Indemnity Costs Archives

Indemnity Costs Awarded Where Defences Were ‘Built On Deliberate Lies’

Commercial Litigation, Indemnity Costs, New Costs Blog, Payment on Account

The High Court’s decision in JSC Commercial Bank Privatbank v Kolomoisky [2025] EWHC 2909 (Ch) confirms that conduct viewed “in the round” can justify indemnity costs where multiple factors including dishonest defences, disclosure failures, and expert evidence deficiencies take the case outside the norm.

Background

The claimant, JSC Commercial Bank Privatbank, brought proceedings against multiple defendants, including Igor Kolomoisky and Gennadiy Bogolyubov, alleging misappropriation of funds through a fraudulent scheme. On 30 July 2025, the court handed down judgment ([2025] EWHC 1987 (Ch)) finding the defendants liable for substantial sums. A consequentials hearing was convened to address unresolved matters, including the quantification of the judgment sum, interest, costs, and ancillary relief. The Bank, as the successful party, sought its costs of the proceedings. The defendants opposed the Bank’s applications regarding the basis of assessment, an interim payment on account, and interest on costs. The Corporate Defendants were not represented at the hearing, as their solicitors had come off the record.

Costs Issues Before the Court

The court was required to determine three principal costs issues:

- - first, whether the Bank’s costs should be assessed on the indemnity basis rather than the standard basis;
  - second, the amount of any interim payment on account of costs pending detailed assessment; and
  - third, the rate and timing of interest payable on the Bank’s costs.

These issues arose in the context of the Bank having succeeded at trial and the defendants resisting the full extent of the costs relief sought.

The Parties’ Positions

The Bank contended that its costs should be assessed on the indemnity basis, arguing that the defendants’ conduct, both pre-action and during the proceedings, took the case outside the norm. It relied on factors including the nature of the underlying fraud, dishonesty in the defence, evidential failings, belated changes of case, and deficiencies in the defendants’ expert evidence. The Bank sought an interim payment on account of costs of £80 million, representing approximately 72% of its claimed costs of £110,524,169.99. It also sought interest on costs at the Bank of England base rate plus 3% from the dates costs were paid, with post-judgment interest at the statutory rate from the date of the costs order.

The defendants opposed indemnity costs, arguing that their conduct did not justify departure from the standard basis. Mr Bogolyubov submitted that he had adopted a proportionate approach to the litigation. Both individual defendants contested the amount of the interim payment, with Mr Bogolyubov proposing £36.67 million held by his solicitors pending appeal. They also disputed the interest rate sought by the Bank, suggesting that a lower rate would be appropriate, and argued that post-judgment interest on costs should not run until three months after the order to allow for assessment of liability.

The Court’s Decision

The court awarded the Bank its costs on the indemnity basis. It found that the defendants’ conduct, viewed in the round, was outside the norm. Key factors included:

- - the serious nature of the underlying fraud;
  - the advancement of defences built on deliberate falsehoods;
  - significant disclosure failures;
  - the defendants’ decision not to give evidence;
  - belated abandonment of key arguments; and
  - the unsatisfactory nature of their expert evidence.

The court rejected arguments that certain defences should be carved out from indemnity costs, noting their pervasive impact on the proceedings.

On the interim payment, the court determined that a reasonable sum was £76.4 million, after adjusting the Bank’s claim. This comprised 65% of claimed profit costs (£42.4 million), 70% of counsel’s fees (£10.5 million), and 75% of other disbursements (£23.5 million). The court considered the evidence of costs incurred, the defendants’ criticisms of hourly rates and counsel numbers, and the principles from Excalibur Ventures LLC v Texas Keystone Inc [2015] EWHC 566 (Comm). The payment was ordered within 14 days, consistent with the judgment debt.

Regarding interest on costs, the court awarded pre-judgment interest at the Bank of England base rate plus 3% from the date costs were paid until payment. This rate was deemed appropriate to compensate the Bank for being kept out of its money, reflecting commercial borrowing costs. Post-judgment interest on the interim payment would run at the statutory rate from the due date. For the balance of costs, post-judgment interest would begin three months after the judgment date, allowing the defendants time to assess liability, following the approach in Involnert Management Inc v Aprilgrange Ltd [2015] EWHC 2834 (Comm).

Dishonest Evidence And Baseless Allegations Justify Indemnity Costs Order

Failed Fraud Allegations Justify Indemnity Costs Order Despite Proper Conduct

Indemnity Costs And The High Risk Of Pursuing A Weak Case

Costs Thrown Away, Indemnity Costs And Payments On Account

CPR 44.2(8) | Payments On Account In Civil Litigation

Two Way Costs Orders And CPR 44.2(8) | Payments On Account

Failed Fraud Allegations Justify Indemnity Costs Order Despite Proper Conduct

Commercial Litigation, Indemnity Costs, New Costs Blog, Payment on Account

The Commercial Court’s decision in Malhotra Leisure Limited v Aviva Insurance Limited [2025] EWHC 2901 (Comm) establishes that properly pleaded and responsibly pursued fraud allegations can still attract indemnity costs where their objective weaknesses should have been apparent and they caused foreseeable harm.

Background

The case arose from a claim by Malhotra Leisure Limited against Aviva Insurance Limited concerning water damage to a hotel in July 2020. Aviva denied cover, alleging the escape of water was deliberate and formed part of a fraudulent conspiracy by the Malhotra principals to defraud the insurer. In the liability judgment ([2025] EWHC 1090 (Comm), 7 May 2025), the court rejected those allegations and found in favour of the Claimant. The subsequent costs judgment ([2025] EWHC 2901 (Comm), 6 November 2025) determined consequential costs matters following a July 2025 hearing.

Costs Issues Before the Court

The central issue was whether costs should be assessed on the indemnity or standard basis. This was significant because the Claimant’s actual costs of £1,202,957 were more than double its approved budget of £546,731. An indemnity costs order would render the budget irrelevant under CPR 3.18(a), whilst a standard basis order would require “good reason” to exceed it. The court also had to decide who should bear the costs of a specific disclosure application and the appropriate quantum of an interim payment on account (agreed at either £475,000 or £660,000 depending on the basis of assessment).

The Parties’ Positions

The Claimant argued that Aviva’s failed fraud allegations took the case “out of the norm” and warranted indemnity costs. It relied on Thakkar v Mican [2024] 1 WLR 4196, which confirmed that whilst there is no presumption, failed allegations of fraud will “very often” lead to indemnity costs. The Claimant submitted that Aviva’s fraud case was objectively weak from the outset, lacked proper evidential foundation for the alleged financial motive, and evolved at trial with unpleaded allegations. The Claimant highlighted significant financial and reputational harm suffered by its principals, including increased insurance costs, inability to obtain bank financing, and impacts on health and business relationships.

Aviva contended that costs should be assessed on the standard basis. It argued its fraud defence was properly pleaded, supported by credible lay and expert evidence, and pursued responsibly by experienced counsel. Aviva submitted the court must avoid hindsight and recognise the legitimate difficulties insurers face in challenging potentially fraudulent claims. The Defendant emphasised that insurers have a duty to challenge suspicious claims, as failing to do so adversely impacts all policyholders through higher premiums.

The Legal Framework

The court reaffirmed that indemnity costs are exceptional and awarded only where a case is “out of the norm.” An indemnity costs order is considerably more favourable than standard basis because it places the onus of showing costs are unreasonable on the paying party, disapplies proportionality, and renders approved budgets irrelevant. Failed fraud allegations often meet the “out of the norm” threshold, though there is no presumption. As the Court of Appeal stated in Thakkar v Mican, “what is sauce for the goose is sauce for the gander” – just as a dishonest claim attracts indemnity costs against a claimant, failed fraud allegations very often lead to indemnity costs against the defendant.

The Court’s Decision

Nigel Cooper KC, sitting as a Judge of the High Court, ordered that Aviva pay the Claimant’s costs on the indemnity basis. Critically, the judge accepted at [27] that Aviva’s allegations “were properly pleaded and pursued in an appropriate way” by experienced counsel. The court also acknowledged the case was supported by expert evidence and that there was evidence supporting the possibility of deliberate causation.

Nevertheless, the court concluded at [30] that “looking at the circumstances of the case overall an order for indemnity costs is appropriate.” The judge identified six specific factors justifying this conclusion:

- - First, the exceptional seriousness of the allegations | The allegations were at the highest level – that three individuals had entered into a fraudulent conspiracy to damage property and defraud the insurer, supported by lies to both the insurer and the court.
  - Second, foreseeable harm | The Claimant suffered financially (significantly increased insurance costs), Mr Meenu Malhotra was unable to obtain bank financing for developments, and both principals suffered reputational harm and impacts on health and business relations. These consequences were reasonably foreseeable, as evidenced by Aviva’s solicitors’ letter of 5 March 2021.
  - Third, pursuit to the end | The allegations were pursued through to the end of trial without settlement discussions being pursued.
  - Fourth, objective weakness apparent from the outset | The serious risks associated with Aviva’s allegations were, or should reasonably have been, apparent from when first raised. There was no direct evidence of deliberate causation. Aviva’s own expert initially considered the escape fortuitous and accepted in cross-examination that each required failure was plausibly capable of occurring fortuitously. Physical evidence was consistent with Tank 18 overspilling, yet none of Aviva’s proposed deliberate mechanisms involved this. The pleaded financial motive lacked proper evidential foundation – Aviva had early access to audited accounts and a screening report from its agent Sedgwick concluding the Malhotra Group was profitable and solvent with no signs of financial stress. The weakness of the motive case was apparent from an early stage, not only with hindsight.
  - Fifth, evolving case at trial | Aviva’s motive case evolved at trial with new, unpleaded allegations concerning asbestos in the hotel and an alleged aim of constructing a sports bar. Neither was properly pleaded despite both requiring pleading. Both necessitated supplemental evidence and submissions. Both failed.
  - Sixth, late withdrawal of specific allegations | Aviva pursued an allegation that Mr Malhotra was not celebrating his 60th birthday on the relevant night. The Claimant provided extensive disclosure in August 2021 and August 2022. The allegation was only dropped three weeks before trial, after the Claimant had procured witness statements from 10 individuals and obtained witness summonses for their attendance.

The court observed at [28] that Aviva was “determined to pursue this case through to trial,” as was apparent from counsel’s submissions. Despite the obvious difficulties and the serious risk of an indemnity costs order, Aviva chose to proceed.

The judge clarified at [17] that the effect of an indemnity costs order on costs management was “not a relevant circumstance” for deciding whether to make such an order. The disparity between budgeted and incurred costs did not itself justify indemnity costs.

On the specific disclosure application, the court made no order as to costs, meaning each party bore its own costs. The judge found it neither fruitful nor straightforward to determine what a contested hearing would have achieved given the parties’ cooperation in resolving the application.

Aviva was ordered to pay £660,000 on account of costs within 21 days, being the sum agreed as appropriate where costs are assessed on the indemnity basis.

Implications for Practice

This decision reinforces several important principles for costs practitioners and insurers:

- - Proper pursuit does not insulate from indemnity costs | The court’s explicit acknowledgment that Aviva’s allegations were properly pleaded and pursued through experienced counsel demonstrates that technical compliance with pleading requirements and responsible litigation conduct does not prevent an indemnity costs order. The focus is on whether the overall circumstances take the case out of the norm.
  - Objective assessment, not hindsight | Whilst courts must avoid hindsight bias, they will assess whether case weaknesses were or should have been apparent when allegations were first raised. Early availability of evidence undermining core elements (particularly motive) is highly relevant. Here, Aviva had access from an early stage to audited accounts and professional reports contradicting its financial motive theory.
  - Foreseeable harm matters | Courts give weight to whether the consequences of serious fraud allegations – financial, reputational, and personal – were or should have been foreseeable. Solicitors’ correspondence acknowledging such consequences may be used against the alleging party in costs assessment.
  - Aggressive pursuit includes refusing settlement | Pursuing allegations through to trial’s end without exploring settlement, combined with other factors, contributes to findings of aggressive pursuit warranting indemnity costs.
  - Evolving theories require pleading | Introducing new aspects of case theory at trial (here, asbestos and sports bar allegations) that should have been pleaded supports indemnity costs awards, particularly where they necessitate supplemental evidence and submissions from the opposing party.
  - Strategic withdrawal timing is scrutinised | Dropping specific allegations shortly before trial after the opposing party has incurred substantial costs responding (here, 10 witness statements and witness summonses) is relevant to assessing aggressive pursuit.
  - Costs budgets become irrelevant | Once indemnity costs are awarded, approved budgets no longer constrain recovery under CPR 3.18(a). However, budget disparity alone does not justify indemnity costs.

For insurers, this decision serves as a clear warning: whilst entitled and sometimes duty-bound to investigate and defend potentially fraudulent claims, insurers must carefully assess the objective strength of fraud allegations before pursuing them through to trial. The duty to policyholders through maintaining premium levels does not override the costs risks of aggressively pursuing objectively weak fraud defences where core elements (particularly motive) lack proper evidential foundation from an early stage.

Dishonest Evidence And Baseless Allegations Justify Indemnity Costs Order

Probate Challenger Ordered To Pay Indemnity Costs After Maintaining Baseless Opposition For Eight Years

Indemnity Costs And The High Risk Of Pursuing A Weak Case

Speculative Claims, Indemnity Costs And The Effect Of An Approved Costs Budget

Indemnity Basis Costs Following Discontinuance

Costs Thrown Away, Indemnity Costs And Payments On Account

Probate Challenger Ordered To Pay Indemnity Costs After Maintaining Baseless Opposition For Eight Years

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

The High Court’s decision in Burgess v Whittle [2025] EWHC 2829 (Ch) held that maintaining a probate challenge without reasonable basis for eight years constituted grossly unreasonable conduct justifying indemnity costs, and the court rejected arguments that circumstances had warranted the Spiers v English exception.

Background

The substantive proceedings concerned the validity of the will of the deceased, dated 12 June 2014 [§6]. The claimant, Fiona Jane Burgess, sought a grant of probate in solemn form of this will. The first defendant, Julie Elizabeth Whittle, opposed the grant, challenging the will on the grounds of lack of testamentary capacity, want of knowledge and approval, undue influence, and the absence of the original will [§17]. The second defendant, Robert Paul Rowell, did not participate in the proceedings.

The deceased died on 13 April 2017 [§6]. In May 2017, the first defendant, then acting in person, lodged a caveat against the grant of probate [§6]. The originally appointed executor, Abbotts Wills and Probate Services Ltd, was dissolved in late 2020 before the caveat was lifted [§6]. The claimant issued the present claim on 7 September 2023 – more than six years after the death [§21]. The first defendant served a defence and counterclaim in October 2023 [§7].

A key procedural feature was the first defendant’s late application in October/November 2024 for permission to instruct a joint expert on testamentary capacity, which was granted [§10-11]. Notably, at the first Case and Costs Management Conference in August 2024, the first defendant had expressly confirmed she was not seeking expert evidence on capacity [§8, §21]. The joint expert’s report, produced in March 2025, concluded that the deceased had testamentary capacity when making the will [§13].

On the day before the trial was due to commence, 13 October 2025, the first defendant, by then legally represented, served her skeleton argument conceding the issues of testamentary capacity and undue influence and declaring neutrality on the remaining issues [§17]. The trial consequently lasted less than an hour [§17]. In the substantive judgment handed down on 16 October 2025, the court held the 2014 will to be valid and ordered that a grant issue to the claimant [§1]. The matter then proceeded to a determination on costs.

Costs Issues Before the Court

The court was required to determine several consequential costs issues [§1]. The primary issue was whether the general rule that costs follow the event should apply, or whether the case fell within the second probate exception from Spiers v English, which could justify a departure from that rule [§5, §18]. Subsidiary issues included whether any costs order against the first defendant should be on the standard or indemnity basis [§23]; the amount of any interim payment on account of costs [§26]; whether interest should be awarded on costs [§28]; and whether the claimant was entitled to an indemnity from the estate for any costs not recovered from the first defendant [§29-32].

The Parties’ Positions

The claimant sought an order that the first defendant pay her costs of the claim on the indemnity basis, to be assessed if not agreed, together with a substantial interim payment [§1]. The claimant also sought an order that she be indemnified out of the estate for any costs not recovered from the first defendant [§1]. The claimant argued that the general rule on costs should apply, as the first defendant’s challenge to the will was speculative, weak, and pursued unreasonably [§23]. She highlighted the first defendant’s last-minute concession, the fact that the claimant had travelled from Australia for a trial that became unnecessary, and a history of settlement offers from the claimant that were rejected by the first defendant [§23-25].

The first defendant did not seek her own costs but argued that there should be no order as to costs between the parties [§1]. Her primary submission was that the circumstances engaged the second probate exception from Spiers v English, as her knowledge and means of knowledge had reasonably led to an investigation of the will’s validity [§5]. She contended that this provided good reason to depart from the general rule that the unsuccessful party pays the successful party’s costs [§5].

The Court’s Decision

The court ordered that the first defendant pay the claimant’s costs of the claim on the indemnity basis, with a detailed assessment if not agreed [§22]. It also ordered an interim payment on account of £109,000 [§27], awarded interest on costs [§28], and granted the claimant an indemnity from the estate for any costs not recovered from the first defendant [§32-33].

Rejection of the Second Probate Exception

On the incidence of costs, the court held that the second probate exception did not apply [§18, §22]. It found that there was no reasonable basis for the first defendant to suspect the will was invalid [§19-22]. The estrangement from the deceased was not a ground for challenging capacity or knowledge and approval [§19]. People fall out and testators are entitled to change their minds [§19]. The will was made professionally and independently [§19], and the beneficiary change kept the gift within the family by giving the first defendant’s share to her own two sons [§19].

Crucially, the first defendant had taken no substantive investigative steps for years despite having access to all relevant material [§20-21]. In September 2022, the will-writers confirmed they had seen the original will after the deceased’s death, removing any basis for suspecting destruction [§20]. In February 2023, the claimant sent copies of the will file and medical records, neither of which gave grounds for suspicion [§20]. The first defendant did not herself seek medical or social care records until making her third-party disclosure application in October 2024 – more than seven years after the death [§20-21]. When these records were produced, they showed no grounds for suspicion [§21].

The court concluded: “Overall, on these facts, and in my judgment, there is simply no room for the application of the second exception in Spiers v English to operate. The first defendant had no reasonable basis to suspect that the 2014 will was invalid, and therefore no reason to investigate” [§22].

Indemnity Costs for Conduct “Out of the Norm”

The court found the first defendant’s conduct to be “out of the norm”, justifying an indemnity costs order [§23-25]. This was based on three main grounds.

First, the case was “entirely speculative and objectively weak” [§23]. All evidence in the first defendant’s possession before the claim was issued pointed to the will’s validity, with none pointing to invalidity [§23]. The first defendant challenged the will on four separate bases, including undue influence for which there was “simply no evidence whatever” [§23]. She did not seek evidence on incapacity until more than a year after the claim was issued, and when obtained, that evidence was also against her case, including the expert report [§23].

Second, the first defendant effectively conceded the case only on the day before trial via an overdue skeleton argument [§24]. By that time, the claimant had flown from Australia to give evidence. The court held: “This should never have happened” [§24]. The decision to concede should have been taken “months, if not years before” [§24]. Importantly, the fact that the first defendant was a litigant in person for much of the proceedings “cannot excuse her in this respect” [§24]. The procedural rules apply equally to litigants in person and represented parties [§24].

Third, the claimant made repeated settlement offers, all of which the first defendant refused [§25]. Although the offers were technically flawed because they involved discontinuance rather than a court order under CPR rule 57.11, “if the first defendant had otherwise been prepared to accept one of them, a means would have been found to implement it” [§25]. The court regarded the first defendant’s conduct overall as “grossly unreasonable, taking more than eight years to decide that there was in fact no basis for challenging the validity of the deceased’s will” [§25].

Payment on Account of Costs

Regarding the payment on account, the court noted that the usual practice of ordering 90% of an approved costs budget does not apply where indemnity costs are awarded [§26]. This is because CPR 3.18, which prevents departure from budgeted costs without good reason, does not apply to indemnity basis assessments [§26]. As Coulson LJ observed in Burgess v Lejonvarn, “if there is an order for indemnity costs, then prima facie any approved budget becomes irrelevant” [§26].

Nevertheless, having regard to the claimant’s varied budget of £109,133.50 (excluding VAT) and her evidence of total costs incurred of approximately £155,000, the court considered £109,000 to be a reasonable sum to order as an interim payment [§27]. The court acknowledged that the budget included some costs not actually incurred (such as the second day of trial and mediation disbursements) but also that there were other incurred costs not included in the budget [§27].

Interest on Costs

The court awarded interest on the claimant’s costs at 2% above the Bank of England base rate from the dates on which she paid her legal costs invoices until the date of judgment [§28]. This was to compensate the claimant for the loss of use of her money [§28]. The statutory Judgments Act 1838 rate of 8% per annum would apply to interest accruing after judgment [§28].

Indemnity from the Estate

Finally, the court held that the claimant, as a successful party propounding a will where the executor had not acted, was entitled to the same costs indemnity from the estate that an executor would have received [§29-33]. This principle, derived from Sutton v Drax (1815) 2 Ph 323 and confirmed by subsequent authorities including Wilkinson v Corfield (1881) 6 PD 27, provides that where a legatee propounds a will and succeeds, “thereby fulfilling the duty of the executor, the legatee is entitled to have his expences paid out of the estate of the deceased” [§29, §31].

The court noted that the claimant had filed the required notice of her intention to seek costs from the estate on issue of the claim, as mandated by CPR PD 3E, paragraph 5.4 [§32]. Accordingly, the claimant was entitled to her costs of the claim on the indemnity basis out of the estate, to the extent not recovered from the first defendant [§33]. Since the claimant was to be administratrix of the estate, it would be her duty to seek to recover those costs from the first defendant in the first instance [§33].

Part 36 Validity, Protocol Breaches And Mediation Timing In Probate Disputes

Dishonest Evidence And Baseless Allegations Justify Indemnity Costs Order

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

Indemnity Costs And The High Risk Of Pursuing A Weak Case

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

Indemnity Basis Costs Following Discontinuance

When Interlocutory Costs Orders Survive Discontinuance But Underlying Conduct Is Penalised

Commercial Litigation, Costs on Discontinuance, Indemnity Costs, New Costs Blog, Non-Party Costs

The High Court’s decision in MEX Group Worldwide Limited v Ford & Ors [2025] EWHC 2689 (KB) addresses how courts allocate costs where discontinuance, proven contempt, and wrongfully obtained injunctions intersect.

Background

MGWL obtained a worldwide freezing order on 20 October 2023 requiring defendants including Mr Smith and CSM to disclose assets. Mr Smith and CSM failed to comply with the disclosure obligations. Other defendants successfully applied to discharge the WFO on 15 December 2023 due to material non-disclosure by MGWL. MGWL’s appeal was dismissed on 8 August 2024. Meanwhile, MGWL issued contempt proceedings against Mr Smith and CSM on 22 March 2024.

After two adjournments in June and July 2024, for which Mr Smith and CSM were ordered to pay costs on account totalling £50,000, contempt was proven on 13 December 2024. On 7 March 2025, MGWL discontinued the underlying Scottish proceedings, causing the WFO to be discharged. The court was required to determine the costs consequences. The Scottish court had already awarded costs against MGWL on an indemnity basis with a 75% uplift.

Costs Issues Before the Court

The court faced multiple competing costs principles. Under CPR 38.6, a discontinuing claimant is presumed liable for the defendant’s costs. However, the established principle is that a defendant found in contempt ordinarily pays the claimant’s contempt costs, often on an indemnity basis. At the same time, the WFO had been obtained by material non-disclosure and should never have been granted. The court also had to consider whether existing interim costs orders made against the defendants should stand despite the discontinuance, and whether an inquiry as to damages should be ordered under the cross-undertaking despite the proven contempt.

The Parties’ Positions

MGWL submitted that costs should be determined on an issue-by-issue basis. It sought to recover the costs of the contempt application, arguing that it had succeeded in proving the contempts. MGWL also sought costs of resisting various applications including those for cross-examination of witnesses and for a stay. It emphasised the defendants’ conduct in failing to comply with the WFO and in seeking unjustified adjournments. MGWL contended that contempt proceedings typically attract indemnity costs in the applicant’s favour.

Mr Smith and CSM argued that they were the overall winners due to the discontinuance. They relied on the presumption in CPR 38.6 that MGWL should pay their costs of the entire proceedings. They sought an order reversing the interim costs orders made in MGWL’s favour. They highlighted the serious non-disclosure by MGWL in obtaining the WFO and the findings of the Court of Appeal, which demonstrated that the WFO should never have been granted. They pointed to the Scottish court’s indemnity costs order as showing the appropriate approach to MGWL’s conduct.

The Court’s Decision

The court held that the starting point was that MGWL had effectively lost the action due to the discontinuance. Applying CPR 38.6(1) and the principles established in Brookes v HSBC Bank plc, the presumption was that MGWL must pay the defendants’ costs. MGWL had failed to displace this presumption. Its practical and financial reasons for discontinuance were insufficient, and there was no unreasonable defendant conduct that would justify a departure from the usual rule. The court rejected MGWL’s issue-by-issue approach, stating that it would be “cautious about eroding that starting point by chiselling away issue by issue in the circumstances where there is a grave question as to whether the action should have ever been brought, whether the WFO should ever have been granted.”

The court then addressed how this general approach should be modified to account for the specific circumstances. First, the court held that the costs orders made at the adjournment hearings in June and July 2024 should stand despite the discontinuance. Following the reasoning in Dar El Arkan v Al Refai rather than the obiter dictum in Safeway Stores Ltd v Twigger, the court held that interim orders do not automatically fall away on discontinuance. These orders stood because they reflected specific unreasonable behaviour by Mr Smith and CSM in seeking unjustified adjournments, separate from the overall merits of the case.

The treatment of the contempt costs required more nuanced consideration. Ordinarily, a defendant who refuses to provide disclosure information under a WFO and is found in contempt would be liable for the contempt costs, typically on an indemnity basis. However, the court identified significant mitigating factors. The WFO should never have been granted due to material non-disclosure. The WFO would likely have been discharged on jurisdictional grounds had the defendants applied, as had occurred with the other defendants. The discontinuance of the Scottish proceedings raised serious questions about whether there was ever a proper basis for the underlying claim. Moreover, MGWL had continued the contempt proceedings even after losing its appeal in the Court of Appeal on 8 August 2024, which raised serious concerns about its motivation.

In light of these factors, the court ordered that MGWL should recover only 50% of its contempt costs from inception to 13 December 2024, to be assessed on the standard basis rather than the indemnity basis typically awarded in contempt cases. This reflected the court’s serious misgivings about MGWL’s conduct in pursuing the WFO despite the non-disclosure issues and the Court of Appeal’s decision. As the court observed, whilst an issue-by-issue approach is sometimes the fairest, it was not appropriate in this case to the extent that it would lead to a departure from the overall starting point, which was that Mr Smith and CSM were the successful parties.

From 13 December 2024, when the court ordered that the contempt penalty hearing and the set-aside application be heard together, the costs of both applications became inextricably linked. From that point, no further costs were awarded to MGWL for the contempt application. Instead, the costs of the action were awarded to Mr Smith and CSM.

The court made no order as to costs for several specific applications, including applications for permission to appeal the contempt findings, applications to cross-examine witnesses, and an application for a stay pending other proceedings. This reflected the court’s view that while these applications were unsuccessful, they were not entirely unmeritorious in the context of the overall concerns about the action.

On the question of the basis of assessment, the court declined to award indemnity costs to Mr Smith and CSM despite the Scottish court having done so. The court noted that the costs orders were multi-faceted and involved orders going in different directions, with the defendants having been unsuccessful on various applications. The decision to make a standard order as to costs reflected the overall justice of the case, where costs were awarded in different directions and proportions.

The final costs order was that MGWL should pay Mr Smith and CSM’s costs of the action on the standard basis, subject to MGWL recovering 50% of the contempt costs from inception to 13 December 2024 on the standard basis, the existing orders in MGWL’s favour totalling £50,000 standing, and no order as to costs for the specified applications.

In relation to the cross-undertaking as to damages, the court ordered an inquiry into the losses claimed by Mr Smith and CSM, finding that there was credible evidence that the WFO had caused loss. MGWL had argued that the defendants’ contempt should bar the inquiry, but the court rejected this. The existing costs orders already addressed the contempt conduct, and the more significant factor was that the WFO should not have been obtained or maintained. The defendants had been denied the opportunity to prove the WFO was wrongly obtained due to the discontinuance.

Key Takeaway

This decision demonstrates that discontinuance costs principles will generally prevail even where contempt has been proven, particularly where the underlying injunction was wrongly obtained. Proven contempt may reduce the defendants’ costs recovery for specific periods or applications where their conduct was unreasonable, but it will not reverse the overall costs liability where the claimant discontinues. Material non-disclosure in obtaining a freezing order will contaminate all subsequent costs applications, even where the applicant succeeds on discrete issues such as contempt. Interim costs orders reflecting specific unreasonable conduct will generally survive discontinuance and need not be reversed.

CPR 38.6: Discontinuance And Costs – The Legal Principles

CPR 38.6 | Default Rule Disapplied On Discontinuance

Indemnity Basis Costs Following Discontinuance

CPR 38.6 | Post-Discontinuance Conduct Can Be Considered

Who Should Pay The Costs Of A Withdrawn And Undetermined Application?

CPR 38 | Discontinuance | Default Rule Disapplied

Dishonest Evidence And Baseless Allegations Justify Indemnity Costs Order

Indemnity Costs, New Costs Blog, Payment on Account

The High Court’s decision in Clarke v Guardian News & Media Ltd [2025] EWHC 2575 (KB) demonstrates when dishonest conduct in defamation proceedings justifies an order for indemnity costs and a substantial payment on account.

Background

The case concerned a claim for defamation and data protection brought by the actor Noel Anthony Clarke against Guardian News & Media Ltd. The claim arose from a series of articles published by the defendant in 2021, which contained allegations of misconduct against the claimant. The claimant’s case was that these articles were defamatory and caused serious harm to his reputation. The defendant defended the claim on the grounds of truth and public interest. Following a liability trial, Mrs Justice Steyn handed down a judgment on 22 August 2025, dismissing the claimant’s claims in their entirety [§2]. The court found that the defendant had established both the truth defence and the public interest defence. The judgment also concluded that the claimant had advanced a baseless conspiracy allegation and had made dishonest statements in his evidence [§20-21]. The hearing on 23 September 2025 was convened to deal with consequential matters, including the resolution of several outstanding costs issues.

Costs Issues Before the Court

The court was required to determine four distinct costs issues following the dismissal of the claim. The first was the appropriate costs order to be made upon the dismissal of the claim [§1]. The second concerned the treatment of various ‘costs reserved’ orders made during the proceedings [§4]. The third issue was whether the costs should be assessed on the standard or indemnity basis [§13]. The fourth and final issue was whether the defendant was entitled to a payment on account of costs and, if so, in what amount [§25].

The Parties’ Positions

The defendant sought an order that the claimant pay its costs of the claim, to be assessed on the indemnity basis [§16]. It argued that the claimant’s conduct, including advancing and maintaining dishonest evidence and pursuing baseless allegations of conspiracy and dishonesty against the defendant’s witnesses, justified a departure from the standard basis. The defendant also sought a payment on account of costs in the sum of £3 million [§28], citing its incurred costs which were significantly in excess of £6 million [§26]. Regarding the ‘costs reserved’ orders, the defendant submitted that no further order should be made, meaning they would be treated as costs in the case [§6].

The claimant, who appeared in person [§19], did not formally contest that the defendant was entitled to its costs but opposed an order for indemnity basis assessment [§17]. He submitted that he had a right to bring the claim to defend his reputation, had relied on legal advice, and had made efforts to settle. He argued that his social media posts did not amount to courting publicity and urged the court to consider the devastating financial impact of the litigation on him and his family [§17]. He opposed any payment on account, or alternatively submitted that it should be modest, proportionate to his means, and stayed pending a potential appeal [§29]. In relation to the reserved costs, he argued that the interim non-disclosure application was unnecessary as he had given undertakings promptly, and that the proposed new defendants in the amendment and joinder application were never joined and incurred no costs [§7].

The Court’s Decision

The court ordered that the claimant pay the defendant’s costs of the claim, to be subject to detailed assessment on the indemnity basis [§24]. It found no reason to depart from the general rule that the unsuccessful party should pay the costs of the successful party [§2-3].

In deciding on the indemnity basis, the court applied the test from Three Rivers DC v Bank of England, which requires conduct that is “unreasonable” rather than morally condemnable [§16]. The court highlighted three specific factors justifying indemnity costs [§20-22]:

1. 1. First, the claimant had made statements in his pleaded case and evidence that were found to be untrue and dishonest. The court referred to the principle from Esure Services Limited v Quarcoo that where a claim is maintained dishonestly, “it will be normal for a court to seek to mark its disapproval” with an indemnity costs order [§20].
  2. Secondly, the claimant maintained a false case by advancing baseless allegations of dishonesty and bad faith against almost all the defendant’s witnesses, including untrue allegations that victims were lying and other serious allegations such as falsification of documents, theft, perversion of justice, and conspiracy — all of which caused distress, particularly to those recounting personal incidents of sexual misconduct [§21].
  3. Thirdly, the claimant made and maintained wholly unfounded allegations of dishonesty against three professional journalists. The court noted that when such allegations are made and not substantiated, courts have long shown themselves ready to respond with indemnity costs orders [§22].

The court also noted that while it was not necessary to show the unreasonable conduct increased costs, the conspiracy allegation had in fact “inevitably” and “significantly” increased the defendant’s costs [§23].

Regarding the ‘costs reserved’ orders, the court made no further order [§12]. This meant that the costs of the interim non-disclosure application and the amendment and joinder application would be treated as costs in the case, and thus payable by the claimant as part of the defendant’s overall costs. The court found the non-disclosure application was necessary due to a threat of publication for which the claimant and his legal team bore responsibility [§8]. On the amendment application, the court noted that the conspiracy allegation was without foundation and permission would have been refused as having no real prospect of success [§9].

The court ordered a payment on account of costs in the sum of £3 million, to be paid within 28 days [§39]. It held that there was no good reason not to make such an order, rejecting the claimant’s assertion of inability to pay as a relevant consideration at this stage, citing Bank St Petersburg PJSC v Arkhangelsky [§30]. The court emphasized that a party’s ability to pay is not relevant when considering what costs order to make in principle, but becomes relevant at the stage of enforcement [§18, §30].

The court found the sum of £3 million was a “reasonable sum” representing a reasonable estimate of the likely level of recovery. Applying Excalibur Ventures LLC v Texas Keystone Inc, the court noted that a reasonable sum often allows an “appropriate margin to allow for error in the estimation” [§35]. The court concluded that £3 million was “substantially lower than the defendant’s likely level of recovery on detailed assessment” and therefore allowed a “suitably wide margin of error,” particularly given the indemnity basis of assessment [§39]. The court addressed and rejected the claimant’s various objections to specific cost items, finding that the costs appeared to have been reasonably incurred in the context of the litigation [§32-38].

Finally, the court refused the claimant’s application to extend time for seeking permission to appeal [§42] and, consequently, refused to stay the costs order [§43]. It noted that the claimant had already had more than the usual period to consider an appeal and had not identified any potential grounds.

Indemnity Basis Costs Following Discontinuance

Indemnity Costs Awarded For Unsubstantiated Fraud Allegations In Original Pleading

Campaign Of Vengeance Results In Award Of Indemnity Costs

CPR 44.2(8) | Payments On Account In Civil Litigation

Costs Thrown Away, Indemnity Costs And Payments On Account

Indemnity Costs And The Effect Of An Approved Costs Budget

Part 36 Validity, Protocol Breaches And Mediation Timing In Probate Disputes

Costs Against Successful Party, Indemnity Costs, New Costs Blog, Part 36, Trustees & Estates

The High Court’s decision in Ellis v Ellis & Ors Re: Care (Decd) [2025] EWHC 2609 (Ch) confirms that Part 36 offers in probate disputes remain valid even where the offeror does not yet own the assets being offered, and clarifies when it is reasonable to delay mediation pending disclosure.

Background

The dispute concerned the estate of Yeamon Keith Care, who died in March 2020. The Claimant, Luke Ellis, sought to propound the will dated 23 August 2016, under which he was the sole beneficiary of the residuary estate, primarily comprising a share in Tregear Farm. The Third Defendant, Vivian Care, the brother of the deceased, challenged the will on the grounds of lack of testamentary capacity, want of knowledge and approval, and due execution. Vivian also advanced a counterclaim for proprietary estoppel, asserting that the deceased had led him to believe he would inherit the farm. The First and Second Defendants were the executors of the estate and adopted a neutral stance throughout the proceedings [§2, §5, §92].

Pre-action correspondence commenced in June 2020, with Vivian indicating a challenge to the will [§7]. A Larke v Nugus request was made in July 2020 [§8]. Despite repeated promises, Vivian failed to provide a letter of claim outlining his case [§89]. Luke instructed solicitors in May 2021 and, after further delays, issued proceedings in July 2022 without a prior letter of claim [§15, §50]. Vivian served a defence and counterclaim [§53]. A case and costs management conference took place in May 2023 [§26, §57], and mediation was attempted in November 2023 but was unsuccessful [§32, §128]. The substantive trial occurred over several days in April and May 2024, with a further hearing in July 2024 [title page]. The substantive judgment, handed down in January 2025, upheld the validity of the will and dismissed all of Vivian’s claims [§1].

Costs Issues Before the Court

The court was required to determine the incidence of costs following the substantive judgment. The key costs issues were:

- - whether the general rule that costs follow the event should be departed from due to alleged unreasonable pre-action conduct by the Claimant;
  - whether the Claimant’s refusal to mediate until September 2023 warranted a costs sanction;
  - the applicability of the probate exceptions concerning the testator’s conduct causing the litigation and reasonable grounds for investigation;
  - the validity and consequences of the Claimant’s Part 36 offer dated 15 January 2024;
  - whether the Third Defendant should pay the litigation costs of the First and Second Defendants as executors; and
  - the appropriate payment on account of costs [§5-6].

The Parties’ Positions

The Third Defendant accepted that the Claimant was the successful party but contended that the First and Second Defendants were not successful [§5, §47]. He argued for no order for costs until September 2023 based on three grounds: unreasonable pre-action conduct by the Claimant, including a failure to serve a letter of claim before issuing proceedings [§7-20]; an unreasonable refusal to mediate until September 2023 [§21-33]; and the application of the probate exceptions [§34-40]. He submitted that the testator’s conduct, through promises and familial expectations, caused the litigation, and that there were reasonable grounds for investigation, particularly regarding due execution and testamentary capacity [§35-40]. He challenged the validity of the Part 36 offer, arguing it was uncertain and not a genuine attempt to settle [§41-46], and contended there was no principled basis for him to pay the executors’ costs [§47-48].

The Claimant argued that costs should follow the event in accordance with the general rule [§49]. He submitted that his issuance of proceedings without a letter of claim was justified due to the Third Defendant’s prolonged delays and failure to articulate his case despite having access to relevant documents [§50-56]. He maintained that his refusal to mediate prior to September 2023 was reasonable because he lacked necessary disclosure from the Third Defendant, including medical records and evidence supporting the proprietary estoppel claim [§57-61]. He opposed the application of the probate exceptions, contending that the testator’s conduct did not cause the litigation and that any investigation period had ended well before proceedings were issued [§62-69]. He asserted that the Part 36 offer was valid and should trigger the full consequences under CPR 36.17 [§70-72], and that the Third Defendant should pay the executors’ costs to avoid the successful party bearing them [§73-74].

The First and Second Defendants supported the Claimant’s position on costs [§75]. They argued that the Third Defendant’s challenge to the will necessitated their involvement and that it would be unjust for the estate or the Claimant to bear their litigation costs [§76]. They emphasised that their costs budget had been agreed, indicating an expectation that the unsuccessful party would pay [§77]. They submitted that the probate exceptions did not apply and that the Third Defendant’s conduct had prolonged the litigation unnecessarily [§78-79].

The Court’s Decision

Pre-Action Conduct

The court held that the general rule under CPR 44.2 should apply, with the Third Defendant paying the costs of the Claimant and the executors, subject to specific considerations [§80-83]. On pre-action conduct, the court found that the Claimant’s failure to serve a letter of claim was not a brazen breach of the protocol [§84]. The Third Defendant had ample time and material to formulate his claim from as early as August 2021, and the Claimant’s issuance of proceedings in July 2022 was a reasonable response to prolonged inactivity [§86, §89]. The court concluded that a letter of claim would not have altered the course of litigation or facilitated earlier settlement [§99].

The court made detailed findings about the Third Defendant’s delay in formulating his case. Despite having access to most key documents by late 2020, including the will file and signed authorities to obtain further records, no letter of claim was forthcoming despite repeated promises [§87-89]. The documents held out for—such as full Adult Social Care records and complete bank files—were not necessary to formulate the claim [§90-93]. The court found that the Third Defendant was able to plead his counterclaim without difficulty once proceedings were issued, demonstrating that sufficient information was available much earlier [§98].

Mediation

Regarding the refusal to mediate, the court determined that the Claimant’s delay in agreeing to mediate until September 2023 was justified [§100]. The Third Defendant had withheld key disclosure, including medical records and evidence on proprietary estoppel, until after the case management conference [§100, §106]. The court found it reasonable for the Claimant to await disclosure before engaging in mediation, and noted that the period of delay was relatively short and incurred minimal additional costs [§101, §107-108]. No costs sanction was imposed [§109].

The court rejected arguments based on Northamber Plc v Genee World Limited, noting that silence in response to mediation invitations is only “as a general rule” unreasonable, and each case turns on its own facts [§102-103]. The reasons given by the Claimant—lack of complete information about the estate and evidence supporting the proprietary estoppel claim—were reasonable in the circumstances [§104, §106].

Probate Exceptions

The court rejected the application of the probate exceptions [§110]. On the first exception (testator’s conduct), it held that the testator’s conduct did not cause the litigation [§110-114]. Familial expectations and promises, even if they existed, did not amount to conduct surrounding the will with confusion or uncertainty, following established authority such as Re Cutcliffe’s Estate [§110-111]. The court declined to depart from Re Cutcliffe, noting that recent authoritative decisions have endorsed it and the trend is to narrow rather than broaden the exception [§111].

The court found that the worst that could be said against the testator was that he did not live up to expectations he had allowed to develop within the family, based on intentions formed during his first wife Betty’s lifetime [§112, §39]. The testator had gone out of his way to engage professionals in making his will, which was in short form and perfectly clear [§113]. There was no confusion or uncertainty surrounding the will itself [§113].

On the second exception (reasonable investigation), the court found that any reasonable investigation period had ended by August 2021 for most issues, and by March 2022 for the due execution issue [§122]. The Third Defendant had sufficient information to assess the merits early on, and pursuing the claims beyond those points constituted hostile litigation.

The court made detailed findings on each challenged ground:

- - Testamentary capacity: The plentiful medical evidence did not suggest incapacity [§117]. The Third Defendant failed to admit this fact after service of a Notice to Admit Facts, and the court noted this could be taken into account under CPR 32.18(5) [§117]. The description of the deceased by the Third Defendant’s expert was alien to the true picture, and the Third Defendant would or should have been aware of the deceased’s acuity [§117].
  - Knowledge and approval: This was a professionally drawn will that accorded with detailed attendance notes of instructions [§118]. The Third Defendant had access to the will file long before proceedings were issued [§118]. Even without prior knowledge of a meeting where the deceased reviewed the draft will with his chosen executors, this ground was always going to be extremely difficult [§118].
  - Due execution: While there was an apparent conflict between the attestation witnesses’ evidence, the Third Defendant had spoken to both witnesses before issuing proceedings [§119]. The court found that any reasonable investigation should have factored in: (a) the strong presumption of due execution; (b) the professional standing of the witnesses; (c) careful instructions given on execution; and (d) an attendance note placing both witnesses at the surgery on the date of execution [§119]. An objective assessment of these factors, all available pre-issue, should have led to the conclusion that this would be difficult to succeed on and was “certainly going to be in the nature of hostile litigation” [§120].

The court emphasised that while reasonable investigations may justify a “no order as to costs” for a period, “once the parties are aware of the settled positions of the attestation witnesses, time must begin to run to decide whether the investigation phase is over” [§120].

Part 36 Offer

The court upheld the validity of the Claimant’s Part 36 offer, finding it sufficiently clear and a genuine attempt to settle [§123-129]. The offer represented a significant value (approximately 14.6% of the estate), and the Third Defendant’s objections were deemed pedantic or capable of resolution [§124-125, §128]. Issues such as whether the will would be formally admitted to probate or which party owned the third tractor were “technical details that could have been sorted out had the Part 36 Offer been accepted” [§125].

The court rejected arguments that the offer was invalid because the Claimant did not own the land being offered (it was vested in the executors) or that the bank’s charge created difficulties [§126]. It found these submissions “almost contrived” since the executors would obviously abide by any settlement and the estate’s net value would have allowed the bank to be paid [§126].

Consequently, the consequences under CPR 36.17(4) applied, including indemnity costs from the expiry of the relevant period and an additional amount [§129]. However, considering the offer was made only three months before trial, the court reduced the interest on costs to 5% above base rate to avoid injustice, while applying the other consequences in full [§134]. The court noted that “all circumstances of the case” included the Third Defendant’s conduct in relation to the personality disorder issue raised late in the proceedings [§134].

Executors’ Costs

The court ordered the Third Defendant to pay the executors’ litigation costs on the standard basis [§140]. It held that the executors’ costs were incurred solely due to the Third Defendant’s challenge, and it would be unjust for the Claimant or the estate to bear them [§137]. The court noted the executors’ neutrality and the agreement of their costs budget as supporting this outcome [§138-139].

The court rejected the Third Defendant’s argument that there was no principled basis for this order, observing that CPR 44.2(1) clearly encompasses executors as parties [§136]. The court emphasised that if the Third Defendant did not pay the executors’ costs, the Claimant would effectively bear them despite being the successful party, which would be “wholly unjust” [§137]. The court noted by analogy to administration pending suit cases that the losing party should pay such costs [§139].

Payment on Account

On payment on account, the court awarded the Claimant £94,000, representing 90% of budgeted costs and 75% of incurred costs, reflecting the approved budget and the indemnity basis applicable from February 2024 [§145-147]. The executors were awarded 85% of their budgeted costs (on combined incurred and budgeted costs of £20,278), considering the estate’s illiquidity and the need for efficient administration [§148].

The court applied the principles from Cleveland Bridge v Sarens, noting that where costs form part of an approved costs budget, payment on account should be no less than 90% of that budgeted amount [§144]. For incurred costs not subject to the approved budget, a more cautious approach of 75% was adopted [§145].

Failure To Mediate And Validity Of Part 36 Offers In Probate Claims

Costs Penalty Applied For Silence In The Face Of An Invitation To Mediate | Court Of Appeal Decision

Refusal To Mediate Does Not Always Justify Indemnity Costs

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

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

CPR 44.2 And The Courts’ Discretion As To Costs

Can Unreasonable Refusal To Mediate Lead To Indemnity Costs On Appeal Even Where Permission Is Granted?

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

The High Court’s decision in Fernandez v Fernandez [2025] EWHC 2530 (Ch) confirms that unreasonable refusal to mediate on appeal may independently justify indemnity costs, and that executors conducting appeals in their own interest lose their right to indemnity from the estate.

Background

This judgment follows HHJ Paul Matthews’ substantive appeal judgment handed down on 22 September 2025 ([2025] EWHC 2373 (Ch)), which dismissed Julian Fernandez’s appeal against his removal as executor. Having invited written submissions on consequential matters, the court now addresses the specific costs orders arising from the appeal, including whether unreasonable refusal to mediate justifies indemnity costs.

The case concerned an appeal by Julian Fernandez against an order made by District Judge Wales on 3 December 2024, which removed him as executor of the estates of his parents and of a trust established during their lifetimes. The respondents to the appeal were his siblings, Leessa Karen Fernandez and Graeme Nicholas Fernandez, along with other defendants to counterclaim. The appeal was heard by HHJ Paul Matthews, who handed down a written judgment on 22 September 2025 dismissing the appeal [§1]. Following the substantive decision, the court invited written submissions on consequential matters, leading to this judgment dealing exclusively with costs-related issues [§1].

Costs Issues Before the Court

The court was required to determine five matters arising from the dismissed appeal [§2]: (i) the incidence of costs, specifically whether the unsuccessful appellant should pay the respondents’ costs; (ii) the basis of assessment, namely whether costs should be assessed on the standard or indemnity basis; (iii) whether a payment on account of costs should be ordered and in what amount; (iv) whether interest should be awarded on costs; and (v) whether the appellant was entitled to an indemnity from the estates and trust fund for his own costs and any costs liability to the respondents [§2]. The court also determined whether summary or detailed assessment was appropriate [§25-28].

The Parties’ Positions

The respondents sought an order that Julian pay their costs of the appeal on the indemnity basis [§4, §13]. They argued that Julian’s conduct warranted indemnity costs, citing his unreasonable refusal to mediate, his pursuit of unwarranted factual enquiries, his making and failure to withdraw improper allegations, his misdescription of legal authorities, and the over-elaborate and repetitive nature of his grounds and skeleton arguments [§13]. They also requested a detailed assessment of costs [§25], a payment on account of £46,000 (approximately 60% of their claimed costs of £77,663.91) [§31], interest on costs at 2% above base rate from the dates of payment [§34], and a declaration that Julian was not entitled to an indemnity from the estates or trust for his costs or his liability to pay theirs [§36].

Julian’s position on costs was ambiguous [§4]. In his submissions dated 25 September 2025, he initially appeared to argue that the respondents should not be entitled to recover costs at all, primarily due to their late service of a costs statement, which he claimed was served after 16:00 on the day before the hearing and therefore deemed served on the hearing day [§4, §7]. However, his draft order proposed that he pay the respondents’ costs on the standard basis [§4]. He opposed indemnity costs, contending that the grant of permission to appeal by Michael Green J indicated his conduct was not “out of the norm” [§14]. He also argued that the respondents’ costs were inflated and disproportionate, suggesting that summary assessment was appropriate and disputing the need for a payment on account or interest [§26, §31-32]. On the indemnity issue, Julian did not provide a substantive response to the respondents’ application [§37].

The Court’s Decision

The court ordered Julian to pay the respondents’ costs of the appeal on the indemnity basis, to be subject to detailed assessment if not agreed, with interest at 2% above bank base rate from the dates the respondents paid their legal costs until judgment [§38]. A payment on account of £38,832 was required by 4 pm on 20 October 2025 [§38]. The court also declared that Julian was not entitled to any indemnity from the estates or trust fund for his own costs of the appeal or for his costs liability to the respondents [§37-38].

Incidence of Costs

On the incidence of costs, the court applied the general rule under CPR rule 44.2(2)(a) that the unsuccessful party should pay the costs of the successful party [§3, §6]. As the appeal had been dismissed, the respondents were the successful party, and no reason was found to depart from the general rule [§6]. Julian’s argument that the respondents should be denied costs due to late service of their costs statement was rejected [§7-11]. The court found that any prejudice was minimal, as Julian had the statement the evening before the hearing, and the case was not suitable for summary assessment, rendering the point largely irrelevant [§11]. The court cited authority, including Macdonald v Taree Holdings Ltd [§9], that failure to comply with the practice direction should not lead to a total deprivation of costs where otherwise entitled. The court described Julian’s submission as “formalism of the most unthinking kind” [§11].

Basis of Assessment

Regarding the basis of assessment, the court held that indemnity costs were justified due to Julian’s conduct, which was “out of the norm” [§24]. The court referenced Hosking v Apax Partners Ltd [§12] in emphasising that indemnity costs are appropriate where behaviour takes the case out of the norm.

Key factors included:

- - Unreasonable refusal to mediate | Julian delayed responding to mediation offers for ten weeks (from 14 April to 23 June 2025) and failed to propose alternative dates, effectively frustrating the process [§15-16]. On 14 April 2025, the respondents proposed 26 dates for mediation (5 in May, 21 in June) [§15]. They chased for a response on 9 May and 8 June, but received only a holding response on 13 June [§15]. Julian’s substantive response on 23 June stated none of the 26 dates was possible and that mediation was unlikely before the appeal hearing on 8 July [§15]. The court found it “unacceptable to take so long to respond” and “equally unacceptable not to be able to make some re-arrangement” for at least one of 26 dates [§16]. It concluded that “Julian just did not wish to mediate” [§16]. This alone warranted a costs sanction, as per Thakkar v Patel [§17-18].
  - Pursuit of matters beyond the core issue | Julian insisted on pursuing matters other than whether he should be replaced as executor, including what he called “central issues” that were not even pleaded [§19]. This constituted “conduct out of the norm” [§19].
  - Other conduct points | The court considered allegations regarding misdescription of authorities and over-elaborate pleadings but found these, standing alone, were not sufficient to justify indemnity costs [§21-22]. The court was not prepared to conclude that counsel deliberately miscited authorities and proceeded on the basis of mistaken understanding [§21]. Similarly, over-elaborate and repetitive pleadings, whilst regrettable, were not of themselves “conduct out of the norm” [§22].

The court concluded that the mediation refusal and pursuit of unpleaded issues “amply justify an award of costs on the indemnity basis” [§24].

Method of Assessment

On the method of assessment, the court ordered detailed assessment rather than summary assessment [§25-28]. Although Julian argued that summary assessment was suitable for a hearing lasting one day or less under CPR PD 44 paragraph 9.2(b) [§26], the court noted he had omitted the final part of the rule, which provides for detailed assessment where “there is good reason to do so, for example where the paying party shows substantial grounds for disputing the sum claimed” [§27]. The court found substantial grounds for disputing the costs existed, which could not be dealt with summarily, and therefore ordered detailed assessment [§28].

Payment on Account

For the payment on account, the court applied CPR rule 44.2(8), which requires such a payment unless there is good reason not to do so [§29]. Julian’s arguments about inflated costs went to quantum rather than the principle, and no good reason was found to avoid an order [§32]. The respondents sought 60% of £77,663.91, rounded down to £46,000 [§31]. The court, applying the approach in Excalibur Ventures LLC v Texas Keystone Inc [§30], considered factors including hourly rates exceeding guidelines and potential duplication of work [§33]. District Judge Wales had previously expressed concerns about the respondents’ costs [§33]. Taking a cautious approach, the court ordered 50% of the claimed costs, amounting to £38,832 (to the nearest pound), payable within 14 days [§33].

Interest on Costs

Interest on costs was awarded at 2% above bank base rate from the dates the respondents paid their legal costs until judgment [§34-35]. The court noted this power is “now routinely exercised” following trial [§34, citing Involnert Ltd v Aprilgrange Ltd]. The court rejected Julian’s argument that inflated costs made interest inappropriate, noting that interest would apply only to costs allowed on detailed assessment, not the claimed amounts [§35].

Indemnity from Estates

Finally, the court denied Julian any indemnity from the estates or trust fund for his costs or his liability to pay the respondents’ costs [§36-37]. The court held that the appeal was conducted entirely in Julian’s own interest, not for the benefit of the estates or trust [§37]. Costs were therefore not properly incurred under section 31(1) of the Trustee Act 2000 and CPR PD 46 paragraph 1.1(b) [§37]. The court noted that the judge below had been entitled to reach the same conclusion regarding Julian’s indemnity for costs of hostile litigation at first instance [§36].

Executor’s Litigation Costs Indemnity Denied And Personal Costs Ordered In Hostile Trust Dispute

A short judgment looking at trust and estate costs principles

Costs Penalty Applied For Silence In The Face Of An Invitation To Mediate | Court Of Appeal Decision

Failure To Engage In ADR And Indemnity Costs, Again

Refusal To Mediate Does Not Always Justify Indemnity Costs

CPR 44.2(8) | Payments On Account In Civil Litigation

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

Commercial Litigation, Indemnity Costs, New Costs Blog, Part 36, Payment on Account, YT

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

Background

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

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

The Defendants’ Multi-Pronged Challenge

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

Challenge 1 | The Offer Was Unclear

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

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

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

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

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

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

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

Challenge 3 | Enhanced Interest Rate Too High

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

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

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

Challenge 4 | Costs Should Be Reduced by 50%

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

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

Challenge 5 | Payment On Account Too High

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

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

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

Final Elements | The Additional Amount and Interest on Costs

The court ordered:

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

Permission to Appeal and Stay—Also Refused

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

Key Takeaway

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

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

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

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

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

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

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

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

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

When Part 36 Offers Demand Total Capitulation | Matière v ABM

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

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

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

Monthly Costs Law Update – September 2025

Costs Budgeting & CMC, Indemnity Costs, New Costs Blog, New News Article, Part 36

September delivered critical decisions on costs budgeting, indemnity costs thresholds, and procedural jurisdiction. The NOx Emissions litigation saw budgets slashed by 62%, whilst courts clarified when “annoying” behaviour remains insufficient for indemnity basis awards. Pre-action applications now definitively constitute “proceedings” for costs purposes. Practitioners must note the firm line drawn against Part 36 offers demanding total capitulation and the narrow scope for costs-only joinder applications.

Detailed Assessment & CPR 44.11

No Procedural Tension Between CPR 44.11 And s57 of the Criminal Justice and Courts Act 2015 Costs Judge Nagalingam refused permission to appeal, holding that CPR 44.11 and s57 Criminal Justice and Courts Act 2015 serve distinct purposes with no procedural tension. Detailed assessment cannot become a forum for quasi-fundamental dishonesty findings that should have been pursued at trial, and settlement without apportionment prevents retrospective allocation of damages to specific heads of loss.

Trust and Estate Costs

Executor’s Litigation Costs Indemnity Denied And Personal Costs Ordered In Hostile Trust Dispute

HHJ Paul Matthews dismissed an appeal against costs orders depriving an executor of estate indemnity for litigation costs. Executors defending hostile removal proceedings in their own interests rather than for the estate’s benefit lose entitlement to indemnity under Trustee Act 2000 s31, even where administration costs indemnity is preserved.

Section 51 Jurisdiction

Court Of Appeal Confirms That Pre-Action Applications Constitute ‘Proceedings’ for Costs Purposes
Lord Justice Cobb held that pre-action injunction applications constitute “proceedings” under s51 Senior Courts Act 1981, closing a loophole where parties might escape costs consequences through procedural technicalities. Courts possess costs jurisdiction for any application where they are seised and asked to make orders, regardless of whether a claim form was issued.

Costs Budgeting

High Court Slashes Claimants’ Costs Budgets by 62% In NOx Emissions Litigation
Cockerill J and Senior Costs Judge Rowley approved just £21m of £55.7m sought by claimants for Tranche 3 of the NOx Group Litigation. The court criticised continued “over-lawyering”, drastically reduced budgets for CMC attendance from 32 fee earners to 9 in-person attendees, and confined non-lead firms’ recoverable involvement to narrow circumstances, with routine “keeping abreast” work deemed non-recoverable inter partes.

CPR 3.15(8) | £870 Hourly Rate And £90,000 Brief Fee For Leading Counsel Deemed Disproportionate In £1.2m Claim
The High Court reduced trial preparation and trial budgets through broad-brush phase reductions where solicitors’ rates substantially exceeded London Band 2 guidelines and counsel brief fees totalled £90,000. Courts can address excessive rates without breaching CPR 3.15(8)’s prohibition on fixing hourly rates by applying downward adjustments to disproportionate phase totals following GS Woodland Court GP1 Ltd v GRCM Ltd.

Indemnity Costs

Being ‘Annoying and Difficult’ Not Sufficiently ‘Out Of The Norm’ For Indemnity Costs In Failed Liquidator Challenge
The Chancery Division refused indemnity costs against an unsuccessful creditor applicant, finding his conduct, though creating a weak application, did not meet the “out of the norm” threshold. Personal circumstances including head injury and deep investment in the liquidation distinguished the case from authorities like Beattie v Smailes where extravagant applications warranted higher basis awards.

Part 36 Offers

When Part 36 Offers Demand Total Capitulation | Matière v ABM
Alexander Nissen KC held that a Part 36 offer of nil for a multi-million pound counterclaim was not a genuine attempt to settle that aspect of proceedings, making it unjust to apply indemnity costs consequences under CPR 36.17(4) to counterclaim costs. The offer’s genuine nature regarding the claim secured full Part 36 benefits for those costs only, demonstrating offers must involve realistic concessions across all dispute aspects.

Costs Capping

Costs Capping Order | Court Sets Different Caps Despite Defendant’s Push For Parity In Facial Recognition Challenge
Farbey J set reciprocal but non-identical costs caps at £70,000 (claimants) and £100,000 (defendant) in a judicial review of Live Facial Recognition technology policy. Courts will look beyond specific fundraising to assess campaign organisations’ true financial resources, expecting strategic deployment of unrestricted funds whilst recognising that “reciprocal” caps under Criminal Justice and Courts Act 2015 ss88-89 need not be identical.

Fixed Costs Regime

CPR 45.8 Fixed Costs Apply To Interim Applications From Date Of Provisional Track Allocation
Sheldon J quashed a costs order of £10,653 where the case had been provisionally allocated to the Intermediate Track, limiting recoverable costs to £333 plus £303 court fee under CPR 45.8. Fixed costs regime applies from provisional allocation, not formal allocation, and conducting litigation as an unauthorised person constitutes a reserved activity barred under Legal Services Act 2007 absent specific exemption.

Costs-Only Proceedings

Court Refuses Costs-Only Joinder But Orders Consolidation in Will Dispute
HHJ Paul Matthews refused to join a will-writing company as a costs-only party under CPR 46.2 where it contested negligence allegations requiring full trial on breach, causation and quantum. Summary procedure under s51 Senior Courts Act 1981 is inappropriate where non-parties actively dispute liability; consolidation under CPR 3.1(2)(h) offers broader case management solutions where separate proceedings exist.

Executor’s Litigation Costs Indemnity Denied And Personal Costs Ordered In Hostile Trust Dispute

Indemnity Costs, New Costs Blog, Trustees & Estates

The High Court’s decision in Fernandez v Fernandez [2025] EWHC 2373 (Ch) demonstrates that executors who persist in defending removal applications after their position becomes untenable risk both personal costs liability and loss of their estate indemnity.

Background

The proceedings concerned the estates of Jean Fernandez, who died on 29 March 2010, and Alexander Fernandez, who died on 14 October 2013. The appellant, Julian Fernandez, was the executor of both wills, which were discovered after initial grants of administration had been made. The first and second respondents, Leessa and Graeme (Nick) Fernandez, had obtained letters of administration for Jean’s estate in 2013, believing she had died intestate. Julian subsequently found wills for both parents dated 1 October 1996, appointing him as executor. He obtained a grant of probate for Alexander’s estate in January 2016 and for Jean’s estate in November 2019, after the validity of her will was confirmed following a trial of a preliminary issue in July 2019.

On 10 July 2018, Julian issued a claim seeking revocation of the letters of administration granted to Leessa and Nick and a grant of probate to himself. Leessa and Nick defended the claim only by putting Julian to proof of the will’s validity and brought a counterclaim seeking Julian’s removal as executor of both estates and as trustee of a discretionary trust settled by the parents in 2008. The counterclaim alleged various instances of misconduct, including mismanagement of estate assets, conflicts of interest, and a breakdown in relations between Julian and the other beneficiaries.

The procedural history was protracted. In September 2019, District Judge Watson ordered Leessa and Nick to pay Julian’s costs of the preliminary issue concerning the validity of Jean’s will, with detailed assessment, and gave directions for a four-day trial of the counterclaim. However, the parties subsequently sought and obtained multiple stays to negotiate a settlement, including an unsuccessful mediation in January 2022. In June 2023, HHJ Paul Matthews refused a further stay, directing that the litigation must proceed. Fresh directions were given by District Judge Taylor in November 2023, leading towards a four-day trial.

On 28 March 2024, Leessa and Nick applied for summary determination of the removal application. This was heard by District Judge Wales on 16 September 2024 [§14]. On 29 October 2024 [§15], the judge handed down his substantive judgment. Following a hearing on 3 December 2024 for consequential matters, the judge made an order removing Julian as executor and trustee and appointing an independent professional trustee. At the hearing on 3 December 2024, the judge also dealt with consequential matters, including costs. He delivered a series of extempore judgments on costs, resulting in an order that Julian pay the respondents’ costs on the standard basis up to 28 March 2024 and on the indemnity basis from 28 March 2024 onwards [§26, §135], and that Julian be deprived of his right to indemnity from the estates and trust for his litigation costs (but not his administration costs) [§24, §127-128]. Julian appealed against this order, with permission granted by Michael Green J on 3 March 2025. The appeal was heard on 8 July 2025 before HHJ Paul Matthews sitting as a Judge of the High Court [§1].

Costs Issues Before the Court

The appeal required the court to review the costs orders made by District Judge Wales on 3 December 2024. The specific costs issues for determination were:

Whether the judge erred in ordering Julian to pay the respondents’ costs of the counterclaim and the application.
Whether the judge erred in awarding costs on the indemnity basis for the period following the application dated 28 March 2024.
Whether the judge erred in depriving Julian of his right to indemnity from the assets of the estates and trust in respect of his own litigation costs and the costs liability imposed by the order.
Whether the judge erred in setting the payment on account of costs at £55,000.

These issues arose in the context of hostile litigation between an executor/trustee and beneficiaries, engaging special principles under the Civil Procedure Rules and trust law.

The Parties’ Positions

The Appellant’s Position Julian argued that the costs orders were erroneous. He submitted that there was no sufficient evidence of misconduct to justify ordering him personally to pay costs or depriving him of his indemnity from the estates. He contended that the litigation was necessary for the proper administration of the estates and that he had acted properly throughout. Regarding indemnity costs, he argued that such an award required a finding of exceptional conduct, such as bad faith or gross negligence, which was not present. He also criticised the judge for failing to consider the respondents’ own litigation conduct and for not providing adequate reasons for the costs orders.

The Respondents’ Position The respondents supported the costs orders. They argued that the litigation was hostile and that Julian had acted in his own interests rather than for the benefit of the estates. They submitted that Julian’s continued resistance to removal after the application of 28 March 2024 was unreasonable, justifying indemnity costs for that period. They contended that Julian should not be entitled to an indemnity for litigation costs because he had acted for a benefit other than that of the estates, citing his conflicts of interest and the adversarial nature of the proceedings. They also argued that the payment on account was appropriately calculated. They faced a “formidable obstacle” in challenging the costs consequences [§17], citing Webb v Liverpool Women’s NHS Foundation Trust [2016] EWCA Civ 365.

The Court’s Decision

The appeal was dismissed, and the costs orders of District Judge Wales were upheld. The court analysed each costs issue as follows.

Order for Costs Against the Executor

The court held that the judge was entitled to order Julian to pay the respondents’ costs. The general rule under CPR rule 44.2(2) is that the unsuccessful party pays the costs, and the respondents were the successful parties on the counterclaim and application. The judge correctly characterised the litigation as hostile, meaning the usual inter partes principles applied, rather than treating it as trust litigation where costs might be paid from the estate. The court referred to the principle that a trustee or executor is not automatically entitled to an indemnity for costs incurred in hostile litigation, especially where they have acted for their own benefit. The judge’s decision that Julian had acted in substance for a benefit other than that of the estate was an evaluative judgment open to him on the evidence, particularly given the conflicts of interest and the breakdown in relations.

Indemnity Basis Costs

The court upheld the award of costs on the indemnity basis for the period following the application of 28 March 2024. The judge had applied the correct test, namely whether the case was taken “out of the norm” by the paying party’s conduct. The judge found that Julian should have realised his position was untenable after that date, given the clear conflicts of interest and the hostility between the parties. His continued resistance was conduct outside the ordinary and reasonable conduct of proceedings. The court cited Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 and Three Rivers District Council v Bank of England [2006] EWHC 816 (Comm) but emphasised that the test is not limited to specific examples like fraud; any conduct making the case exceptional can justify indemnity costs. The judge’s decision was not plainly wrong and fell within his discretion.

Deprivation of Indemnity from Estate/Trust

The court affirmed the order depriving Julian of his right to indemnify himself from the estates and trust for litigation costs [§127]. Under section 31(1) of the Trustee Act 2000 and CPR rule 46.3, a trustee or executor is entitled to an indemnity only for expenses “properly incurred”. CPR Practice Direction 46 paragraph 1 provides that costs are not properly incurred if the trustee acted for a benefit other than that of the estate. The judge found that Julian had acted in his own interest in the hostile litigation, which was a sufficient basis to deny the indemnity. The court noted that this was consistent with the obiter comments in Armitage v Nurse [1998] Ch 241, where a trustee who successfully defends a claim is entitled to an indemnity, but one who unsuccessfully defends may not be. Importantly, the judge’s distinction between administration costs (where indemnity was preserved) and litigation costs (where it was denied) was justified [§24, §128].

Payment on Account

The court found no error in the payment on account of costs set at £55,000. The judge had considered the estimated costs and exercised his discretion appropriately under CPR rule 44.2(8). No specific challenge to the amount was raised in the appeal, and the court saw no basis to interfere.

Adequacy of Reasons

The court rejected the argument that the judge failed to provide adequate reasons for the costs orders. The extempore judgments on costs spanned several pages and addressed the key issues, including the basis for awarding costs, the decision on indemnity costs, and the deprivation of indemnity. The court cited English v Emery Reimbold & Strick Ltd [2002] 1 WLR 2409, noting that reasons need not be exhaustive but must show the basis of the decision. The judge’s reasons met this standard.

In conclusion, the appeal court found that the judge below had correctly applied the legal principles and that his costs orders were within the generous ambit of his discretion. All grounds of appeal failed, and the appeal was dismissed.

A short judgment looking at trust and estate costs principles

Executors’ entitlement to indemnity from estates under Trustee Act 2000 s31 and CPR PD 46, distinguishing hostile litigation from proper administration.

Indemnity Basis Costs Following Discontinuance

When litigation conduct is sufficiently “out of the norm” to justify indemnity costs following discontinuance.

Claimant’s Costs Reduced By 40% Due To Chaotic Litigation Conduct

High Court reduces litigant in person’s costs by 40% for chaotic conduct whilst refusing indemnity costs despite fraud findings.

Being ‘Annoying and Difficult’ Not Sufficiently ‘Out Of The Norm’ For Indemnity Costs In Failed Liquidator Challenge

High threshold required for indemnity costs – difficult behaviour alone insufficient without exceptional circumstances.

CPR 46.4 | Protected Parties | Court Rejects ‘Light Touch’ Approach To Assessment Of Solicitor-Client Costs Shortfall

Trust and fund costs principles under CPR 46 including when costs must benefit the fund to qualify for indemnity.