ position and that of Mr Pittalis was that, unlike Mr Pittalis, he did not at any stage actively assert the validity of the Declarations of Trust. He was, however, equally as involved in their creation as was Mr Pittalis and equally, therefore, as responsible as Mr Pittalis for the creation of the state of affairs that had given rise to the trial. Like Mr Pittalis, it was in his interest to see the validity of the Declarations of Trust upheld. Like Mr Pittalis, he could have at any stage told the truth about the Declarations of Trust and obviated or reduced the need for the current trial. Like Mr Pittalis, he did not do so. Instead, he stood by while the costs of the trial were incurred and awaited events.

In these circumstances, looked at in the round, Mr Faiz’ position was in substance identical to that of Mr Pittalis, and Mr Faiz was ordered to pay the costs of the trial jointly and severally with Amir and Mr Pittalis.

The Basis of Assessment | Indemnity Costs

The court ordered that costs be assessed on the indemnity basis in respect of all three paying parties. As explained in Excelsior Commercial & Industrial Holdings Limited v Salsbury Hammer Aspden & Johnson [2002] EWCA Civ 879 and Esure Services Limited v Quarcoo [2009] EWCA Civ 595, the court’s discretion as to an award of indemnity costs arises where the conduct of the party in respect of whom indemnity costs is sought has been outside the norm to be expected in properly and reasonably conducted litigation. That conduct, as set out in CPR 44.5(a), includes conduct before as well as during the proceedings. It includes, but is not limited to, conduct amounting to misconduct or calling for moral condemnation. The width of the discretion as to conduct falling outside the norm is deliberately set wide to allow for the infinite variations and possibilities which arise in the course of litigation.

In this case the conduct of Amir, Mr Pittalis and Mr Faiz, which in concert with Abbas had given rise to the litigation, had been manifestly and radically outside the norm. They chose to deliberately put in place sham documents with the intention not merely of misleading those to whom they were deployed, but ultimately with the intention of misleading the court.

It was this latter aspect which, over and above the entirely dishonest case advanced at trial by Amir, rendered the case an appropriate one for an order for indemnity costs. The discussions that took place on 18 April 2012 centred upon the sustainability of the various forms of declaration of trust that might be put in play, meaning their sustainability, if challenged, before a court. Similar discussions took place after Abbas’ death, as recorded in Mr Pittalis’ attendance notes of 31 May 2012 and 12 April 2013, in respect of the Declarations of Trust as executed and in respect of their sustainability if challenged before the court.

The conduct of Amir, Mr Pittalis and Mr Faiz in respect of the Declarations of Trust was, from the very outset, directed towards the creation of sham documents which could be sustained in court and which might or would deceive the court. That conduct was, in consequence, central to and causative of the current trial and it was for that reason, and in consequence of their role in the creation of sham documents for those purposes, that they should now, the dishonest nature of the documents having been exploded, be liable on the indemnity basis for the costs that had had to be incurred in exposing the deceitful nature of the Declarations of Trust.

The position was compounded by the conduct of Mr Pittalis (and Mr Faiz) at trial. The court had already discussed Mr Pittalis’ active opposition, up until trial, to the attacks made upon the validity of the Declarations of Trust. Even, however, when the point came when he appreciated that the Declarations of Trust were unlikely to be sustained, his position was not to tell the truth as to the Declarations of Trust but to stand by and abide events. That was the position adopted by Mr Faiz from the outset. While in many circumstances it may be legitimate for a litigant to abide events, where the party standing by is both aware of the truth and, more importantly, is at the source of the conduct whereby, to his or her knowledge, an untrue case is being advanced before the court, that conduct is in itself sufficiently outside the norm as to warrant an award of indemnity costs.

In reaching these conclusions, the court did not found itself on any moral condemnation of the conduct of either Mr Faiz or Mr Pittalis, but rather upon the causative nature of their conduct in enabling a false case to be brought to court and in standing by while that false case was advanced. The court nonetheless observed that the conduct of Mr Faiz and Mr Pittalis, as professional men owing professional obligations of probity and integrity, was extraordinary. There appeared to have been in neither of them any loyalty to the truth, or even any interest in the truth. They manifestly saw nothing at all wrong in the preparation and deployment, on behalf of a client, of false and deliberately misleading documents. They appeared to have seen their role as entirely functional, having no interest or concern either in the content or consequences of the documentation that they brought into being.

Scope of Recoverable Costs

Gabriela and her children’s claim was for the entirety of their costs of the proceedings, their claim having been fully resolved by the order of 3 June 2026. The position of the independent administrators was different. Their prospective entitlement to costs was limited to the costs of the trial leading to the substantive judgment. They were not entitled to claim or recover, at this stage, any of their costs appertaining only to their steps and actions in relation to the general administration of Abbas’ estate.

The independent administrators contended that because Amir’s position had amounted to an assertion of a general partnership, and because much if not all of their investigations had borne upon or related to that question, all or virtually all of their incurred costs in the administration should be regarded as referable to the current trial. The court was not persuaded. It was plain from the letter before action dated 24 January 2023 that the question of partnership was not then an issue that the administrators had in mind. That position was confirmed by the July 2024 application itself, which did not advert to the question of partnership or seek declaratory or any relief as to that question. The question of partnership was only raised as an issue for trial in November 2025 and was not pursued at trial. Amir, in his December 2025 witness statement, stated in terms that he did not claim that he and Abbas had worked within a formal partnership.

In the result, the court indicated that for purposes of any determination of a payment on account, the independent administrators should exclude from their costs summary the bulk of the costs described in that summary as administrative. It would be for the costs judge to determine what, if any, element of these so-called administrative costs were properly related to the trial and recoverable as trial costs.

In regard to Mr Pittalis and Mr Faiz, they were before the court only in respect of the issues relating to the Declarations of Trust and the facts allegedly underlying those declarations. Unlike Amir, whose involvement with the 1975 Act claims embraced the issues relating to section 423 of the Insolvency Act and the application of section 10 of the 1975 Act, Mr Pittalis and Mr Faiz were not before the court in respect of any aspects of the 1975 Act claims, save as they related to the validity of the Declarations of Trust and the size of Abbas’ estate. They should not bear any liability for the costs of those aspects of those claims which did not bear upon those issues. The court made an allowance of ten percent to reflect those aspects of Gabriela and her children’s costs which were unrelated to the validity of the Declarations of Trust.

Duplication, Delay and Detailed Assessment

Ms Pemberton and Ms O’Neill drew the court’s attention to the possible dangers of duplication of work and of an excessive application of resources when two separate sets of legal advisers pursue the same litigation end. The court’s impression was that the bulk of the trial preparation had fallen on the independent administrators, with Gabriela and her children’s claim riding on their coat tails, and with therefore, on the face of it, little obvious duplication of work and resources. Nonetheless, it was not inappropriate for counsel to raise those concerns.

The answer, however, to that legitimate concern was not for the court to make some speculative deduction from the recoverable costs in order to reflect those concerns, but for those matters to be given proper consideration as and when there was a detailed assessment of the extent of the recoverable costs. The same approach was appropriate in dealing with any potentially uplifted or unreasonably incurred costs arising out of the fact that, although the dispute as to the validity of the Declarations of Trust was identified very early on (2013), the dispute was not crystallised by the inception of the current proceedings until the independent administrators’ application was issued in July 2024.

The court was in no position, at this stage, to determine, other than by way of pure speculation, whether the costs sought by the independent administrators or by Gabriela and her children had been unreasonably or unnecessarily uplifted by reason of delay and, if so, to what extent. That question could only be resolved by the detailed examination of the conduct of those claiming the relevant costs as part of the process of detailed assessment.

In that consideration, the costs judge dealing with any detailed assessment would necessarily be alive to the independent administrators’ case that any delay in initiating the Declarations of Trust claim had to be seen in the context of email correspondence from Amir in the summer of 2023, in which he repeatedly indicated his early intention to seek a declaration as to the validity of the Declarations of Trust. It was the independent administrators’ submission that, given those indications, they could not be criticised for any delay in initiating the Declarations of Trust claim. While the court thought there was force in those submissions, and certainly sufficient force to preclude the court from reaching any conclusion at this stage adverse to the independent administrators arising out of any alleged delay, the question of delay, the responsibility for that delay and any uplift in costs incurred consequential upon delay remained open for examination and determination as part of any detailed assessment.

Payment on Account

It was not submitted either by Ms Pemberton or Ms O’Neill that the court should not make an order for the payment of costs on account. Nor, given the order that costs be paid on the indemnity basis, was there any serious opposition to the proposition that, as a starting point in the determination of the reasonable sums to be paid on account of costs, the court should work on the assumption or rule of thumb that, on detailed assessment, the claiming parties would recover something in the order of eighty percent of their claimed costs. Nor was it suggested, other than in respect of time to pay, that the amount payable should be dictated or informed by the paying parties’ ability to pay.

What was submitted, reflecting the concerns as to duplication, use of excessive resources and, in respect of the independent administrators’ costs, the prospect or possibility that the costs estimates placed before the court by the independent administrators included costs not properly recoverable as costs of the trial, was that the court should make appropriate allowances in respect of those matters in order to avoid over recovery.

The court’s task, as explained by Christopher Clarke LJ in Excalibur Ventures LLC v Texas Keystone Inc. [2015] EWHC 566 (Comm), was not simply to find a figure which reflected the irreducible minimum to be expected on recovery. The court was looking to determine a reasonable sum which reflected all relevant factors. These included, on the one hand, that the claiming parties were already out of pocket in respect of the costs that they had had to incur and the desirability, where possible, of the court determining a figure which was sufficiently close to the likely figure recoverable on assessment as to avoid the need for such an assessment. On the other hand, where there was a perceived risk that the receiving party might not, or might not be in a position to, repay the sum awarded on account, then that factor would come into play in reducing to a ‘safe’ sum the amount payable on account.

The court was not persuaded that, in this case, that last risk was material. As a result of the findings at trial and the settlement consequential upon those findings of the 1975 Act proceedings, there would seem to be no significant risk that the two receiving parties in this case would be unable to repay any over recovery that might arise, were it to be the case that the amount directed to be paid on account turned out to exceed the costs recoverable on assessment.

That said, reflecting the submissions made by Ms Pemberton and Ms O’Neill and the concerns that they had properly raised, some further allowances in reduction of the eighty percent starting point were appropriate.

The costs estimate provided on behalf of Gabriela and her children placed their estimated costs in the sum of £229,361. In regard to Mr Pittalis and Mr Faiz, that base figure fell to be reduced by ten percent, to £206,425. Eighty percent of that figure would be £165,140. A further five percent of that base figure, however, should be deducted to reflect the matters which had been raised by counsel, resulting in an amount of £154,819, say £154,800, to be paid jointly and severally by Mr Faiz and Mr Pittalis on account of the costs incurred by Gabriela and her children. In Amir’s case, the ten percent deduction was inapplicable, with the result that while he was jointly and severally liable with Mr Pittalis and Mr Faiz in the sum of £154,800 payable on account, he was separately liable on account for an additional sum of £17,221.

In regard to the independent administrators, Mr Faiz and Mr Pittalis received no special allowance. However, for purposes of payment on account, the court left out of account the bulk of the costs described in their costs summary as administrative, resulting in a base figure for purposes of payment on account of £455,544.39. Eighty percent of that figure was £364,465.61. However, to further reflect the possibility that costs not properly referable to the trial had been included in the costs summary, the court considered it fair that the figure payable on account should reflect seventy percent of the base figure rather than eighty percent. That figure, for which Amir, Mr Pittalis and Mr Faiz were all jointly and severally liable, was £318,881, say £318,880.

In regard to the payment of these very substantial sums, the court considered it unrealistic to make the usual fourteen day order. Payment of the sums due on account was ordered to be made by 4 p.m. on 21 September 2026.

Conclusion

Amir, Mr Pittalis and Mr Faiz were ordered to pay the independent administrators’ costs on the indemnity basis. They were ordered to pay Gabriela and her children’s costs on the same basis. In respect of both sets of costs, their liability was joint and several. In regard, however, to Mr Faiz and Mr Pittalis’ liability for Gabriela and her children’s costs, their liability was subject to an allowance of ten percent to reflect those aspects of those costs which were unrelated to the validity of the Declarations of Trust. Both sets of costs were subject to detailed assessment, if not agreed, and the court gave permission for the immediate commencement of that assessment.

Substantial payments on account were ordered. Mr Faiz and Mr Pittalis were ordered to pay jointly and severally £154,800 on account of Gabriela and her children’s costs. Amir was jointly and severally liable with them for that sum, and separately liable for an additional £17,221. All three were ordered to pay jointly and severally £318,880 on account of the independent administrators’ costs. Payment was to be made by 4 p.m. on 21 September 2026.

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Highly Unreasonable Conduct Forfeits Any Right to Challenge The Winner’s Costs On Proportionality Grounds

Indemnity Costs, New Costs Blog, Proportionality

The Technology and Construction Court’s decision in The New Lottery Company Limited and Northern & Shell Plc v The Gambling Commission [2026] EWHC 1311 (TCC) addresses when cumulative unreasonable conduct from the outset of proceedings justifies indemnity costs across all claims, and whether proportionality is relevant to that assessment.

Background

This matter arose from proceedings brought in the Technology and Construction Court by The New Lottery Company Limited and Northern & Shell Plc (together, the claimants) against the Gambling Commission (the defendant), with Allwyn Entertainment Ltd, Allwyn International AG, and Camelot UK Lotteries Limited joined as interested parties. The proceedings concerned two distinct but intertwined claims: the Process Claim and the Modifications Claim, both arising from the fourth National Lottery competition, which the claimants described as “the most financially significant procurement process in UK history”.

The Process Claim challenged the conduct of the competition itself, including the evaluation and award process. The Modifications Claim concerned modifications made to the enabling agreement following the award decision. The claimants sought damages in excess of £1 billion and a declaration of ineffectiveness, which, if granted, would potentially have brought the National Lottery to a standstill. The proceedings were substantial, with the list of issues originally running to 64 issues in relation to the Process Claim and 17 issues in relation to the Modifications Claim.

Throughout the proceedings, the claimants advanced numerous serious allegations against the defendant and the interested parties, including allegations of bias, conflicts of interest, pre-determination of the competition outcome, retrospective amendment of reasoning to “retrofit” feedback to scores already awarded, and preferential treatment of Allwyn in the provision of Phase One Feedback. Many of these allegations were abandoned shortly before or during trial, often without notice and without explanation. Issues were dropped at the outset of trial, at the outset of closing submissions, and even during closing submissions, frequently only after the court or the other parties drew attention to the fact that they had not been addressed or could no longer be maintained.

The judgment, handed down by Mrs Justice Joanna Smith DBE, found against the claimants on all material issues. The consequentials hearing took place on 22 May 2026, at which the costs issues described below fell to be determined. By that stage, the claimants were represented by Mr Roger Mallalieu KC, without the assistance of any of their trial counsel. The defendant was represented by Ms Sarah Hannaford KC, Ms Rachael O’Hagan, and Mr Barney McCay, and the interested parties by Mr Mark Howard KC, Mr Malcolm Birdling KC, and Mr Jamie Carpenter KC.

Costs Issues Before the Court

Two principal costs issues required determination at the consequentials hearing.

The first was whether the defendant and the interested parties were entitled to recover their costs on an indemnity basis rather than the standard basis. It was common ground that the claimants were liable to pay the costs of both the defendant and the interested parties on a standard basis. The dispute was as to whether the basis of assessment should be elevated to an indemnity basis. The defendant and the interested parties sought indemnity costs in respect of the entirety of the proceedings, covering both the Process Claim and the Modifications Claim. The claimants conceded realistically that there were grounds for an indemnity costs order in respect of the costs of the trial of the Process Claim, or perhaps the costs of the Process Claim from the date of the pre-trial review, but contended that standard costs should apply to everything else, including the Modifications Claim in its entirety and the Process Claim up to the pre-trial review or the start of trial.

The second issue was whether the court should depart from the general rule that the winning party recovers all of its costs, by making a reduction to the defendant’s recoverable costs to reflect what the claimants characterised as an unreasonable approach to disclosure. The claimants sought a reduction to the defendant’s costs on the basis that the defendant’s conduct of the disclosure exercise had substantially increased the costs of all parties. The figure sought shifted between the witness evidence and the skeleton argument: the thirteenth statement of Mr Bryant suggested a 7.3% reduction, while the skeleton argument for the hearing proposed a 20% reduction for the first time, which would have had the effect of reducing the defendant’s costs bill by approximately £4 million. The application was made on 18 May 2026, four days before the hearing.

A third, more discrete point also arose concerning the extent of the interested parties’ involvement in the proceedings for the purposes of costs assessment, specifically whether the claimants could go behind the agreed list of issues, which had been annotated with references to the pleadings and had delineated the interested parties’ involvement throughout the trial.

The Parties’ Positions

On indemnity costs: The defendant and the interested parties submitted that the conduct of the claimants throughout the entirety of the proceedings was such as to take the case out of the norm and to warrant an order for indemnity costs across the board. They relied upon the cumulative effect of a number of factors: the inadequate and unparticularised pleadings from the outset; the broad and scattergun nature of the allegations, which included serious allegations of impropriety and dishonesty; the repeated and unexplained abandonment of issues and allegations, often at the last moment and without proper notice; the prejudice and disruption caused to the defendant and the interested parties by those abandonments; the unpleaded and fluctuating nature of the allegations advanced at trial; and the weak and speculative character of the claims from the beginning. Ms Hannaford KC submitted that the conduct warranting indemnity costs was not confined to the trial itself, because the conduct at trial was itself a consequence of the highly unreasonable manner in which the proceedings had been advanced from the outset. Mr Howard KC submitted that there was a need for the court to mark its disapproval of the claimants’ conduct by making an order for indemnity costs.

The claimants, through Mr Mallalieu KC, conceded realistically that there were grounds for an indemnity costs order in respect of the costs of the trial of the Process Claim, or at least from the date of the pre-trial review. However, they argued that standard costs should apply to the Modifications Claim in its entirety and to the Process Claim up to the pre-trial review or the start of trial. Mr Mallalieu also submitted that the defendant’s and interested parties’ costs were extremely high and raised proportionality as a relevant consideration in the exercise of the court’s discretion, arguing that the disproportionate level of those costs was a factor that should weigh against an indemnity costs order. He further cautioned the court against the exercise of hindsight in assessing the reasonableness of the claimants’ conduct.

On departure from the general rule: The claimants submitted that the defendant’s approach to disclosure had substantially increased the costs of all parties and that it would be unreasonable or unjust to require them to bear those increased costs. The application was advanced through the thirteenth statement of Mr Bryant, initially proposing a 7.3% reduction, with the skeleton argument for the hearing escalating that figure to 20% without adequate explanation. The claimants relied on the principles set out in TMO Renewables v Timothy Yeo [2021] EWHC 2773 (Ch), [2021] Costs LR 947.

The defendant, through Ms Hannaford KC, characterised Mr Bryant’s witness statement on the subject as “extremely thin” and submitted that the application was little more than a last-ditch attempt to obtain a reduction in the defendant’s costs. The defendant noted that it had had no proper opportunity to put in evidence in response to the application, given the very late service of the witness statement. The defendant also confirmed that it had excluded from its overall costs application both existing costs orders made during the proceedings and costs incurred in relation to the inadvertent disclosure of privileged documents, and that these would not be added back at a later stage.

The Court’s Decision

Indemnity costs: Mrs Justice Joanna Smith DBE ordered that both the defendant and the interested parties were entitled to recover their costs on an indemnity basis in respect of the entirety of the proceedings, covering both the Process Claim and the Modifications Claim.

The applicable principles were not in dispute. The court referred to Three Rivers DC v Bank of England [2006] EWHC 816 (Comm) at [25] per Tomlinson J, which cited Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879, and to the summary of the law in Hislop v Perde Kaur [2018] EWCA Civ 1726 per Coulson LJ at [35] to [36]. Essentially, there must be conduct which takes the case out of the norm. That is a highly fact-sensitive question and the court’s discretion is extremely wide. The touchstone is unreasonableness, but that unreasonableness must be “to a high degree”. Unreasonable in this context does not mean merely wrong or misguided in hindsight. The court may have regard to an aggregation of factors and there are infinite situations that may give rise to highly unreasonable conduct.

The court found that this was a huge and important claim, billed by the claimants as “the most financially significant procurement process in UK history”. The claimants sought damages of over £1 billion together with a declaration of ineffectiveness which, if granted, would potentially have brought the National Lottery to a standstill. One would expect such a significant and substantial claim to be advanced in a serious, responsible, and proper manner. That was not what happened.

The court noted its observation in the main judgment that, notwithstanding the size of the claim and the legal resources available, the Process Claim had been advanced by the claimants in an apparently unfocused manner, leading to various of the numerous original issues being dropped at the outset of trial, at the outset of closing submissions and even during closing submissions. In many cases, the issues were not dropped until it was specifically drawn to the claimants’ attention by the court or by the other parties that they had not been addressed in the claimants’ written closing submissions or that there no longer seemed to be any viable basis on which they could be maintained. The extent of this moveable feast was regrettable and, given the legal resources available to the claimants, inexcusable. It led to significant time being wasted by the other parties in dealing with issues which were subsequently abandoned. It also risked leaving the court with an imperfect understanding of how the case was being advanced. The court described this as surprising, given the nature and alleged value of the claim, which would be an understatement.

There were numerous serious and wide-ranging allegations, including of impropriety and dishonesty, made by the claimants running through the litigation from the outset. These included allegations of: bias against the defendant as a whole and against specific individuals working for the defendant; conflicts of interest of varying types; pre-determination by the defendant’s Evaluators of the outcome of the Competition leading to only a perfunctory review at moderation; amendments to the defendant’s reasoning after the award decision was made but before it was communicated to the applicants so as to “retrofit” the feedback and comments to the scores awarded; and preferential treatment of Allwyn by the defendant in the provision of Phase One Feedback. These allegations were all advanced over an extended period of time. Many of them were only dropped shortly before or at the trial in wholly unsatisfactory and unreasonable circumstances.

By the end of trial, the list of issues, which originally ran to 64 issues in relation to the Process Claim and 17 issues in relation to the Modifications Claim, had been very substantially reduced, often without any proper notice being given to the other parties. This was, in the court’s judgment, highly unreasonable and wholly out of the norm. The court observed that no explanation had ever been provided by the claimants for their abandonment of any of the issues, nor had any reason been given by them for what the court considered to be a cavalier and highly unusual and unreasonable way of proceeding.

One of the most serious of the allegations made in the Modifications Claim was that the need for the Challenged Modifications was brought about “wholly or substantially by Allwyn’s failures to meet its obligations under the Enabling Agreement”, an allegation which was taken seriously by Allwyn, but mysteriously abandoned by the claimants without explanation during the course of the trial.

In addition to these numerous, serious, and wide-ranging allegations, the scale of the abandonments caused very significant disruption to the court and to the other parties, which the court considered to be out of the norm. It caused significant prejudice to the other parties in terms of their defence of the proceedings, in particular their understanding as to the case that was being advanced against them and the costs they had spent in trying to address that case. It also made it difficult for the court to understand the way in which the case was being advanced. At times, it was advanced in a fluid and apparently fully flexible and opportunistic manner.

Indeed, the claimants advanced a number of wholly unpleaded and unparticularised allegations at the trial and frequently sought to amend and reformulate existing allegations in a manner which the court considered also fell well outside the norm. The court commented on this approach in numerous places in the judgment. At [746] the court observed that the claimants had been forced in light of their abandonments “to reformulate (and often to reinvent their case) at every opportunity” throughout the trial. The court observed that this appeared to be a strong indicator that there was “really no basis whatever for [the] claim of manifest error or, indeed, therefore, for the intervention of the court”.

The court considered that the claimants advanced weak and speculative allegations in respect of both the Process Claim and the Modifications Claim from the outset. They pursued these all the way to trial notwithstanding that they had been notified by the defendant that those claims were doomed to fail from early in 2023. In the Process Claim the claimants had to overcome an almost insuperable hurdle: they had to establish that The New Lottery Company Limited would have passed every one of the 12 Pass/Fail Areas in respect of which it was failed during the Competition and that Camelot and Allwyn should both have been disqualified. The issue of standing, which the court found against the claimants in the Process Claim, meant that, absent proper evidence as to the counterfactual, the Modifications Claim could not succeed. Yet, the claimants fought the Modifications Claim (which it is now accepted was intertwined with the Process Claim) without such evidence. The court also agreed with Ms Hannaford KC that the Modifications Claim was always very weak in its own right owing to The New Lottery Company Limited’s woeful performance in the fourth National Lottery competition, the gap between its score and the scores of Allwyn and Camelot being 30%.

Mr Mallalieu correctly cautioned the court against the exercise of hindsight, and the court considered whether any of these matters might be affected by hindsight, but agreed with Ms Hannaford that hindsight did not affect the analysis in this case given the way in which the trial and case had proceeded from the outset.

Individually or cumulatively, the matters identified by the court were, in its judgment, highly unreasonable and took the case out of the norm. The court relied upon the many detailed points made in the judgment as to the claimants’ poor and unparticularised pleadings, their abandonment of claims, the prejudice and disruption caused by these abandonments, the extent of the unpleaded and fluctuating allegations and the weak and speculative nature of the claims.

The court did not accept the claimants’ evidence in the thirteenth statement of Mr Bryant that they were not to blame for the approach they took to the litigation or that their conduct was the consequence of circumstances imposed upon them. The court also did not consider it to be appropriate to “salami slice” the orders for costs by reference to individual issues or periods of time, as Mr Mallalieu suggested. The court accepted Ms Hannaford’s submissions that the conduct of the claimants which warranted an order for indemnity costs was not just their conduct at trial, because that conduct was itself a consequence of the highly unreasonable way in which these proceedings had been advanced and pursued from the beginning. The pleadings were inadequate and unparticularised from the outset, the claims were weak and none of these issues was remedied prior to trial. The pleadings gave no proper indication to the defendant and the interested parties as to the case that they must meet. The allegations made by the claimants, as Mr Howard KC said, were broad and scattergun because there did not appear to be a realistic pleaded case. They were not supported by adequate evidence from the claimants. Yet the defendant and the interested parties had to expend very considerable amounts of money in preparing to meet those allegations as best they could, only to find them being peremptorily abandoned or changed at trial.

Accordingly, the conduct that the court found to be highly unreasonable was conduct running through the whole of the case. It plainly warranted an order for indemnity costs in relation to the entirety of the proceedings. Further, the court agreed with Mr Howard that there was a need to mark disapproval on the part of the court of such extraordinary conduct by the making of such an order.

During the course of his submissions, Mr Mallalieu suggested that the defendant’s and interested parties’ costs were extremely high, that there were issues arising in relation to their proportionality, and that this was a relevant consideration to take into account in the exercise of the court’s discretion. Specifically he prayed in aid the disproportionate nature of those costs in seeking to persuade the court not to award costs on an indemnity basis. However, the court rejected that submission. The court stated that there is nothing in the authorities to suggest that proportionality is a relevant factor in considering whether to make an order for indemnity costs and that it was inclined to think that it is not. If a party has conducted itself in a highly unreasonable fashion which is out of the norm so as to justify the award of indemnity costs, that party has forfeited the right to any assessment based on arguments of proportionality. In any event, even if the court was wrong about that, it did not consider that Mr Mallalieu’s arguments on proportionality would have shifted the dial given the serious and highly unreasonable nature of the conduct in this case. The conduct here was such that there was no injustice in the claimants being unable to challenge the quantum of the other parties’ costs on the grounds of proportionality.

Departure from the general rule: The court turned to deal with the claimants’ application for the court to depart from the general rule that the winning party should recover all of its costs. The claimants sought an order for a reduction to the defendant’s costs to reflect various issues that they had identified with the disclosure exercise, as explained in the thirteenth statement of Mr Bryant. In short, the claimants submitted that the defendant’s approach to disclosure had substantially increased the costs of all parties involved and that it would be unreasonable or unjust to expect them to pay those increased costs.

The court was referred by Mr Mallalieu to the relevant principles in relation to the approach to costs, which are set out in the case of TMO Renewables v Timothy Yeo [2021] EWHC 2773 (Ch), [2021] Costs LR 947 at [7] to [14]. The court bore those in mind, but did not need to recite them. In the evidence of Mr Bryant, it was suggested that there should be a 7.3% reduction of the defendant’s costs to reflect the unreasonable costs incurred during disclosure. However, in the claimants’ skeleton argument for the hearing it was suggested for the first time that there should be a 20% reduction. No adequate explanation was given as to why that should be the case.

Having considered the arguments, the court was not prepared to make any reduction to the defendant’s costs. Having regard to all the circumstances of this case, the court considered justice to require that the defendant, as the winning party, should be entitled to recover all of its costs.

This application was made only on 18 May (the hearing being on 22 May) in the witness statement of Mr Bryant. Ms Hannaford described Mr Bryant’s witness statement on the subject as “extremely thin”, and the court agreed. No adequate explanation for the proposed reduction had been given. The defendant had had no proper opportunity to put in evidence in response to the application, which the court considered to be unfair, and the court bore in mind that the judgment in this matter had been handed down over a month ago and that this consequentials hearing was taking place, therefore, some considerable time after receipt of the judgment. If an application for a 20% reduction (or any reduction) from the defendant’s costs was to be made, it should have been made with proper notice being given to the defendant.

The court agreed with the defendant that this was little short of a last-ditch attempt on the part of the claimants to obtain a reduction of the defendant’s costs. A reduction of 20% would have the effect of slicing around £4 million from the defendant’s cost bill. The court did not consider there to be any basis for such an order, nor did it consider it to be fair, just or in accordance with the overriding objective to make that order.

The defendant had excluded both existing costs orders made during the course of the proceedings and costs incurred in relation to its inadvertent disclosure of privileged documents from its overall application for indemnity costs. It had confirmed that these would not be added back later. If the defendant spent an unreasonable amount of time on disclosure, that could be addressed on the assessment of costs. The court accepted that there were difficulties in this case with disclosure, but bore in mind that the issues raised in these proceedings necessitated a substantial and complex disclosure exercise. Disclosure in tranches was the subject of court orders, including as to costs. That was not unusual in a case of this magnitude and the court did not consider the disclosure issues identified by the claimants to go beyond what one would expect to see in the ordinary cut and thrust of litigation of this type.

Accordingly, in the exercise of its discretion and having regard to the relevant principles and the overriding objective, this was not a case in which the court should depart from the general rule that the losing party must pay all of the winning party’s costs.

The extent of the interested parties’ interests in the proceedings: Finally, the court observed that the extent of the interested parties’ interest in these proceedings was agreed by the parties in the list of issues which was annotated with relevant references to the pleadings. The trial proceeded on the basis that the list of issues accurately identified and delineated the interested parties’ involvement. The court did not consider there now to be any scope for the claimants to go behind that identification and delineation when it comes to the assessment of costs.

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Foreign Litigation Costs Recoverable As Damages For Breach Of An Exclusive Jurisdiction Clause, Assessed on the Indemnity Basis

Commercial Litigation, Foreign Currency Costs, Indemnity Costs, New Costs Blog, Summary Assessment

The Commercial Court’s decision in Diageo DV Limited v NIO S.R.L. (in liquidation) [2026] EWHC 1198 (Comm) addresses the recovery of foreign litigation costs as damages for breach of an exclusive jurisdiction agreement and the assessment of such costs on the indemnity basis.

Background

This matter concerned an application by Diageo DV Limited (“Diageo”), an English company engaged in the production and distribution of alcoholic beverages, for summary judgment and a final anti-suit injunction against NIO S.R.L. (in liquidation) (“Nio”), an Italian company in voluntary liquidation. The application was heard on 17 April 2026 before Anna Dilnot KC, sitting as a Deputy High Court Judge in the Commercial Court, with judgment handed down on 19 May 2026.

The underlying dispute arose from a Share Purchase Agreement dated 23 November 2023 (the “SPA”), by which Diageo agreed to purchase Nio’s category “A” share in Niococktails s.r.l. (“Niococktails”) for consideration comprising a completion payment of €2.75 million, a deferred payment of €1.25 million, and a contingent exit payment of at least €1 million. The dispute centred on Diageo’s decision to withhold €780,008 from the deferred payment, representing its estimated liability in respect of a settlement reached between Niococktails and entities associated with Conor McGregor and Proximo Spirits Inc (together, the “Proximo/McGregor Entities”).

Prior to the SPA, in around August 2023, Niococktails had entered into a letter of intent and a promotional services agreement with the Proximo/McGregor Entities. Following completion of the share purchase, those arrangements were terminated, prompting the Proximo/McGregor Entities to threaten claims of up to USD 12 million against Niococktails. A settlement agreement was ultimately executed on 2 August 2024, with Niococktails paying USD 1 million in full and final settlement. Diageo subsequently notified Nio of its intention to withhold part of the deferred payment as an estimated liability under clause 6.2 of the SPA.

By letter dated 18 November 2024, Diageo gave notice that it intended to withhold €800,000 from the deferred payment, incorrectly stating the settlement sum as €1 million. Diageo corrected that error in a letter dated 28 November 2024, explaining that the estimated liability was €750,000, being USD 1 million less the €200,000 excess stipulated by clause 7.5(a) of the SPA, converted to euros at an exchange rate of USD 1:EUR 0.95. On 14 January 2025, Diageo paid Nio €469,992, being the deferred payment of €1.25 million less €780,008, the latter figure representing the settlement sum less the excess, converted to euros using the Bank of America spot rate at the date of payment.

Nio objected to the withholding, raising grounds including alleged failures by Diageo to provide sufficient information, non-compliance with clause 5.4 of the SPA (which required reasonable endeavours to settle by way of a product purchase from Proximo), and the contention that Diageo had no unilateral right to withhold any sum without prior agreement or a determination under the Counsel Determination Mechanism provided for in clause 6.2. The parties exchanged correspondence between November 2024 and January 2025 without reaching agreement, and neither party invoked the Counsel Determination Mechanism.

On 26 March 2025, Nio commenced proceedings before the Civil Court of Milan, seeking recovery of the withheld sum. Nio relied upon an exclusive jurisdiction clause in favour of the Italian courts contained in Article 8 of a Deed of Transfer dated 1 December 2023, which had been executed to satisfy the formal requirements of section 2470 of the Italian Civil Code for the transfer of shares in an Italian company. Nio also filed an application before the Italian Supreme Court seeking a declaration that the Milan court had jurisdiction, which resulted in the Milan proceedings being stayed.

Diageo’s position was that the SPA contained, at clause 24.2, an exclusive jurisdiction agreement in favour of the English courts, and that the Italian proceedings had been commenced and pursued in breach of that agreement. Diageo obtained an interim anti-suit injunction from David Bailey KC on 18 July 2025 (reported at [2025] EWHC 2109 (Comm)), restraining Nio from taking further steps in the Italian proceedings. That injunction was continued until further order by HHJ Pelling KC by order dated 8 September 2025, which also addressed service of the claim form and other documents on Nio out of the jurisdiction in Italy. HHJ Pelling KC also made a costs award in Diageo’s favour at that stage in the amount of £85,159 (from a claimed sum of £95,411), covering the costs of the hearing before David Bailey KC and the application to continue the interim injunction, assessed on the indemnity basis.

Diageo’s application for summary judgment and a final anti-suit injunction was issued on 6 January 2026 and served on Nio by certified email on 23 January 2026. Nio did not file any acknowledgement of service or defence, and did not appear or seek representation at the hearing on 17 April 2026. The court was satisfied that Nio had been properly served and was aware of the application, and proceeded to determine it in Nio’s absence.

Costs Issues Before the Court

Three distinct costs matters fell to be determined. The first was whether Diageo was entitled to recover, by way of damages, the legal costs it had incurred in the Italian proceedings as a result of Nio’s breach of the exclusive jurisdiction clause in the SPA. The second was whether an interim payment on account of those damages should be made at this stage, given that the Italian proceedings remained ongoing and the full extent of Diageo’s loss could not yet be quantified. The third was the summary assessment of the costs of the application before the court on the indemnity basis.

On the question of damages, the legal basis for recovering foreign litigation costs as damages for breach of an exclusive jurisdiction clause was well established. The court noted that the proposition had gone unchallenged before the Supreme Court in both Starlight Shipping Co v Allianz Marine and Aviation Versicherungs AG [2013] UKSC 70 and AMT Futures Ltd v Marzillier [2018] AC 439. The measure of recovery is to put the non-defaulting party in the position it would have been in had the foreign proceedings not been brought at all, and can include costs incurred in those foreign proceedings: Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Ltd [2015] 1 Lloyd’s Rep 301 at [37] to [38]. Importantly, such costs are recoverable even where the foreign court lacks the power to award costs: Union Discount Co Ltd v Zoller [2002] 1 WLR 1517 at [31]. The assessment of those costs is conducted on the indemnity basis, with the burden of establishing any failure to mitigate resting on the party in breach: National Westminster Bank plc v Rabobank Nederland (No. 3) [2008] 6 Costs LR 839 at [25].

On the question of the costs of the English proceedings and application, the court noted that a successful claimant for an anti-suit injunction is ordinarily entitled to its costs on the indemnity basis where it can establish that the breach of the exclusive jurisdiction clause caused it reasonably to incur legal costs: A v B [2007] 2 CLC 203 at [9] to [15]. Diageo sought summary assessment of the costs of the application on the indemnity basis, having provided a costs schedule in that regard. The court also had to consider how to treat any costs of the proceedings falling outside the scope of the two earlier applications and the present application, given the prior costs order made by HHJ Pelling KC.

The Parties’ Positions

Diageo’s position on damages was that, by commencing and pursuing the Italian proceedings in breach of clause 24.2 of the SPA, Nio had caused Diageo to incur costs in Italy in challenging the jurisdiction of the Italian courts. Those costs were recoverable as damages. Diageo was not yet in a position to quantify its total loss, given that the Italian proceedings remained ongoing, with the Milan court proceedings stayed pending the Italian Supreme Court’s determination on jurisdiction. Diageo therefore sought an interim payment of damages pursuant to CPR 25.20 and CPR 25.23(b) in the amount of £44,045, representing approximately 90% of the costs totalling €52,238.29 incurred to date in the Italian proceedings. Those costs were evidenced by invoices from Diageo’s Italian lawyers, PedersoliGattai. Diageo also sought an order that the remainder of its damages be assessed following the conclusion of the Italian proceedings.

On the costs of the application, Diageo sought summary assessment on the indemnity basis in the sum of £42,056.90. Diageo submitted that it was entitled to costs on the indemnity basis as a successful claimant for an anti-suit injunction, the breach of the exclusive jurisdiction clause having caused it reasonably to incur legal costs in obtaining the relief granted.

Nio did not appear and was not represented at the hearing. It had not filed any acknowledgement of service or defence, and had not responded to the application other than to dispute service in correspondence.

The Court’s Determination

The court granted summary judgment in Diageo’s favour, finding that Nio had no real prospect of successfully defending the claim. The court found that clause 24.2 of the SPA constituted an exclusive jurisdiction agreement in favour of the English courts. The court rejected Nio’s reliance on the jurisdiction clause in the Deed of Transfer, finding that the Deed was narrow in scope and concerned only with the formalities for effecting the transfer of the share in Niococktails. The construction of the exclusive jurisdiction clause started from the assumption, established in Fiona Trust & Holding Corp v Privalov [2007] UKHL 40, that the parties, as rational business people, are likely to have intended any dispute arising out of the relationship into which they have entered to be decided by the same tribunal unless the language of the clause makes it clear that certain questions are to be excluded from that tribunal’s jurisdiction. The Deed was not concerned with the wider rights and obligations of the parties related to the sale and purchase, including the terms upon which any part of the deferred payment could be withheld. All of the claims brought by Nio before the Court of Milan were disputes or claims which fell within the material scope of clause 24.2 of the SPA. While labelled by Nio as claims for breaches of the Deed of Transfer or of provisions of Italian law, they were in substance claims for breaches by Diageo of the terms of the SPA or the non-fulfilment of the conditions required to be fulfilled before Diageo was entitled to withhold any part of the deferred payment.

The court granted a final anti-suit injunction restraining Nio from continuing with the Italian proceedings, both before the Court of Milan and the Italian Supreme Court. The court also granted declaratory relief confirming that the claims brought by Nio in the Italian proceedings were within the scope of the exclusive English jurisdiction agreement and were brought in breach of that agreement.

On the substantive dispute, the court found that Diageo had complied with its obligations under clause 5.4 of the SPA (including the obligation to use reasonable endeavours to ensure Niococktails gave due regard to settling by way of a product purchase from Proximo, and to consult with Nio prior to entering into the settlement agreement). The court also found that Diageo had complied with clause 6.2 of the SPA and was entitled to withhold the sum of €780,008 from the deferred payment as a genuine and bona fide estimate of Nio’s liability under the indemnity provision. The court rejected Nio’s argument that Diageo was not entitled unilaterally to withhold any amount without agreement or a prior determination via the Counsel Determination Mechanism, finding that clause 6.2 entitled Diageo to withhold the amount of the estimated liability as long as it had notified Nio of the same in writing before the deferred payment became due.

Damages for Italian Litigation Costs

The court held that by commencing and pursuing the Italian proceedings, Nio had breached the exclusive jurisdiction clause in the SPA. As a result of that breach, Diageo had taken steps in Italy to challenge the jurisdiction of the Italian courts and had incurred costs, principally legal costs. The court considered that Diageo was entitled to recover such expenditure which was reasonably incurred as damages in the proceedings.

The court applied the principles established in Union Discount Co Ltd v Zoller and National Westminster Bank plc v Rabobank Nederland (No. 3). A party forced to defend proceedings brought in breach of an exclusive jurisdiction clause can recover reasonable costs incurred as a result of the foreign proceedings even if the foreign court lacks the power to award costs. The assessment of those costs is conducted on the indemnity basis such that the non-defaulting party can recover all costs reasonably incurred and reasonable in amount, with the burden of proof of any failure to mitigate on the party in breach. The court described the indemnity basis as “a useful proxy for an exercise in assessing reasonable costs where the burden is on Nio to establish a lack of reasonableness or failure to mitigate,” drawing an explicit analogy with the burden of proof under CPR 44.3(3).

Diageo was not in a position finally to determine the amount of its loss because the Italian proceedings were ongoing, with the proceedings before the Milan court stayed pending a decision on jurisdiction from the Italian Supreme Court. The court therefore considered it appropriate to grant an interim payment of damages.

The sum of £44,045 sought by Diageo represented approximately 90% of the costs (which totalled €52,238.29) that Diageo had incurred to date in respect of the Italian proceedings. Those costs had been established by way of the invoices submitted by Diageo’s Italian lawyers, PedersoliGattai. The court acknowledged that even assessing the costs on the indemnity basis, 90% would be a high proportion of costs to recover. However, the amount of £44,045 was reasonably modest and the court had no specific reason to reduce the amount of the interim payment sought. Further, it was likely that Diageo would continue to incur legal costs in Italy and it followed that its final costs burden for which it would be entitled to be compensated would likely exceed £44,045.

The court therefore granted Diageo an interim payment in the amount of £44,045, with the remainder of its loss to be assessed in due course following the conclusion of the Italian proceedings. The court considered it appropriate for Diageo to receive some contribution from Nio towards its costs at this point rather than awaiting the conclusion of the Italian proceedings.

Summary Assessment of Application Costs

The court turned to the costs of the application before it. Diageo had been provided with a costs schedule in respect of the application (but not the proceedings), with a request that costs be assessed summarily and on the indemnity basis. The total amount claimed as the costs of the application was £42,056.90.

The court noted that HHJ Pelling KC had already made a costs award in Diageo’s favour in the amount of £85,159 (out of the £95,411 claimed) which sum covered Diageo’s costs of the hearing before David Bailey KC on 18 July 2025 and the costs of the application to continue the interim anti-suit injunction, assessed on the indemnity basis. The court observed that it was unclear whether there existed costs of the proceedings (other than the £10,000 court fee for issuing the proceedings) which fell outside of the scope of those two applications, this application and the Italian proceedings.

The court therefore limited its summary assessment to the costs of this application (plus the £10,000 court issue fee), with any other amounts incurred by Diageo in the proceedings not already subject to costs orders to be assessed at the same time as damages were finally to be assessed. The court assessed the costs of the application on the indemnity basis in the amount of £33,645, being 80% of £42,056 (the judgment uses the rounded figure of £42,056 at paragraph 87, though the claimed sum stated at paragraph 86 is £42,056.90). The court did not provide reasons for the 20% reduction in its judgment.

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A Near Full-Value Part 36 Offer On A Binary Recognition And Enforcement Claim Held To Be ‘Genuine’ Where The Strength Of The Claim Justified It

Indemnity Costs, New Costs Blog, Part 36, Payment on Account

The King’s Bench Division’s decision in Timokhin v Timokhina [2026] EWHC 1194 (KB) addresses whether a Part 36 offer representing a 9% discount on a binary recognition and enforcement claim was a genuine attempt to settle or a strategic device to secure indemnity costs.

Background

The underlying proceedings concerned a dispute between two Russian national former spouses, Alexander Valeryevich Timokhin (the claimant) and Anna Anatolyevna Timokhina (the defendant), about the recognition and enforcement in England and Wales of two Russian judgments relating to a contested post-nuptial agreement. The trial judgment ([2026] EWHC 439 (KB)) found in favour of Mr Timokhin and rejected the several objections advanced by Ms Timokhina. The Russian judgments were ordered to be recognised and enforced, with the debt arising from those judgments quantified at £417,416.67.

The consequentials judgment ([2026] EWHC 1194 (KB)), handed down by Mr Justice Dexter Dias on 19 May 2026, dealt with four applications: a stay of enforcement pending a domestic appeal and pending Russian bankruptcy proceedings, costs, interest, and payment on account. The claimant was represented by Matthew Bradley KC and William Birch, instructed by Brown Rudnick LLP. The defendant was represented by Charles Samek KC, Jennifer Perrins and Bláthnaid Breslin, instructed by Goodman Ray LLP.

For the purposes of this article, the focus is on the costs-related issues, namely the application of CPR Part 36, the appropriate rate of enhanced interest on costs, interest on the debt, and the quantum of the payment on account. The stay applications are addressed only insofar as they provide relevant context.

Costs Issues Before the Court

The claimant had made a Part 36 offer on 20 May 2025, with the relevant period expiring on 10 June 2025. The offer represented a 9% discount on the full value of the claim, specifying a figure of £380,000. At trial, the claimant succeeded in full, beating his own Part 36 offer.

The costs issues before the court were therefore as follows. First, whether it would be unjust, within the meaning of CPR 36.17(5), to impose the standard Part 36 consequences under CPR 36.17(4), namely indemnity costs from the expiry of the relevant period, enhanced interest on costs and an additional 10% payment. Second, if the Part 36 consequences were to apply, what rate of enhanced interest on costs should be ordered. Third, what rate of interest should be awarded on the debt itself. Fourth, what sum should be ordered by way of a payment on account of costs.

The defendant’s primary submission on the Part 36 issue was that the offer had not been a genuine attempt to settle the proceedings, as required by CPR 36.17(5)(e), on the basis that a 9% discount on a binary recognition and enforcement claim was effectively tokenistic. The defendant also raised a subsidiary argument that the offer was underspecified, confusing, equivocal or indistinct.

The Parties’ Positions

The claimant’s position

The claimant submitted that the Part 36 consequences under CPR 36.17(4) should follow in the ordinary way. It was argued that the offer of £380,000, representing a discount of just under 10% on the full claim value, was a genuine and reasonable attempt to settle. The claimant’s position was that the strength of his case justified a high offer level, and that the binary nature of recognition and enforcement claims did not render a high percentage offer inappropriate or illusory. The claimant further submitted that the defendant had raised arguments with poor prospects of success, some of which were floated and then disappeared with little more, and that her case had obvious weaknesses, particularly in its family law aspects. On the interest rate on costs, the claimant sought 8% above base rate. On interest on the debt, the claimant proposed a commercial rate of 5% from the date of the second Russian judgment (11 October 2023) to the expiry of the relevant period. On the payment on account, the claimant sought 65% of his costs, pointing to the volume of work necessitated by the defendant’s diffuse array of objections, some of which were first ventilated or particularised in detail only as trial approached.

The defendant’s position

The defendant submitted that it would be unjust to impose the CPR 36.17(4) consequences. Her primary argument was that the offer was not a genuine attempt to settle, relying on CPR 36.17(5)(e). It was contended that, given the binary yes/no nature of a recognition and enforcement claim, a discount of only 9% was effectively a device to secure an indemnity costs award rather than a meaningful invitation to compromise. The defendant also submitted that she had raised important arguments with very real merits, characterising her points as “entirely reasonable”, and that the offer was underspecified, confusing, equivocal or indistinct. On the interest rate on costs, the defendant submitted, on a contingent basis, that 1% above base rate was appropriate. On interest on the debt, the defendant raised a pleading objection, submitting that interest had not been pleaded as required by CPR Part 16 and should therefore not be awarded. On the payment on account, the defendant submitted that the lowest figure in the likely range was no more than 55%, criticising the scale of the costs incurred by the claimant.

The Court’s Decision

Part 36 consequences | was it unjust to apply CPR 36.17(4)?

The court confirmed the well-established starting point that the burden of establishing injustice rests on the unsuccessful party, and that this burden represents a formidable obstacle. The court cited ABFA Commodities Trading Ltd v Petraco Oil Company [2024] EWHC 706 (Comm) and the frequently cited passage from Briggs J in Smith v Trafford Housing Trust [2012] EWHC 3320 (Ch), to the effect that the court does not have an unfettered discretion to depart from the ordinary costs consequences under Part 36, and that to hold otherwise would undermine the salutary purpose of the regime in promoting compromise and avoiding unnecessary expenditure of costs and court time.

The court also noted the need for vigilance against very high settlement offers being used strategically, as a device to secure an indemnity award rather than as a genuine attempt to settle. However, on the facts, the court rejected the defendant’s submission that the offer fell into that category. The court accepted that a discount in the early 90% range was justified given the strength of the claimant’s case. The claimant had a rational and reasonable basis to conclude that his prospects were strong, and a discount of just under 10% was therefore sober and realistic rather than tokenistic or illusory. The court did not accept that the binary nature of recognition and enforcement claims rendered a high offer inappropriate. Binariness is inherent in such claims, and the more pertinent factor was the strength of the claim itself.

The court also rejected the defendant’s characterisation of her own arguments as having “very real merits” or being “entirely reasonable”. Some of her arguments had poor prospects of success, some legal points were raised and then disappeared with little more, and the family law aspects of her case were described as particularly unconvincing. The court further rejected the submission that the offer was underspecified, confusing, equivocal or indistinct, noting that it was perfectly clear that the offer related to the King’s Bench claim, and that clarification had been provided when requested.

The court also noted that the defendant had applied very late in the day to amend her initial defence, a recognition of the limitations of her original position, but the amended defence fared no better and had obvious weaknesses of its own. It was to the credit of the claimant’s legal team that even though it could have applied to adjourn the trial in light of the amendment, it determined to retain the trial listing and do its best to avoid incurring yet more costs.

Taking into account all the circumstances under CPR 36.17(5), the court concluded that the defendant had not come close to establishing that it would be unjust to order the CPR 36.17(4) consequences. The court also noted, by reference to the passage from Briggs J in Smith v Trafford, that the essential purpose of Part 36 is to visit costs consequences upon parties of whom it can properly be said that they ought to have settled by accepting the other party’s offer, rather than taken the matter to trial. The defendant had a reasonable and realistic opportunity to accept a genuine settlement offer from the claimant. She failed to take it. Instead, she persisted in a case that was materially flawed in key respects, with some parts of it largely devoid of merit.

Enhanced interest on costs | what rate?

The parties disputed the rate of interest to be granted on costs. The maximum is 10% above base rate. The claimant applied for 8%. The defendant, on a contingent basis, submitted that it should be 1%. The court rejected the defendant’s proposal as unrealistically low. However, the court also considered 8% to be too high, noting that while the defendant took a series of bad points, not all of them were fundamentally flawed or highly likely to fail, and that the court was not persuaded that in the three months from offer to trial the disruption to the claimant was as acute as he maintained. The correct interest figure was held to be 6% above base rate.

Interest on the debt | the pleading point

The defendant submitted that interest on the debt should not be awarded since it had not been pleaded by the claimant as required by CPR Part 16. The court rejected this objection. The short point was that CPR 16.1 makes plain that Part 16 is inapplicable to a Part 8 claim, which this was. In any event, the Court of Appeal had considered the question of a failure to plead interest in El Ajou v Stern [2006] EWCA Civ 120, in which Carnwath LJ held that a pleading failure is not necessarily fatal to a claim for interest, and that where the point had been raised, the judge could give leave to amend on appropriate terms if necessary. The court exercised its discretion to award interest on the debt at a commercial rate of 5% from the date of the second Russian judgment (11 October 2023) to the expiry of the relevant period.

Payment on account | what percentage?

Approximately 70% of the costs incurred (exclusive of VAT) fell to be assessed on an indemnity basis as a Part 36 consequence. In accordance with Excalibur Ventures LLC v Texas Keystone Inc [2015] EWHC 566 (Comm), per Christopher Clarke LJ at paragraphs 23 to 24, the court was required to arrive at a “reasonable sum” of likely recovery, allowing for uncertainty and margin for error.

Given the level of interest granted combined with the indemnity basis also granted, the court judged that there were good prospects that the claimant would recover 65% of his costs following detailed assessment. This was close to what the claimant might expect on a standard assessment. As to the defendant’s criticism of the scale of the costs incurred by the claimant, the court had fully in mind the scale of the work necessitated by the diffuse array of objections to recognition and enforcement the defendant placed before the court. It took the court over 100 pages of trial judgment to deal with them. The claimant had no option but to undertake the necessary professional work to meet the shifting and expanding case, some aspects of which were first ventilated, or particularised in detail, as the trial was imminent. The court rejected the defendant’s submission that the lowest figure in the likely range was no more than 55%.

Conclusion

The court ordered standard basis costs up to the expiry of the relevant period and indemnity basis costs thereafter. On interest, the court ordered: interest on the debt at 5% from the second Russian judgment (11 October 2023) to the expiry of the relevant period, then at 6% above base rate thereafter; interest on costs incurred prior to the expiry of the relevant period at 5%; interest on costs incurred after the expiry of the relevant period at 6% above base rate; interest on costs incurred after judgment at 6% from the date the cost was incurred; and interest on the debt at 8% from the date of the order for payment until payment under the Judgments Act 1838. The court also ordered a 10% additional payment under CPR 36.17(4)(d)(ii) and a payment on account of 65% of costs. The court also refused both applications for a stay of enforcement, finding that the balance of prejudice fell decisively in favour of the claimant and that there was a real risk of dissipation by the defendant.

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Defendant’s Mediation Refusals And Late Expert Change Of Position Insufficient To Displace The Usual Costs Order

Costs Against Successful Party, Costs Budgeting & CMC, Indemnity Costs, New Costs Blog

The Technology and Construction Court’s decision in MJS Projects (March) Limited v RPS Consulting Services Limited [2026] EWHC 884 (TCC) addresses whether a successful defendant’s conduct in refusing mediation and its expert’s late change of evidence justified departing from the usual costs rule.

Background

This costs judgment arose from the dismissal of a professional negligence claim brought by MJS Projects (March) Limited against RPS Consulting Services Limited in the Technology and Construction Court in Leeds. The underlying dispute concerned the design and construction of a container park near Felixstowe Port, with the Claimant alleging that the Defendant’s design fell below the standard of a reasonably competent firm of civil and structural engineers. The court ultimately found in favour of the Defendant, concluding that the cause of the damage was workmanship rather than design.

The pre-action history was protracted. The Defendant’s letter of response, dated 22 May 2019, set out in considerable detail why it considered its design was not negligent and identified eleven workmanship defects, as well as the use of incorrect dowel sizes. The Claimant’s response, dated 5 November 2019, did not engage with those workmanship allegations and instead requested sight of the Defendant’s calculations. Those calculations were provided by letter dated 22 December 2020. No substantive reply was received for nineteen months. When the Claimant wrote again in July 2022, it confirmed that an expert structural engineer had been instructed and that the expert supported the Claimant’s position on design negligence. Proceedings were issued on 14 October 2022. Particulars of Claim were served on or around 10 February 2023, a Defence on or around 14 April 2023, and a Reply on 19 May 2023.

The expert evidence timetable was, as the court described it, “concertina-ed” into a short period before trial. The experts’ joint statement was produced approximately three months before trial, with individual expert reports following thereafter. Supplementary reports were filed in response to points raised in the primary reports, with some material served as late as one week before the trial commenced in February 2024. The claim was dismissed following trial, and the costs and consequential orders hearing took place on 14 May 2025, with judgment handed down on 15 April 2026.

Costs Issues Before the Court

Three distinct costs issues required determination. The first was whether the usual costs order, namely that the unsuccessful Claimant pay the Defendant’s costs, should be departed from on account of the Defendant’s conduct in relation to alternative dispute resolution. The Claimant argued that the Defendant had unreasonably refused to engage in mediation on multiple occasions, both before and after proceedings were issued, and that this conduct justified a departure from the default position under CPR 44.2. The Claimant’s position was that the appropriate order was no order as to costs.

The second issue was whether the Defendant’s expert having changed his position on the mass concrete taper and having produced additional calculations approximately one week before trial constituted conduct that should further influence the costs order in the Claimant’s favour.

The third issue was the Defendant’s cross-application for indemnity costs in respect of the expert evidence phase of the proceedings. The Defendant contended that the conduct of the Claimant and its legal team in relation to the instruction, oversight, and management of the Claimant’s expert was sufficiently outside the norm to justify an order for costs on the indemnity basis for that phase. In the alternative, both parties agreed that a payment on account of costs should be made, with the only dispute being the appropriate percentage reduction to apply to the approved costs budget.

The Parties’ Positions

The Claimant’s position on ADR

The Claimant traced a series of proposals for mediation made from as early as 14 July 2022, when a without prejudice meeting, mediation, or meeting of experts was suggested. That proposal was declined by the Defendant on 30 September 2022 on the basis that mediation was not appropriate until the Claimant had provided its expert report. Further proposals were made on 5 June 2023 and 21 September 2023, the latter suggesting two named mediators and a mediation in late October or November 2023. The Defendant declined that proposal by letter dated 28 September 2023, citing the technical nature of the issues and the fact that liability was denied in full, and suggesting that any mediation should follow the experts’ joint statements due in November 2023.

The Claimant characterised the Defendant’s successive objections as a shifting of the goalposts: first, no mediation until the expert report was provided; then, no mediation until after expert discussions; then, no mediation without the experts present at the mediation itself. The Claimant noted that its expert was based in Singapore, making expert attendance at a mediation impractical. It submitted that, applying the Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002 factors, this was not a case unsuitable for mediation. Professional negligence disputes of this nature were routinely resolved at mediation, the parties’ budgets had each included approximately £25,000 for mediation costs, and the value of the claim at nearly £400,000 justified that expenditure. The Claimant also submitted that the merits were not entirely one-sided, given that the Defendant’s expert had changed his position on the mass concrete taper and that the outcome might have been different but for the late additional calculations.

The Claimant’s position on the expert’s late change of evidence

The Claimant submitted that the Defendant’s expert had stated in his written evidence that the mass concrete taper was part of the design and that the failure to install it was a workmanship defect causing the cracking. At trial, he accepted that the mass concrete taper was not part of the design at the relevant joints. The Claimant argued that it had been entitled to approach trial on the basis that the Defendant’s expert would give evidence consistent with his written report and the joint statement. The Claimant asserted that the expert changed his mind as a result of very late additional calculations produced one week before trial, and that this late change of position had a decisive impact on the outcome. On that basis, it was submitted that it would be unjust for the Defendant to recover all of its costs.

The Claimant’s position on indemnity costs

The Claimant resisted the indemnity costs application on the basis that the threshold was high and had not been met. It submitted that the correct Bolam question had in fact been put to the expert in his letter of instruction and was set out on the face of his report. The fact that the expert appeared under cross-examination not to have applied the test correctly did not amount to conduct unreasonable to a high degree. The Claimant also relied on the compressed expert evidence timetable, noting that reports were served late and that supplementary reports followed in quick succession. It was submitted that the expert’s decision to rerun the FE analysis immediately before trial, without informing anyone, could not be attributed to the Claimant or its lawyers, as everyone was astonished when the expert disclosed this during his evidence. The Claimant argued that the tactical decision to focus on design negligence rather than workmanship, whilst ultimately unsuccessful, was a legitimate forensic choice and did not take the conduct of the litigation outside the norm.

The Defendant’s position on ADR

The Defendant accepted the broad outline of the correspondence but submitted that the full chronology had to be considered. It emphasised that workmanship issues had been raised as the cause of the damage for four years before proceedings were issued, and that the Claimant had never substantively engaged with those allegations. The Defendant had provided detailed calculations when requested, had engaged fully in the pre-action protocol process, and had made Calderbank offers and Part 36 offers in the run-up to trial. It submitted that it was not refusing to engage in ADR but was reasonably requiring some understanding of the Claimant’s expert evidence before committing to a mediation process. It noted that the Claimant had refused to provide its expert report even on a without prejudice basis, and that the Claimant’s own stance immediately before trial, asserting that its Part 36 offer “was not made for negotiation purposes” and that it had “a strong case”, demonstrated that mediation would not have had realistic prospects of success. The Defendant also pointed to the Claimant’s imposition of onerous conditions on any mediation, including that the Defendant would have no say in the identity of the mediator appointed, and argued that the Claimant’s refusal to engage with workmanship allegations throughout the pre-action period made meaningful mediation impossible without expert evidence being available.

The Defendant’s position on the expert’s late change of evidence

The Defendant submitted that the mass concrete taper issue had limited materiality. The Particulars of Claim did not mention a mass concrete taper and did not assert that the failure to specify one was a negligent defect in the design. It was never part of the Claimant’s case that a mass concrete taper was required. The issue was only first mentioned in the experts’ joint statement dated 15 December 2023, and the detail of the Defendant expert’s evidence on this aspect came in his report served on 26 January 2024, just over one week before trial. By this time, the majority of costs were already incurred. The Defendant’s expert had explained that a further check was required after consideration of some of the points raised by the Claimant’s expert, and the court accepted that explanation. The additional calculations did not cause the Claimant to abandon its case and did not result in additional costs being incurred. The Defendant also submitted that it was wrong to assert that the expert simply changed his evidence on the number of dowels engaged by the design when the court accepted his explanation that a further check was required.

The Defendant’s position on indemnity costs

The Defendant asserted that the conduct of the Claimant and its legal team in relation to the instruction, oversight, and management of the Claimant’s expert was sufficiently outside the norm to justify an order for costs on the indemnity basis for the expert phase. The Defendant criticised the fact that the Claimant’s expert did not directly answer the question of whether the Defendant’s design was one that a reasonable body of engineers could have produced. Proceedings were issued, the experts’ joint statement produced, and expert reports exchanged without that question being answered. The Defendant asserted that the Claimant did not properly interrogate the application of the Bolam test, the Defendant’s causation arguments, the significance of the date by which the damage had become manifest, nor provide any evidence about what the correct design would be if the Defendant’s design was negligent. The Defendant also criticised the Claimant’s expert’s decision to use FE analysis to assess the Defendant’s design, his use of an out-of-date edition of a technical publication without disclosing that fact, his changes of position without explanation, and his decision to rerun the FE analysis over the weekend before trial without informing anyone. All of these factors, the Defendant submitted, showed the inadequacy of the Claimant’s expert’s compliance with CPR 35 and his expert duty, and justified a costs sanction.

The Court’s Decision

Costs to follow the event

Her Honour Judge Kelly ordered that the Claimant pay the Defendant’s costs, to be the subject of detailed assessment if not agreed. The judge accepted that the Defendant had declined multiple mediation proposals but held that this could not be assessed in isolation. The full chronology had to be considered, including the Claimant’s failure to engage with workmanship allegations raised in 2019, the 19-month delay in responding to the Defendant’s calculations, and the refusal to provide expert evidence even on a without prejudice basis.

Applying the Halsey factors, the judge found that it was not unreasonable for the Defendant to have refused mediation before having some understanding of the Claimant’s expert evidence. The Defendant had raised workmanship issues in response to the letter of claim, and the Claimant had asked for calculations to justify the Defendant’s design but did not deal with the alleged workmanship issues. The Defendant’s calculations were provided, but the Claimant then did not respond for 19 months. When the Claimant wrote again, it stated it had expert support for its case but once more did not engage with the workmanship issues. The Defendant asked for a copy of the expert report on a without prejudice basis and again raised the lack of response to the issues about workmanship and causation. The Claimant did not provide the expert report and did not engage with workmanship issues in any meaningful way.

The judge accepted that the Defendant did not agree to the continued suggestions of mediation without having some understanding of the expert evidence, but held that this could not be described as unreasonable. Other forms of ADR were proposed by the Defendant throughout, and offers were being made. The nature of the dispute would not prevent a successful mediation, but having actively engaged, provided calculations and justification as to why the Defendant asserted it was not negligent, it was not unreasonable to require a meaningful response to the points made before mediation. Mediation may have cost up to £50,000, which was not an insignificant sum, especially when the Claimant was not providing information which was reasonably requested.

Once the expert evidence was available, the Claimant’s offer to consider mediation was only weeks before the start of the trial and was offered only on potentially disadvantageous terms to the Defendant. The judge held that failure to agree to earlier mediation, nor to the last suggestion of mediation on the terms demanded, could not reasonably be held against the Defendant. The Defendant’s reasoned rejection of one form of ADR, namely mediation, was not unreasonable. The legal issues were clear and largely agreed between the parties. The case would always depend upon the court’s assessment of the expert evidence. The Claimant’s refusal to disclose its expert evidence (even on a without prejudice basis) and its apparent failure to instruct its expert to consider all of the workmanship issues raised by the Defence would inevitably have had a significant impact on the likely success of any mediation.

Even had mediation taken place, the judge did not accept that it would have had reasonable prospects of success. The Claimant had not engaged with the Defendant’s allegations of poor workmanship nor provided its expert evidence. The Defendant’s reasonable wish to understand the case it was meeting was not just going to disappear. Offers were being made both ways in the run up to trial, but the parties remained a vast distance apart.

The expert’s late change of evidence

The judge did not accept the Claimant’s assertions that a “late change” of evidence by the Defendant’s expert supported a decision that no order as to costs was the appropriate costs order. The judge found that the Defendant’s expert was in error in asserting that a mass concrete taper was part of the Defendant’s design. However, as the need for a mass concrete taper was never part of the Claimant’s case that the Defendant’s design was negligent, this did not have a material bearing on the outcome of the litigation. The Claimant’s expert did not assert that a mass concrete taper was needed to make the design work. The first mention of the need for a mass concrete taper was about two months before trial when the experts produced their joint statement. The need for a mass concrete taper was only if adequate compaction could not be achieved under the relevant joint. The detail of the Defendant’s expert opinion on the need for a mass concrete taper came in his report served about one month before trial.

In both the joint statement and the report, the Defendant’s expert made it clear that he knew that the mass concrete taper was shown on the design drawing for a different joint. However, he was of the opinion that the Claimant’s workmen should have inferred that a mass concrete taper was also required under the relevant joint, even though it was not shown on the design drawings, because of the compaction issue. The Claimant’s expert opined that the necessary compaction could be achieved and that was the finding the judge made. The Defendant’s expert also produced some additional calculations shortly before trial. However, as was stated in the judgment, that was done to enable him to consider the evidence of the Claimant’s expert and the criticisms of the design and the conclusions drawn from them. The judge held this was classically an example of the sort of final “sense check testing” the court would expect from an expert, particularly when the expert evidence has been finalised very late in the day before trial. The judge accepted the Defendant’s submission that this was “simply part of the usual cut and thrust of a professional negligence trial”. In those circumstances, it was difficult to see how any additional costs were caused by the late calculations in any event.

Indemnity costs refused

The Defendant’s application for indemnity costs in respect of the expert phase was refused. The judge reminded herself that the question was whether there was something in the conduct of the action or the circumstances of the case which took the case out of the norm in a way which justified an order for indemnity costs. The judge was just persuaded that the answer to that question was no, and costs should be assessed on the standard basis throughout.

The judge had made findings in the substantive judgment that the Claimant’s expert did not properly understand his duties to the court pursuant to CPR 35, that he did not appear to have considered adequately the applicable legal test, and he did not deal with the workmanship issues raised by the Defendant adequately. He used an outdated edition of a technical publication to justify some conclusions without providing any reference to the updated edition. He carried out additional tests and reran the FE analysis immediately before trial without telling anybody he had done this nor providing anyone with the results. The Claimant lost the case because the judge had no confidence in its expert.

The judge agreed with the Defendant’s submission that this was not simply a case of the court preferring one expert’s evidence over another. The reality was that the criticism of this expert went beyond that. However, the judge accepted that the Claimant’s solicitors had put the correct test in the expert’s instructions, and the expert had set out the correct test in his written report and answered questions in a way which would indicate that he was considering the correct test when giving his opinion. When cross-examined, it became apparent that he was not correctly applying the test and had not given consideration to various matters to which the judge found he should have given consideration. The judge accepted that a claimant is responsible for their expert for the purposes of costs. However, she did not accept that there was sufficient material before trial in the expert’s reports to indicate to the Claimant’s legal team that their expert was going to give evidence in the way that he did. Further questions could perhaps have been asked of the expert during the proceedings. That may have been an error or a tactical decision. However, the judge did not accept that the asserted failure to spot the various problems with their expert’s evidence was sufficient to pass the high hurdle before indemnity costs are justified.

The Claimant made various tactical decisions in how to pursue its case against the Defendant for negligent design. Some tactical decisions would always be needed when a company associated with the Claimant has carried out the construction work for the design and that work is criticised by the Defendant as being the cause of the damage. With hindsight, it may have been better expressly to instruct the Claimant’s expert to deal with the various workmanship defects asserted by the Defendant. However, as the Claimant took the view that it only needed to prove that the defective design was “a” cause of the damage, it did not need to deal with all of those workmanship issues. The tactic was unsuccessful, but the judge accepted that deciding on the tactic did not take the Claimant’s lawyers’ conduct “out of the norm”.

It may have been that the Claimant’s legal team restricted its frame of reference in respect of the expert evidence required because of the analysis undertaken by John Frith. However, the tactic of concentrating primarily on identifying a negligent design and then establishing the negligent design was a cause of the damage, whilst unsuccessful, could not be said to take the conduct of the case so far out of the norm. The further criticisms of the Claimant’s lawyers, such as refusing to answer Part 18 further information questions, the judge would not find to justify indemnity costs. If the Defendant felt that the refusal to answer the questions was unjustified, it could have made an appropriate application.

The Claimant’s counsel asked for clemency for the Claimant’s expert as his reputation had been tarnished by the judgment, and he would have to live with the consequences of that. The judge did not accept that clemency should form any part of the court’s consideration. The question was whether there was something in the conduct of the action or the circumstances of the case which took the case out of the norm in a way which justified an order for indemnity costs.

The judge did not accept that the combination of the Claimant’s tactics and the Claimant’s expert approaching the case in a more technical rather than practical manner, then effectively going off on a frolic of his own immediately before trial and not giving the evidence expected during his oral evidence, created circumstances to justify an order for indemnity costs. It was of relevance that the expert evidence timetable was “concertina-ed” into a short time frame before trial. The joint expert report became available about three months before trial and the individual expert reports then followed. Supplementary expert reports were filed because of additional factors raised in the various reports which required a reply. The judge did not find in the circumstances of this case that the conduct of the Claimant’s lawyers was such that the action was conducted, or the circumstances were such, that it was out of the norm in a way which justified an order for indemnity costs.

Payment on account

The parties were agreed that a payment on account of costs should be made. Applying the principles in MacInnes v Gross [2017] 4 WLR 49, the Defendant sought £312,700.75, being the approved budget in the sum of £344,082, less 10% bringing that sum down to £309,673.80 and then adding interest at 4% of £12,386.96, payable within 21 days. The Claimant sought a reduction of 20% to take into account the fact that there was not a mediation which had been part of the budgeted costs. The Defendant objected to further reduction as the budgeted figure was for all forms of ADR. There was no justification to consider individual phases to reduce further. Any adjustment could be dealt with at detailed assessment.

The judge held that the starting point for assessment of a reasonable sum was a 10% reduction. She did not accept that it was reasonable or proportionate to increase the percentage reduction further in this case. Mediation did not take place, but other forms of ADR did. Interest would run on the costs payable. The judge accepted that 4% interest on pre-judgment costs was a reasonable percentage. She awarded interim costs in the sum of £309,673.80 plus interest at 4%.

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The High Court’s decision in Bargain Busting Ltd v Shenzhen SKE Technology Company Ltd [2026] EWHC 1146 (Ch) addresses the basis and quantum of costs following dismissal of a contempt application that the court found had been used to weaponise the criminal jurisdiction to pursue the applicant’s private interests.

Background

These proceedings arose from a contempt application brought by Bargain Busting Limited (“BBL”) against Shenzhen SKE Technology Company Limited, Stobbs IP Limited, Wan-Yi Tsai, and Jixuan Si. The contempt application was started in August 2025 and concerned allegations that the respondents had interfered with the administration of justice by writing to the Intellectual Property Office (“IPO”) to request that it delay registration of a trade mark pending the outcome of an application for permission to appeal to the Court of Appeal. The respondents included both the first defendant company and the solicitors and fee earners who had acted on its behalf, namely Stobbs IP Limited and two of its lawyers.

The substantive hearing took place before HHJ Paul Matthews, sitting as a Judge of the High Court in the Business and Property Courts in Bristol. On 23 April 2026, judgment was handed down ([2026] EWHC 933 (Ch)) dismissing the contempt application, together with associated strike out applications and a joinder application. The court commented adversely in that judgment on the use of the contempt jurisdiction in the circumstances of the case.

Following the handing down of the main judgment, written submissions were invited on consequential matters, including the basis of the costs order, the mode of assessment, whether a payment on account should be ordered, and permission to appeal. A clip of correspondence and attendance notes was also placed before the court for the purposes of those consequential matters. The consequential judgment was handed down on 13 May 2026.

BBL was represented by Aidan Eardley KC, instructed by Brandsmiths. The respondents were represented by Fiona Horlick KC and Charlotte Elves, with Kingsley Napley LLP acting for the first respondent and Hickman and Rose acting for the remaining respondents.

Costs Issues Before the Court

BBL accepted that it had been unsuccessful in the strike out applications, the contempt application, and the joinder application, and did not resist an order that it pay the respondents’ costs. The live issues before the court on consequential matters were therefore: first, whether those costs should be assessed on the standard basis or the indemnity basis; second, whether the costs should be subject to summary assessment or detailed assessment; and third, whether a payment on account should be ordered and, if so, in what amount. A fourth issue, namely permission to appeal, was also addressed.

The claimant calculated the total costs claimed by the respondents across their costs schedules as some £293,460. The court corrected this to £296,099.61 plus applicable VAT on the costs of Hickman and Rose, producing a total of £322,628.77. The respondents sought indemnity costs, relying on the conduct of BBL and its solicitors during the course of the litigation. BBL resisted the indemnity basis and submitted that, in any event, the costs should be subject to detailed assessment rather than summary assessment, and that no payment on account was appropriate.

The Parties’ Positions

The respondents’ position on the basis of assessment

The respondents argued that costs should be assessed on the indemnity basis. They contended that BBL by these proceedings had sought to weaponise the contempt jurisdiction against the defendants, to drive a wedge between the defendants and their lawyers, to strike fear and loss of professional status amongst the defendants’ lawyers, and to boast to the IP legal market.

The respondents relied on a number of features of BBL’s conduct during the litigation. First, an open offer of settlement had been made in August 2025, on the basis that BBL would discontinue and pay the respondents’ costs on the indemnity basis. That offer was maintained at various points and was not withdrawn until January 2026. Second, at a directions hearing on 16 January 2026, Trower J had remarked that the weaponisation of the contempt jurisdiction was a problem and that the application appeared to fall squarely into that category. Third, a letter dated 23 January 2026 from BBL’s solicitors had, in the respondents’ submission, threatened to report the second to fourth respondents to the Solicitors Regulation Authority unless the defendants agreed to pay BBL’s costs incurred in connection with the trade mark applications. Fourth, a without prejudice save as to costs telephone call on 11 March 2026 had, in the respondents’ submission, revealed that the contempt proceedings had been issued as a form of pressure on the defendants to cease attempting to persuade the IPO to delay registration of the trade mark.

BBL’s position on the basis of assessment

BBL submitted that the court had made no findings in the main judgment that its applications were abusive, or any other findings capable of taking the case out of the norm. It argued that the August 2025 offer was not a genuine offer to settle, as it required BBL to discontinue and pay costs on the indemnity basis. It also submitted that the respondents had not referred in correspondence to the points which ultimately succeeded, and had not made strike out applications until January 2026. As to the January 2026 letter, BBL submitted that it did not contain a threat to report the respondents to the SRA; rather, it explained that the conduct alleged would, if well-founded, amount to breaches of the SRA Code, and provided reassurance that BBL would not raise those matters in another forum if the contempt application were settled. BBL further submitted that the telephone call of 11 March 2026 had been mischaracterised, and that it represented a genuine attempt to resolve the proceedings.

Mode of assessment

The respondents submitted that summary assessment was appropriate, relying on paragraph 9.2 of CPR PD44, which provides that the court should make a summary assessment at the conclusion of a hearing lasting not more than one day. The hearing had lasted less than one day. BBL submitted that detailed assessment was appropriate, primarily because of the size of the costs claimed.

Payment on account

BBL submitted that a lack of clarity about the respondents’ costs made a payment on account inappropriate. The respondents sought a payment on account. BBL also raised points about duplication of effort between Stobbs IP and Kingsley Napley, both of whom had acted for the first respondent, and about the rates claimed in the costs schedules.

The Court’s Decision

Indemnity costs

The court ordered costs on the indemnity basis. HHJ Matthews confirmed that it was not necessary for the main judgment to have made findings on all matters relevant to the costs decision. The general conduct of the parties in litigation is not ordinarily an issue for determination in the substantive judgment, and the court may make supplementary findings for the purpose of consequential matters after giving the parties an opportunity to be heard. The court noted that it had, in any event, commented adversely on the weaponisation of the contempt jurisdiction in paragraphs 33 to 34 of the earlier judgment.

The court applied the well-established principle that an award of indemnity costs is appropriate where the conduct of the paying party or the circumstances of the case take it out of the norm: Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson [2002] EWCA Civ 879; Hosking v Apax Partners Ltd [2019] 1 WLR 3347, [42]. The court also noted the range of factors that may be taken into account in such an assessment, as set out in Three Rivers DC v Bank of England [2006] EWHC 816 (Comm), [25].

The court observed that the proceedings themselves were of an unusual nature, making very serious allegations against officers of the court, and potentially having far-reaching professional consequences for those officers. In terms of seriousness, the court put the allegations in the contempt application on the same level as allegations of dishonesty. The court noted that there is no presumption that a failure to make good allegations of dishonesty should normally lead to an order for costs on the indemnity basis; instead, it is a factor to take into account, and may be a reason for making such an order: Thakkar v Mican [2024] EWCA Civ 552.

Three factors were identified as particularly significant. First, the nature of the alleged contempt: writing to the IPO to request a delay in registration pending an application for permission to appeal was described as the kind of thing solicitors do routinely, and was supported by the IPO’s own published practice and decisions. The court found it difficult to understand how BBL’s solicitors could have formed the view that such conduct amounted to a criminal offence. Second, the January 2026 letter: notwithstanding BBL’s submissions, the court found, to the civil standard, that the letter was intended to be read as a threat to report the respondents to the SRA unless they agreed to BBL’s terms. Even if that intention could not be established, the letter fell to be judged by its effect on the reasonable addressee, and any reasonable addressee would have understood it as such a threat. Third, the without prejudice save as to costs telephone call of 11 March 2026: the court found that the call made clear that the claimant justified the issue of criminal contempt proceedings in August 2025 as a form of pressure on the defendants to cease trying to persuade the IPO to delay registration of their client’s trade mark. Criminal proceedings should not be used for such a purpose.

The court held that, whether or not these various factors would each individually justify an award of costs on the indemnity basis, taken together they did so overwhelmingly. The claimant made very serious allegations against the defendants, and lost. It was wrong and out of the norm for the claimant’s solicitors opportunistically to seek to use criminal contempt proceedings, in which the touchstone is the public interest in the administration of justice, in order to pursue their client’s private interests. It was wrong and out of the norm for the claimant’s solicitors to threaten the defendants with being reported to the SRA in order to persuade them to agree to their client’s terms.

Mode of assessment

The court ordered that the costs should be subject to detailed assessment. This was not simply because the amount of money involved was significant. It was because these were complex and hard-fought multi-party proceedings which had lasted about eight months. On any view, a lot of work had been done by all those involved. The fact that the hearing which put an end to these proceedings lasted less than one day did not tell the full story. Justice to both sides required a detailed assessment.

Payment on account

The court ordered a payment on account of £215,000 under CPR rule 44.8, which provides that where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so. The court applied the guidance in Excalibur Ventures LLC v Texas Keystone Inc [2015] EWHC 566 (Comm), in which Christopher Clarke LJ stated that what is a reasonable amount will depend on the circumstances, the chief of which is that there will, by definition, have been no detailed assessment and thus an element of uncertainty. Any sum will have to be an estimate. A reasonable sum would often be one that was an estimate of the likely level of recovery subject to an appropriate margin to allow for error in the estimation.

The court noted that this was complex, high-value work carried out by specialists on both sides, which would amply justify the London 1 guideline hourly rate. The claimant’s solicitors claimed rates in their costs schedules of £1,100 and £605 for grade A, £550 and £500 for grade B, £380 and £370 for grade C, and £240 for grade D, all of which considerably exceeded the London 1 rate. In contrast, those claimed by the defendants’ and Mr Rebling’s solicitors fell partly within and partly outside the London 1 rates, whilst those for Stobbs IP itself (when acting for the first defendant) were all within the London 1 rates. The claimant made a point about duplication of effort between Stobbs IP and Kingsley Napley, both of whom acted for the first defendant. The claimant also made a point about VAT on Kingsley Napley’s costs schedule, but this had been corrected.

The court referred to Thomas Pink Ltd v Victoria’s Secret UK Ltd [2014] EWHC 3258 (Ch), in which the judge made an order for a payment on account equal to 90% of the approved budget. Given that there was no approved costs budget for these proceedings, the court considered it should be more cautious. Overall, the court considered it should build in a margin of about one third, and ordered the claimant to pay £215,000 on account of costs, to be paid to the three solicitors’ firms pro rata to their schedules of costs.

Permission to appeal

The court refused permission to appeal. Under CPR rule 52.6, in a first appeal the court may not grant permission to appeal unless either there is a real prospect of a successful appeal or there is some other compelling reason why an appeal should be heard. The phrase ‘real prospect’ does not require a probability of success (that is, more likely than not), but merely means a prospect which is ‘not unreal’: Tanfern v Cameron-MacDonald [2001] 1 WLR 1311, [21]; Re R (A Child) [2019] EWCA Civ 895, [31]. If the application passes that threshold test, however, the court is not obliged to give permission to appeal; instead it has a discretion to exercise.

The claimant put forward five grounds of appeal, each containing multiple sub-points.

First ground: public interest. This ground contained three points. The first was that the court had wrongly directed itself that the presence of a private interest rules out the possibility of a party invoking the law of criminal contempt. The court rejected this, clarifying that what it had sought to express was that it was impermissible to use criminal contempt proceedings simply for the purpose of pursuing private interests. The second point was that the court had misunderstood the significance of BBL’s submission that there is no requirement for a person who brings a contempt application as of right to demonstrate some wider public interest. The court held that even if it had misunderstood the “significance” of the submission, the claimant did not say the court was wrong to say that a wider public interest must be shown. The third point was that the court was wrong to hold that BBL could not show any sufficient public interest in prosecuting these allegations of criminal contempt. The court held that this was an evaluative judgment, essentially part of fact finding, and that appellate courts will not interfere with evaluative judgments unless compelled to do so.

Second ground: the ‘Representations’. The claimant argued that the court was wrong to break down the ‘Representations’ into indicative and subjunctive/imperative statements and to disregard the latter. The court held that this missed the point: the complaint was that the solicitors had said things that they knew to be untrue, but you cannot tell lies in making a request or issuing a command. Moreover, the court had expressly gone on to deal with the position if it were wrong to break down the ‘Representations’ in this way.

Third ground: ‘interference’. This ground contained two points. The first was that the court’s finding that there could be no arguable ‘interference’ with the administration of justice was vitiated by mischaracterisation of the claimant’s case and failure to take into account the entirety of the statements complained of in the three emails. The court held that the allegation of “mischaracterisation” was not understood, and that it could not give permission for a ground which it did not understand. To the extent that this point depended upon the second ground, it must fail. The second point was that the court was wrong to hold that there could be no interference in circumstances where the IPO alone had the power to decide to register, it knew exactly what the legal position was, and acted in accordance with its own internal guidance at the time. The court held that this was an attempt to appeal against findings of fact, but that the appellant court will not interfere with that unless it is satisfied that the judge was plainly wrong, that is, that the decision was one that no reasonable judge could have reached.

Fourth ground: ‘impropriety’. This ground contained two main points. The first was that the court had mischaracterised the impugned communications as submissions about the meaning and effect of the order of the High Court. The court rejected this, clarifying that its view was that submissions that an order of the court should not yet be implemented for some reason or another were, in this context at least, not improper. There was nothing about “submissions about the meaning and effect” of an order. The second point was that the court’s rejection of the claimant’s case on impropriety was vitiated by its finding that there was simply no real prospect of showing at the hearing of the contempt application that the third and fourth defendants were doing otherwise than asking the IPO to implement its own guidance. The claimant argued that the court was wrong to make that finding because the emails made no reference to the guidance or to the practices of the IPO, and the third and fourth defendants did not give evidence. The court held that the third and fourth defendants could not be obliged to give evidence, and had chosen not to. Realistically, the court was never going to hear from them. Accordingly, the only material before the court on which it could make a finding was the emails, the manual, the decisions of Dr Porter and their own experience as IP lawyers. On that basis the court was entitled to make its finding. Once again, the claimant was simply challenging the court’s finding of fact, and the court saw no real prospect of an appellant court overturning it.

Fifth ground: mens rea. The claimant argued that the court’s conclusion that there was no real prospect of showing that the third and fourth defendants acted with the relevant mens rea was vitiated by its finding that there was simply no real prospect of showing that they were doing otherwise than asking the IPO to implement its own guidance. The claimant argued that that finding was not open to the court, for the reasons given under the fourth ground. The court held that since the fourth ground failed, so did the fifth. The court also noted that the mens rea point was strictly unnecessary anyway.

Since none of these five grounds had any real prospect of success, the court could not give permission to appeal on any of them. The claimant did not suggest that there was any other compelling reason for an appeal, and the application was therefore dismissed.

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The King’s Bench Division’s decision in Full Colour Black Limited v Banksy [2026] EWHC 795 (KB) addresses the costs consequences following discontinuance of libel proceedings which the court found had been pursued to exert improper pressure rather than to obtain vindication by adjudication.

Background

Full Colour Black Limited, trading as Brandalised (“FCB”), is a company established in 2007 whose business model centres on the commercialisation of contemporary street art, including works attributed to Banksy. Andrew Gallagher is FCB’s sole director and shareholder. He began photographing Banksy’s art in 2001 and subsequently, through FCB, began exploiting those works commercially by granting licences to reproduce photographs of the artworks on clothing, greeting cards and related merchandise.

Banksy is an internationally renowned pseudonymous street artist who has consistently sought to preserve his anonymity. The Second Defendant, Pest Control Office Limited, is a registered company that publicly describes itself as the parent and legal guardian for Banksy. It holds an exclusive worldwide licence of the copyright in Banksy’s artworks and acts as his sole approved authentication body. Consistent with Banksy’s publicly stated opposition to the commercial exploitation of his works, neither Banksy nor Pest Control licences his images to third parties for commercial purposes.

The relationship between FCB and the Defendants had been fractious for well over a decade before these proceedings were commenced. The Defendants had repeatedly objected to FCB’s activities on copyright grounds, and FCB had repeatedly resisted those objections whilst simultaneously seeking to persuade Banksy to enter into a commercial arrangement. Notably, in correspondence dating back to November 2011 and again in January 2014, Mr Gallagher had drawn attention to the risk that litigation would expose Banksy to public identification, given that he would be required to give evidence to establish authorship and ownership of copyright. Those communications were accompanied by proposals for confidential commercial discussions. Aaron Wood, a Chartered Trade Mark Attorney who acted for FCB, made a series of public statements to similar effect, including comments to the BBC, the Daily Telegraph, and Australian television, all of which acknowledged that Banksy faced a fundamental dilemma: pursuing copyright litigation would require him to reveal his identity.

FCB’s business model was, as the court noted, legally precarious. A photograph of an artwork may attract its own copyright, but that does not displace the copyright in the underlying artistic work. Reproducing photographs of Banksy’s works on merchandise without a licence from the copyright owner carried an inherent risk of infringement proceedings. FCB had no such licence.

The immediate trigger for the libel proceedings was a collaboration between FCB and the fashion retailer GUESS, which launched a clothing collection in October 2022 marketed as “GUESS X BRANDALISED WITH GRAFFITI BY BANKSY”. The collection featured images derived from Banksy’s works, including the well-known “Flower Thrower”. No permission had been sought from or granted by Banksy or Pest Control. On 18 November 2022, Banksy posted a photograph of the Regent Street GUESS store window on his Instagram account, accompanied by the following message: “Attention all shoplifters. Please go to GUESS on Regent Street. They’ve helped themselves to my artwork without asking, how can it be wrong for you to do the same to their clothes?” The post attracted widespread public and media attention and led to crowds gathering outside the store, its temporary closure, and the removal of the “GRAFFITI BY BANKSY” wording from the window display.

On 21 December 2022, FCB sent a formal letter of claim to the Defendants alleging that the Instagram post was defamatory. A Claim Form was issued on 6 September 2023 and served on 13 September 2023. The Particulars of Claim alleged that the post conveyed the meaning that FCB had stolen Banksy’s artwork by licensing images to GUESS without permission or other legal authority, and that publication had caused serious harm to FCB’s reputation and serious financial loss within the meaning of section 1 of the Defamation Act 2013. Significantly, the final sentence of paragraph 2 of the Particulars of Claim included a purported reservation of the right to seek an order requiring Banksy to identify himself for the purposes of the proceedings.

Following service of Acknowledgments of Service in September 2023, FCB’s solicitors objected to Banksy’s failure to state his full name in the Acknowledgment of Service, relying on CPR 10.5(1)(d). On 4 October 2023, an article was published in The Sun in which Mr Wood was quoted commenting that “the worst thing that could happen to Banksy is if he gets unmasked by appearing in court”. On 10 October 2023, the Defendants’ solicitors provided a substantive response, admitting responsibility for publication of the Instagram post, denying that it was defamatory, and advancing defences of truth and qualified privilege. That letter also addressed the anonymity issue and foreshadowed a formal application for anonymity.

On 22 November 2023, the Defendants issued an application seeking an order that Banksy’s real identity be withheld and that he be referred to only as “Banksy” in the proceedings (“the Identity Application”), together with an extension of time for service of a Defence. The matter was referred to Nicklin J, who on 8 December 2023 made an order, without a hearing, giving directions for the Identity Application and directing FCB to issue any application seeking an order that Banksy identify himself by 5 January 2024, failing which the relevant sentence in the Particulars of Claim would be struck out. The order also required FCB to explain what it sought to achieve against Banksy that it could not legitimately achieve against the Second Defendant alone.

FCB did not pursue the naming application. On 28 February 2024, by consent, the court stayed the claim against Banksy pending resolution of the claim against the Second Defendant and confirmed the striking out of the reservation of rights sentence. The Identity Application was resolved by consent order on 12 March 2024, granting Banksy anonymity pursuant to CPR 39.2(4).

The Second Defendant served its Defence on 26 January 2024. Notably, the Defence did not advance a defence of honest opinion, despite that having been foreshadowed in earlier correspondence. FCB served its Reply on 8 March 2024, in which it resiled from its earlier case on publication and declined to admit that Banksy was the creator of the relevant artworks, requiring the Second Defendant to prove those matters. The Defendants characterised this as a tactical shift intended to maintain the risk that Banksy might be required to give evidence.

FCB then took no steps in the litigation for over a year. On 4 February 2025, the Second Defendant issued an application for summary judgment and/or striking out of the claim. FCB instructed new solicitors in February 2025, who engaged in without prejudice save as to costs correspondence seeking to settle not only the libel proceedings but also wider matters between the parties, including trade mark disputes, and proposing a broader “co-existence” commercial arrangement. The Defendants rejected that approach. On 27 March 2025, before the summary judgment application was determined, FCB served a Notice of Discontinuance.

On 22 July 2025, the Defendants issued an application seeking: (1) an order that FCB pay their costs on the indemnity basis; (2) a non-party costs order against Mr Gallagher personally; and (3) a payment on account of costs. The application was heard by Nicklin J on 28 November 2025, with judgment handed down on 1 April 2026.

Legal Principles

Indemnity costs

When a claim is discontinued, CPR 38.6(1) provides that the claimant is liable for the defendant’s costs on the standard basis. The court may, however, make a different order.

In Thakkar v Mican [2024] 1 WLR 4196, the Court of Appeal summarised the key principles governing indemnity costs orders. To obtain indemnity costs, the receiving party must surmount a “high hurdle” by demonstrating “some conduct or some circumstance which takes the case out of the norm”. Where the application is based on the paying party’s conduct, it is necessary to show that such conduct was “unreasonable to a high degree”, though it is not necessary to demonstrate “a moral lack of probity or conduct deserving of moral condemnation”. The phrase “out of the norm” reflects something outside the ordinary and reasonable conduct of proceedings.

In Hosking v Apax Partners LLP [2019] 1 WLR 3347, the Court of Appeal considered indemnity costs following discontinuance. The court held that discontinuance does not of itself justify an assessment of the merits, nor does it ordinarily require the court to determine whether the claim was unwarranted. However, the court is entitled to examine the circumstances of the case at the point of discontinuance, including the documentary record and the manner in which the proceedings were pursued, to assess whether the claim lacked real vitality or was continued as a means of extracting a settlement.

A hallmark of cases falling “out of the norm” is that proceedings have been high-risk litigation pursued, and often deliberately publicised, to exert pressure in the hope of extracting a settlement, with frail evidential support and little regard to their prospects of success at trial or any genuine objective of securing vindication by adjudication. Although such conduct may not amount to an abuse of process in strict terms, the court may have been intentionally used as an instrument of leverage – an “anvil for settlement” – rather than as an adjudicator. Where such conduct is demonstrated, discontinuance should not deter, and may positively incline, the court towards an award of indemnity costs.

Non-party costs orders

The jurisdiction to make a non-party costs order derives from section 51 of the Senior Courts Act 1981. In Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807, the House of Lords held that the ultimate question is whether, in all the circumstances, it is just to make the order. Where a non-party not only funds but also substantially controls proceedings, or stands to benefit from them, justice will ordinarily require that if the proceedings fail, the non-party should bear the successful party’s costs. In such cases, the non-party may properly be characterised as the “real party” to the litigation.

Where the proposed non-party is a director or shareholder of a corporate litigant, the authorities emphasise the fundamental importance of limited liability. In Goknur Gida Maddeleri Enerji Imalet Ithalat Ihracat Tiracet ve Sanayi AS v Aytacli [2021] 4 WLR 101, the Court of Appeal held that control of the litigation, even sole control, is not of itself sufficient to justify a non-party costs order against a director. The touchstone is whether the director can fairly be described as “the real party to the litigation”. To persuade a court to make such an order, the applicant will usually need to establish either that the director was seeking to benefit personally from the company’s pursuit of the litigation, or that he or she was guilty of serious impropriety or bad faith. Such impropriety or bad faith must be of a serious nature and will ordinarily need to be causatively linked to the applicant unnecessarily incurring costs.

The Indemnity Costs Application

The Defendants limited their application to costs incurred from 10 October 2023, the date on which they provided their substantive response to the claim and formally raised the issue of protection of Banksy’s anonymity. They contended that the litigation was deployed as a means of exerting improper pressure by exploiting Banksy’s well-known and long-standing desire to preserve his anonymity. They relied on the history of threats made by FCB, the repeated acknowledgement that Banksy faced a risk of being unmasked if he became embroiled in legal proceedings, FCB’s early procedural steps and pleadings which raised the prospect of identifying Banksy, and the repeated linkage drawn between that issue and FCB’s commercial demands.

The Defendants further relied on the timing of FCB’s discontinuance, which occurred only when FCB was confronted with a substantive challenge to the viability of its case and the imminent incurring of further costs. That sequence, they submitted, supported the inference that the proceedings were abandoned once they ceased to be an effective means of applying pressure.

FCB resisted any award of indemnity costs. It submitted that the claim was properly brought to vindicate its reputation and was always arguable. It emphasised that discontinuance does not, without more, justify indemnity costs and that parties must be free to discontinue when litigation is no longer proportionate or commercially sensible. FCB denied that the proceedings were pursued for any improper or ulterior purpose and submitted that there was no strategy to threaten or procure the unmasking of Banksy. It relied on the fact that it did not pursue a naming application and ultimately accepted a stay of the claim against Banksy as being inconsistent with any alleged impropriety.

The Court’s Analysis on Indemnity Costs

Nicklin J held that the case fell outside the norm and that FCB must pay the Defendants’ costs on the indemnity basis from 10 October 2023. His conclusion did not rest on discontinuance alone, nor did it depend upon a finding that FCB was not entitled to discontinue when it did. It was founded on the manner and purpose for which the proceedings were pursued, viewed objectively and in the round.

The court found that, on the material before it, the defamation claim was, viewed objectively, without any real prospect of success. In particular, once the relevant context was taken into account, an honest opinion defence would, in all likelihood, have disposed of the claim. The court noted that honest opinion was “far and away the strongest defence” and that its omission from the Defence was otherwise difficult to understand. The most likely explanation was that reliance on that defence was recognised to carry an increased risk that Banksy would be required to give evidence, with the attendant risk of identification.

The critical feature which explained why such a claim was nonetheless pursued, and what took the case outside the norm, was that the proceedings were deployed to exert pressure relying upon Banksy’s well-known concern to preserve his anonymity as central to his artistic expression. The court referred to the history of communications in which Mr Gallagher drew attention to the risk to Banksy’s anonymity inherent in litigation and sought to use that risk as leverage in disputes concerning the commercial exploitation of Banksy’s works.

That dynamic was also reflected in the conduct of the litigation. The inclusion in the Particulars of Claim of a purported reservation of a right to seek an order requiring Banksy to identify himself, the subsequent correspondence pressing for Banksy’s “full name”, and the pleading decisions which had the effect of maintaining the possibility that Banksy might ultimately be required to give evidence, were not incidental to the procedural course adopted. Taken cumulatively, they served to maintain and to some extent to amplify the very risk which the court later took steps to contain by case management and anonymity orders.

A further consideration reinforced that conclusion. At an early stage of the proceedings, the Second Defendant admitted responsibility for publication of the Instagram post. In circumstances where the Second Defendant had done so, and having regard to the remedies sought by FCB, there was little objective justification for naming Banksy as a personal defendant. The decision nevertheless to include Banksy as a defendant from the outset, and to maintain his presence in the proceedings until compelled by case management to do otherwise, was consistent with the conclusion that FCB deliberately exposed Banksy to the risk inherent in the proceedings that his anonymity might be jeopardised, and that this was intended to exert pressure rather than to secure remedies which could not adequately be obtained against the Second Defendant alone.

The court rejected Mr Gallagher’s evidence that the proceedings were brought for vindication of legal rights in defamation. It reached that conclusion because it was inconsistent with the objective documentary record and with the inherent logic of the position which FCB adopted. A claim which, viewed objectively, had no real prospect of succeeding by adjudication was difficult to reconcile with a purely vindicatory purpose; whereas it was readily explicable if the proceedings were regarded as creating leverage by reason of the continuing sensitivity around Banksy’s anonymity.

The court made a further distinct finding regarding the honest opinion defence. Viewed in the context of the proceedings as a whole, the continuation of the proceedings could be understood as proceeding on the basis that Banksy would be reluctant to take procedural or evidential steps which might increase the risk of identification, even if those steps were otherwise available. The absence of an honest opinion defence was consistent with that analysis.

The correspondence in March 2025, marked without prejudice save as to costs, provided further support. FCB’s settlement overtures were not confined to compromise of the defamation proceedings. They were framed to link settlement to wider matters and to the prospect of a broader “co-existence” or commercial arrangement under which FCB would be permitted to continue exploiting Banksy’s works. Whilst not sufficient on its own, it provided support to the conclusion that the proceedings were being used, at least in part, to seek a broader commercial accommodation rather than to obtain vindication by adjudication.

Finally, the timing of the discontinuance – in the face of a substantive challenge and the prospect of further significant costs – was consistent with the inference that the proceedings were abandoned once they ceased to serve the function for which they were being deployed. No other explanation had been offered by FCB as to the sudden decision to discontinue.

Taking these matters together, the court was satisfied that the proceedings were pursued in a manner and for purposes which were unreasonable to a high degree and which took the case outside the norm. The Defendants’ limitation of their application to costs incurred from 10 October 2023 was appropriate and proportionate. Although FCB’s plan to exploit the Defendants’ concerns over Banksy’s anonymity was implemented when the Claim Form was issued and Particulars of Claim drafted, 10 October 2023 was the date on which the Defendants provided their substantive response to the claim and formally raised the issue of protection of Banksy’s anonymity in the proceedings.

The Non-Party Costs Application

The Defendants submitted that Mr Gallagher was the driving force behind the litigation, exercised complete control over it, and stood to benefit personally from its outcome. In those circumstances, they argued, he should properly be regarded as the real party to the proceedings. Alternatively, they submitted that Mr Gallagher’s conduct met the threshold of serious impropriety required to justify a non-party costs order, relying on the same features of the litigation conduct said to justify indemnity costs.

Mr Gallagher submitted that the principles governing non-party costs orders against directors and shareholders are stringent and deliberately so, reflecting the fundamental importance of limited liability. He accepted that he controlled the litigation, but submitted that control, even when combined with sole ownership, is not sufficient to justify a non-party costs order. He denied that he was the real party to the litigation in the relevant sense, submitting that the claim was brought to vindicate the company’s asserted commercial and reputational interests, and that any benefit to him was no more than the indirect consequence of his shareholding. He further denied any serious impropriety or bad faith on his part.

The Court’s Analysis on the Non-Party Costs Application

Nicklin J refused the application for a non-party costs order against Mr Gallagher. The court held that the application raised a distinct and more exacting question than the indemnity costs application. The issue was not whether the litigation was conducted in a manner which justifies an indemnity costs order against a company, but whether it is just to impose personal liability for costs on a person who was not a party to the proceedings, thereby displacing the principle of limited liability.

The court was satisfied that the two jurisdictions are distinct and that the thresholds are not co-extensive. While the same facts may be relevant to both applications, a finding sufficient to justify indemnity costs does not automatically or necessarily justify a non-party costs order. A separate and more exacting analysis is required before displacing the principle of limited liability.

An indemnity costs order is concerned with marking, in costs, litigation conduct which is unreasonable to a high degree or otherwise outside ordinary and reasonable forensic behaviour. It does not require a finding of dishonesty or moral turpitude. By contrast, where the proposed non-party is a director/shareholder of a corporate litigant, control of the litigation – even sole control – and even the pursuit of litigation which is ill-advised or tactically motivated will not ordinarily suffice. Something more is required: either that the director be properly characterised as the “real party” to the litigation in the relevant sense, or that the director’s personal conduct involves serious impropriety or bad faith of a qualitatively different order from ordinary litigation misjudgment or tactical opportunism.

Mr Gallagher plainly exercised control over the litigation as FCB’s sole director and shareholder. The court also accepted that he was, in a practical sense, the directing mind of the company and that the conduct which it had found to take the case outside the norm for the purposes of indemnity costs reflected decisions taken under his direction. However, the law draws a deliberate distinction between responsibility for litigation conduct which warrants an indemnity costs order against a corporate party, and the exceptional step of imposing personal liability for costs under section 51 of the Senior Courts Act 1981.

In the present case, whilst Mr Gallagher plainly controlled the litigation, the court was not satisfied that he was the “real party” to it in the requisite sense. The claim was brought in the company’s name and sought relief for the company, namely vindication of asserted corporate reputational and commercial interests and recovery of alleged corporate loss. Any personal advantage to Mr Gallagher from a successful outcome would have been indirect and incidental to his shareholding. That is not unusual in the case of a small company whose shares are held by, and whose affairs are controlled by, a single director, and does not, without more, justify treating the director as the true litigant and transferring to him the company’s costs liability.

The court also took into account that FCB was advised by solicitors and Counsel. The litigation strategy adopted was formulated and implemented with the benefit of legal advice, albeit directed towards objectives which the court had found to be improper for the purposes of the indemnity costs analysis. That feature did not excuse the company’s conduct, but it was relevant to whether it is just to impose personal liability on the director in the absence of clearer evidence that he acted in bad faith of the kind contemplated by the authorities. The court was not satisfied that any aspect of Mr Gallagher’s personal conduct provided a sufficient causative basis for transferring to him personal responsibility for costs arising from the company’s prosecution of the claim.

The Defendants also relied on the allegedly precarious financial position of FCB as supporting the inference that Mr Gallagher was using the company’s corporate personality to shield himself personally from the costs consequences of litigation. The court was unable to draw that inference on the evidence before it. While there was material suggesting that FCB’s financial position deteriorated significantly after publication of the Instagram post, the court did not have sufficient evidence as to the company’s financial health at the time when the litigation strategy was adopted and pursued, or as to whether FCB was then insolvent, undercapitalised, or being rendered unable to meet an adverse costs order by design.

Nor was the court persuaded that the evidence established serious impropriety or bad faith by Mr Gallagher personally of the qualitatively different order required to justify a non-party costs order. The court had found that the proceedings were deployed to exert pressure. However, the evidence did not establish, to the requisite standard, that Mr Gallagher engaged in dishonesty towards the court, deliberate manipulation of the corporate form to render the company unable to meet an adverse costs order, or other conduct of a markedly different order from aggressive or opportunistic litigation strategy. In short, the conduct warranted the sanction of an indemnity costs order against the corporate claimant, but it did not cross the higher threshold required to make it just to impose personal costs liability on Mr Gallagher.

The court also took into account the delay in bringing the non-party costs application which, while not determinative, reinforced the conclusion that it would not be just to make such an order.

Conclusion

FCB was ordered to pay the Defendants’ costs from 10 October 2023 on the indemnity basis. The application for a non-party costs order against Mr Andrew Gallagher was refused. FCB must make a payment on account of costs in a sum to be determined.

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s71(3) | Beneficiaries Who Pursued Unreasonable Solicitors Act Assessments Bear the Costs Personally

Detailed Assessment, Indemnity Costs, New Costs Blog, Solicitor & Client Costs, Trustees & Estates

The Senior Courts Costs Office’s decision in Tucker & Anor v Howe [2026] EWHC 208 (SCCO) addresses two consequential issues arising from a nine-day detailed assessment of the costs of an estate administrator appointed under probate proceedings.

Background

The matter concerned the detailed assessment of costs under section 71(3) of the Solicitors Act 1974. The costs were those of Mr Mark Keeley, a solicitor and partner at Freeths LLP, who had been appointed as administrator pending suit of the estate of the late Mr Steven Howe. The appointment was made by order of HHJ Pearce on 16 October 2020 within probate proceedings brought by the executrices (the Claimants) to propound Mr Howe’s will against his daughter, the Defendant. Mr Keeley’s appointment authorised him to charge reasonable professional fees and terminated upon the final order in the probate claim.

The probate claim was compromised by a consent order in December 2021. Disputed matters of administration were later resolved by a further consent order made by District Judge Woodward on 21 February 2023. That order provided for the determination of the Administrator’s costs by way of a third-party detailed assessment pursuant to section 71(3) of the 1974 Act, setting out a timetable for the service of a bill, points of dispute, and the commencement of assessment proceedings in the Senior Courts Costs Office if agreement was not reached. The bill for assessment, served pursuant to that order, was drawn in the total sum of £147,436.33 across twelve parts, covering both contentious and non-contentious work under two separate contracts of retainer, together with Mr Keeley’s own professional time costs and counsel’s fees.

The assessment hearing took nine days of court time over three separate periods between April 2024 and February 2025. That duration was largely the result of 67 pages of Points of Dispute which employed the word “staggering” or “staggeringly” 54 times and the word “astonishing” 17 times. The court found none of that hyperbole justified. The bill was assessed at £129,686.76, just below 88% of the amount claimed. The court found the Claimants’ conduct to have been unreasonable to a high degree and ordered them to pay the costs of the assessment on the indemnity basis, summarily assessed at £132,400 exclusive of VAT.

The parties were unable to agree the terms of a final order, leading to a further hearing on two unresolved issues: whether the Claimants or the estate should bear the costs of the assessment, and the recoverability of VAT on those assessment costs. The question of costs liability had taken on particular significance because the estate of Mr Howe was insolvent, an Insolvency Administration Order having been made on 23 July 2025.

Costs Issues Before the Court

Two discrete costs issues required determination. The first was the identity of the party liable to pay the costs of the detailed assessment proceedings. The Claimants argued the burden should fall on the insolvent estate, while Mr Keeley contended the Claimants were personally liable in their capacity as beneficiaries who had applied for the assessment. The second issue was whether Value Added Tax was properly recoverable on the costs of the assessment, with the Claimants arguing that the work constituted a non-taxable self-supply by Freeths.

The Parties’ Positions

On the burden of costs, Professor Watson-Gandy submitted for the Claimants that the central consideration in a section 71(3) assessment was the protection of the estate’s interests, relying on Kenig v Thomson Snell & Passmore LLP [2024] EWCA Civ 15. He argued that the Claimants had participated in their capacity as executrices fulfilling a fiduciary duty to the beneficiaries. He submitted that DJ Woodward’s consent order made no provision for personal liability and that CPR 46.2, which governs costs orders against non-parties, would have been required if such liability was intended.

Mr Latham argued for Mr Keeley that the Claimants had clearly applied for and pursued the assessment in their capacity as beneficiaries, a point reinforced by their own pre-action correspondence and by the legal arguments they had advanced to broaden the scope of the assessment. The Claimants’ representative, Mr Valls, had consistently corresponded on behalf of all the beneficiaries and demanded a detailed assessment in that capacity. The court retained an absolute discretion under section 51 of the Senior Courts Act 1981 and section 71(3)(b) of the 1974 Act. Given the court’s findings on the Claimants’ unreasonable conduct — conduct not attributable to the estate or the beneficiaries as a whole — it was appropriate to order the Claimants to pay the costs personally.

On VAT, Professor Watson-Gandy argued that where solicitors act for themselves in contentious business matters, the supply is not a taxable supply, citing the VAT tribunal decisions in Ralph Arthur Archer v The Commissioners and D A Walker v The Commissioners. It was submitted that Freeths’ bills were addressed to Mr Keeley at Freeths, and that estate accounts bore Freeths’ business address, indicating a self-supply. Mr Latham submitted that the point had not been raised in the Points of Dispute against the main bill and should not be permitted to be raised after the assessment had concluded. On the merits, he argued that Mr Keeley and Freeths were separate legal entities capable of entering into a retainer and that VAT was properly chargeable on Freeths’ supply of services to him.

The Court’s Decision

Burden of the Costs of Assessment

Costs Judge Leonard held that the Claimants were personally liable for the assessment costs in their capacity as beneficiaries. The court rejected the argument that they had acted as executrices, for several reasons. The Claimants had made it clear from the outset that they were acting as beneficiaries. They had relied extensively upon their position as beneficiaries to broaden the scope of their challenges to Mr Keeley’s costs. And the statutory jurisdiction under section 71(3) does not empower the court to order an assessment on the application of a trustee, executor or administrator; it empowers the court to do so on the application of any person interested in the relevant property — in this case, the beneficiaries of Mr Howe’s will.

The description of the Claimants as executrices in the heading of the proceedings and other procedural documents reflected the proper title of the probate proceedings in which the consent order was made. It had no bearing on the substance of the order or the capacity in which the assessment was pursued. The court held that CPR 46.2 had no application because the Claimants were already parties to the assessment proceedings, not non-parties. DJ Woodward’s order made no provision for the costs of the assessment because orders for assessment do not make such provision; the award and quantification of those costs was a matter for the assessing judge.

Even if the court was wrong on any of those points, it accepted Mr Latham’s submissions on the appropriate exercise of discretion. The Claimants had, without ever themselves making any attempt at negotiation, rejected three attempts by Mr Keeley to settle the costs dispute upon receipt of a smaller sum than he was ultimately found to be due on assessment. Had they engaged with those settlement attempts, it would have been possible to avoid the necessity for the court to spend nine days reducing the bill by less than £18,000 inclusive of VAT. It would be unfair for the estate, and potentially for Mr Ross Tucker and Mr Jamie Tucker (who did not participate in the assessment), to bear any part of the burden of the unnecessary costs incurred through the Claimants’ actions.

Recoverability of VAT

The court first held that the Claimants were barred from raising a VAT challenge to the main bill itself, having failed to raise the point in their Points of Dispute. CPR 47.14(6) provides that only items specified in the points of dispute may be raised at the hearing unless the court gives permission, and no such permission had been sought or granted.

On the substantive question of VAT on the costs of the assessment, the court found no basis for the self-supply argument. Mr Keeley and Freeths LLP are separate entities capable of entering into a contract of retainer. Freeths had provided services to Mr Keeley under two contracts of retainer, and VAT was payable on their charges in the usual way. The termination of Mr Keeley’s appointment as administrator did not affect this analysis. On Mr Keeley’s own time costs (Part 10 of the bill), the court held there was no question of self-supply because his services as administrator were supplied to the estate, not to himself. As for the costs of the assessment, Mr Keeley had been represented by counsel instructed by Freeths; he was not representing himself. He had a liability to Freeths for the attendant costs, and they had an obligation to add VAT to their fees and disbursements. The inclusion of Freeths’ address on bills or estate accounts was not to the point.