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

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

Background

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

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

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

Costs Issues Before the Court

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

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

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

The Parties’ Positions

The Claimant’s position on ADR

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

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

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

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

The Claimant’s position on indemnity costs

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

The Defendant’s position on ADR

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

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

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

The Defendant’s position on indemnity costs

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

The Court’s Decision

Costs to follow the event

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

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

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

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

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

The expert’s late change of evidence

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

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

Indemnity costs refused

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

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

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

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

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

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

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

Payment on account

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

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

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And The Winner Is? Defendant Who Beat Both Strike Out and Summary Judgment Recovers 75% of Her Costs After 80% Costs Order Against Her Reversed on Appeal

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The High Court’s decision in Cook v Skeggs [2026] EWHC 1132 (KB) addresses the proper approach to costs where a defendant successfully resists both strike out and summary judgment applications but makes a late amendment application at the hearing.

Background

The underlying proceedings concern a possession claim brought by the Respondent, Leonard Cook, following his 2022 purchase of a property from the Appellant, Charlotte Skeggs. The property had been sold to Mr Cook for £250,000, having been purchased by Ms Skeggs in 2017 for £560,000. Mr Cook maintained that the transaction was voluntarily entered into. Ms Skeggs, who described herself as a vulnerable woman, alleged fraud and conspiracy, which Mr Cook denied.

The costs appeal before Mr Justice Sweeting arose from an order made by HHJ Parker on 12 March 2025, requiring Ms Skeggs to pay 80% of Mr Cook’s assessed costs of his strike out and summary judgment application. That application had been issued on 1 May 2024 and was listed for hearing in May 2024, but was not determined until 2 January 2025. At the January hearing, the application was dismissed following amendments proposed on behalf of Ms Skeggs at or shortly before the hearing.

The procedural history leading to the costs determination was somewhat involved. Mr Cook had issued his application for strike out and summary judgment shortly before the first costs and case management conference, which had been listed for 9 April 2024. The application notice did not identify the basis upon which either form of relief was sought and was unsupported by any evidence in support of the summary judgment limb. By an order dated 9 May 2024, HHJ Brown recorded that the CCMC had to be adjourned because the application did not comply with CPR 24.5(1) and had been issued too late to afford Ms Skeggs the 14 days’ notice required by CPR 24.4(5). Mr Cook was directed to amend the application.

The amended application notice remained expressed in generic terms, again failing to articulate the grounds relied upon for strike out or to provide any evidential basis for summary judgment, asserting only that both applications should succeed “as a matter of fact and law”. There then followed a period of procedural uncertainty arising from issues concerning capacity, which were addressed by HHJ Parker at a hearing on 25 October 2024. At that hearing, the court accepted that Ms Skeggs had insufficient material to understand the case advanced in support of Mr Cook’s application, and Mr Cook was granted permission to serve further evidence.

On 8 November 2024, Mr Cook served a witness statement in support of the application. That statement was substantially directed to disputing the factual merits of Ms Skeggs’ case and was therefore concerned principally, although not exclusively, with the summary judgment limb. Ms Skeggs served a re-amended Defence and Part 20 Claim on 6 December 2024, though the accompanying application notice was filed late on 9 December 2024. Mr Cook’s solicitors wrote on 16 December 2024 by way of without prejudice save as to costs correspondence, proposing that if Ms Skeggs confirmed by 4pm on 18 December 2024 that she would serve a further re-amended defence limited to the conspiracy allegation and properly particularised by 4pm on 31 December 2024, Mr Cook would consider consenting to the re-amended pleading and propose that the 2 January 2025 hearing be used for costs and case management directions. That offer also required Ms Skeggs to pay Mr Cook’s costs. No agreement was reached.

On 20 December 2024, Mr Cook served two further witness statements dealing with the factual merits of the case. Skeleton arguments were exchanged on 31 December 2024, at which point it became apparent that Ms Skeggs was abandoning her December application and advancing new proposed amendments relating to the conspiracy allegation, presented in the form of an annex to counsel’s skeleton argument rather than as a formal draft.

At the 2 January 2025 hearing, HHJ Parker dismissed both the strike out and summary judgment applications. In relation to summary judgment, the Judge found that the application would have failed irrespective of the amendments, concluding that Mr Cook had not come close to showing that Ms Skeggs’ factual case was merely fanciful. In relation to the strike out, the Judge permitted re-amendment of the defence, with the exception of references to Mr and Mrs Thorpe at proposed paragraphs 21A and 21B, which were not supported by sufficient pleaded facts. The issue of costs was adjourned to a further hearing on 12 March 2025.

At the 12 March 2025 hearing, HHJ Parker considered five categories of costs. In relation to the strike out and summary judgment application, the Judge ordered Ms Skeggs to pay 80% of Mr Cook’s assessed costs. The Judge also awarded Mr Cook his costs of the 12 March 2025 hearing, summarily assessed at £5,980.44, on the basis that the hearing had been necessitated by the late amendment application made on 2 January 2025. Mr Cook’s costs schedule for the half-day application totalled approximately £123,000, a figure which the Judge described as “fairly stunning”. Given the size of that figure, the Judge declined to embark on summary assessment and directed detailed assessment instead.

Ms Skeggs appealed the costs order with the permission of Sir Stephen Stewart. The appeal was heard by Mr Justice Sweeting on 31 March 2026. In advance of that hearing, Mr Anthony Ashley Wilson, the solicitor with conduct of the proceedings on behalf of Ms Skeggs, provided a witness statement dated 27 March 2026 in support of an application to amend the appeal notice and grounds of appeal. That application arose from a “Costs Breakdown” document attached to Mr Cook’s skeleton argument for the appeal, served after 4pm on 25 March 2026, which Mr Wilson stated he had not previously seen and which gave a total (after deducting draftsman’s fees and applying the 20% deduction in HHJ Parker’s order) of £29,254.56 for the costs of the application — substantially lower than the £123,464.60 figure that had been placed before HHJ Parker. Mr Justice Sweeting permitted Ms Skeggs to rely on Mr Wilson’s evidence and to amend her grounds of appeal accordingly.

Costs Issues Before the Court

The central costs issue on appeal was whether HHJ Parker’s order requiring Ms Skeggs to pay 80% of Mr Cook’s assessed costs of the strike out and summary judgment application was wrong within the meaning of CPR 52.21(3)(a). The appeal raised a number of discrete but related questions.

The first and most fundamental question was whether the Judge had properly identified the successful party on the application. Ms Skeggs had resisted both the strike out and the summary judgment application. The summary judgment application had been dismissed, and the Judge had found that it would have failed even absent the late amendments. The strike out application had also been dismissed, with the Judge permitting re-amendment of the defence in substantially the terms proposed by Ms Skeggs’ counsel. The question was therefore whether, in those circumstances, the Judge had been correct to order Ms Skeggs to pay a substantial proportion of Mr Cook’s costs rather than the other way around.

The second question was whether the Judge had properly distinguished between the two discrete elements of Mr Cook’s application — strike out and summary judgment — when determining the appropriate costs order. Ms Skeggs submitted that the summary judgment application had failed entirely and by a considerable margin, and that the Judge had not given proper effect to that finding. She argued that the Judge had treated the late amendment as having “completely changed the picture” in a way that was inconsistent with his own finding that summary judgment would have failed irrespective of the amendments.

The third question was whether the Judge should have made an issues-based costs order rather than applying a single percentage reduction. Ms Skeggs’ primary position was that she should recover her costs of the summary judgment issue and that Mr Cook should recover his costs of the strike out issue, or alternatively that there should be no order for costs. Mr Cook’s position was that the two applications were closely intertwined and that the Judge had properly exercised his discretion in applying a 20% reduction.

A further issue arose from the amendment application brought by Ms Skeggs in advance of the appeal hearing. That application raised questions about the accuracy of the costs information placed before HHJ Parker at the 12 March 2025 hearing, and whether the presentation of the £123,000 figure as the costs of the application had misled the Judge as to the scale of costs attributable to the strike out and summary judgment elements. Ms Skeggs sought to rely on CPR 44.11, which concerns unreasonable or improper conduct in relation to costs, submitting that Mr Cook’s failure to provide an accurate costs figure until shortly before the appeal hearing may fall within the circumstances covered by that provision.

The Legal Framework

The test on appeal is set out in CPR 52.21(3): the appeal court will allow an appeal where the decision of the lower court was wrong, or unjust because of a serious procedural or other irregularity in the proceedings in the lower court.

In Johnsey Estates v Secretary of State for the Environment, Transport and the Regions [2001] EWCA Civ 535, the Court of Appeal allowed an appeal against the original costs order. Chadwick LJ summarised the applicable principles: costs cannot be recovered except under an order of the court; the question whether to make any order as to costs is a matter entrusted to the discretion of the trial judge; the starting point for the exercise of discretion is that costs should follow the event; the judge may make different orders for costs in relation to discrete issues and should consider doing so where a party has been successful on one issue but unsuccessful on another; the judge may deprive a party of costs on an issue on which he has been successful if satisfied that the party has acted unreasonably in relation to that issue; and an appellate court should not interfere with the judge’s exercise of discretion merely because it takes the view that it would have exercised that discretion differently.

The last of those principles requires an appellate court to exercise a degree of self-restraint. It is not for an appellate court even to consider whether it would have exercised the discretion differently unless it has first reached the conclusion that the judge’s exercise of his discretion is flawed — that is to say, that he has erred in principle, taken into account matters which should have been left out of account, left out of account matters which should have been taken into account, or reached a conclusion which is so plainly wrong that it can be described as perverse.

Whilst the appeal in that case was heard just before the introduction of the Civil Procedure Rules, the general principles set out hold good and it remains the position that appeals against costs involve a high threshold. In particular, an appellate court must not dissect or reinterpret extempore judgments with undue textual scrutiny; the Judge is presumed to have known and applied the correct principles in exercising their discretion unless the contrary is demonstrated.

The Appeal Court’s Analysis

Mr Justice Sweeting concluded that HHJ Parker’s costs order was wrong within the meaning of CPR 52.21(3)(a). The Judge identified several fundamental flaws in the reasoning below.

First, the starting position was that Ms Skeggs was the successful party, having resisted both the strike out on pleading points and summary judgment on the merits of the defence. HHJ Parker had acknowledged that the summary judgment application was “distinctly different” from the strikeout application and would have failed even prior to amendment. The Judge had found that Mr Cook had not come close to showing that Ms Skeggs’ factual case was merely fanciful. Ms Skeggs had therefore demonstrated that she had a sufficient prospect of success, which alone militated against depriving her of her costs.

Second, Mr Justice Sweeting did not consider that it was possible in the circumstances of this case to regard the summary judgment application as merely ancillary to the strikeout or as representing just another way of articulating the same shortcomings in Ms Skeggs’ case. The summary judgment application was advanced on the basis of an assertion that there was no merit in the defence, supported by evidence dealing with the underlying factual matrix, and an invitation to the court to conclude that a conspiracy could not be made out, not simply that the particular species of conspiracy had not been properly identified or was insufficiently particularised. There was plainly a risk, if not a probability, that a substantial amount of work had been carried out in relation to summary judgment rather than the more narrowly defined pleading issue.

Third, HHJ Parker’s conclusion that “the picture had completely changed at the hearing” did not stand up to analysis and was difficult to reconcile with his findings in relation to summary judgment. The Judge had gone no further than saying that there “might” have been a different result on the strike out absent the amendments. It was always apparent that any deficiencies in the pleading could be cured by amendment. Mr Justice Sweeting found it difficult to see how the predictable legal result could have been that Mr Cook could embark upon the hearing on the basis that he would receive his costs irrespective of the outcome.

Fourth, there would have to be a significant reason, grounded in Ms Skeggs’ conduct, for reversing the usual order as to the incidence of costs on interlocutory applications. The relevant conduct in this case was the application for amendment made at the hearing which, while necessary, should have been made earlier in a proper form in accordance with the court’s directions. However, the appropriate way to reflect that conduct was to deprive Ms Skeggs of part of her costs, not to reverse the costs order entirely.

In Matrix Receivables v Must Holdings Limited [2024] EWHC 2167 (Ch), Freedman J observed that the usual order on a summary judgment or strike out application is that the unsuccessful party should pay the costs, in part because of the regime within CPR 44.2(2) and also because of a symmetry: if the applicant is successful, the action comes to an end and the applicant generally recovers the costs of the action; if the strategy does not pay off and the applicant loses, the applicant stands to bear the costs. It is a disincentive to interlocutory applications to know that this starting point exists and operates in practice.

Mr Justice Sweeting noted the practical difficulties in making a costs order on an issues basis, observing that in many cases the judge can and should reflect on the relative success of the parties on different issues by making a proportionate costs order (see Multiplex Constructions (UK) Ltd v Cleveland Bridge UK Ltd [2009] 1 Costs LR 155). Those difficulties are multiplied where the question is whether the winning party on the issue ought to be deprived of costs. The Judge could not see a proper basis on which to make different orders by reference to issues in the circumstances of this case.

Applying the principles in Johnsey Estates, Mr Justice Sweeting concluded that the correct approach was not to seek to recast HHJ Parker’s order but to exercise the discretion afresh. Ms Skeggs was entitled to her costs as the successful party. The appropriate reflection of her late amendment, which related only to the strike out limb, was a proportionate reduction rather than a reversal of the costs order.

The Costs Breakdown Issue

Mr Justice Sweeting also addressed the issue arising from the revised costs breakdown served with Mr Cook’s skeleton argument for the appeal. That document gave a total of £29,254.56 for the costs of the application (after deducting draftsman’s fees and applying the 20% deduction in HHJ Parker’s order), substantially lower than the £123,464.60 figure referred to at the hearing below. The status of the revised schedule was opaque, and it appeared to have been advanced for a tactical purpose shortly before the appeal hearing.

The Judge noted that there was only one verified costs schedule in relation to the summary judgment and strike out application, and that Mr Cook would have to explain a departure from that costs schedule if he asserted in future that the information given to HHJ Parker was inaccurate. However, Mr Justice Sweeting concluded that it was not appropriate or possible to make any findings in relation to conduct on the material before him, particularly in relation to the CPR 44.11 misconduct issue raised by Ms Skeggs.

The Judge expressed sympathy for HHJ Parker given the circumstances in which he had to decide issues of costs. He did not receive Ms Skeggs’ skeleton prior to the hearing and did not appear, initially, to have had the N260. The matter overran so that he had to see whether the court could sit beyond 4:30pm. He candidly accepted that he did not entirely recollect the basis of his earlier order and had to deal with costs at a hearing separate from the hearing to which they related. It appeared he may not have received the assistance that he should have done in relation to the nature of the costs which were being claimed.

Conclusion

Mr Justice Sweeting allowed the appeal and substituted an order under CPR 44.2(2) that Mr Cook pay Ms Skeggs’ costs of the contested strikeout and summary judgment application on the standard basis, subject to a reduction of 25%. The reduction reflected Ms Skeggs’ late amendment application, which related only to the strike out application and should have been made earlier in accordance with the court’s directions.

The Judge also ordered Mr Cook to pay Ms Skeggs’ costs of the appeal, to be summarily assessed. He gave the parties additional time to make written submissions in relation to those costs, noting that Ms Skeggs’ cost schedules appeared to show that all work was done at Grade A rates, which would require an explanation.

The decision reinforces the principle that the starting point for costs orders on interlocutory applications is that the unsuccessful party should pay the costs of the successful party. Where a defendant successfully resists both strike out and summary judgment applications, there must be a significant reason grounded in the defendant’s conduct to justify reversing that usual order. Late amendment may justify a proportionate reduction in the successful party’s costs recovery, but does not ordinarily warrant a complete reversal of costs liability, particularly where the first instance judge has found that one limb of the application would have failed irrespective of the amendment.

Issues Based And Proportional Costs Orders: When Should They Be Made?

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

 

Indemnity Costs Awarded for Libel Claim Used to Pressure Anonymous Artist

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

Background

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

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

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

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

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

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

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

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

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

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

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

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

Legal Principles

Indemnity costs

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

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

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

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

Non-party costs orders

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

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

The Indemnity Costs Application

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

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

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

The Court’s Analysis on Indemnity Costs

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

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

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

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

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

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

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

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

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

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

The Non-Party Costs Application

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

Indemnity Basis Costs Following Discontinuance

Non Party Costs Orders | Court Of Appeal Decision

Dishonest Evidence And Baseless Allegations Justify Indemnity Costs Order

CPR 38.6: Discontinuance And Costs – The Legal Principles

Understanding Non-Party Costs Orders

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

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

Background

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

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

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

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

Costs Issues Before the Court

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

The Parties’ Positions

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

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

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

The Court’s Decision

Burden of the Costs of Assessment

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

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

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

Recoverability of VAT

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

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

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The High Court’s decision in KXO and OYW v Devon County Council [2026] EWHC 203 (Admin) confirms that discontinuance of a judicial review claim triggers full costs liability under CPR 38.6, not merely costs limited to the Mount Cook stage.

Background

The claim was a judicial review brought on behalf of two children, KXO and OYW, by their mother, SZO, acting as their litigation friend. The Claimants challenged decisions made by Devon County Council on 25 May 2023 to propose amendments to their Education, Health and Care Plans (EHCPs) under regulation 28 of the Special Educational Needs and Disability Regulations 2014. The Claimants contended the Council acted unlawfully by amending the plans outside a formal review process. The Council maintained the decisions were lawful, provisional, and that an adequate alternative remedy existed via a statutory appeal to the Special Educational Needs and Disability Tribunal.

The procedural history was protracted and marked by considerable difficulties. The claim was issued on 30 May 2023 without a pre-action letter, in breach of the Pre-Action Protocol for Judicial Review. An application for interim relief was refused following a hearing on 8 June 2023 before DHCJ Mathew Gullick KC. The litigation friend, a disabled litigant in person diagnosed with Autism, ADHD, Agoraphobia and partial deafness, subsequently engaged in a pattern of conduct that included filing then withdrawing applications to discontinue the claim, making repeated complaints about an alleged failure to provide reasonable adjustments, failing to respond to court enquiries, and making applications that were certified as totally without merit. The court had, on multiple occasions, directed special measures to facilitate her participation, including remote attendance, permission for a supporter, and regular breaks.

On 5 January 2026, the litigation friend filed and served a Notice of Discontinuance. The court listed a hearing to determine, amongst other things, whether court permission or approval was needed for the discontinuance under CPR 38 or CPR 21.10 and to deal with costs. At the hearing on 3 February 2026, the litigation friend did not attend, although the hearing was available by CVP with the special measures previously directed. The court found that the Notice of Discontinuance was valid and had effectively ended the claim on 5 January 2026. Court approval was not required under CPR 21.10 because the discontinuance was unilateral and did not constitute the settlement or compromise of the claim. The only remaining issue was the liability for costs.

Costs Issues Before the Court

The primary costs issue was the financial consequence of the Claimants’ discontinuance. The general rule under CPR 38.6(1) is that a claimant who discontinues is liable for the defendant’s costs incurred up to the date of discontinuance, unless the court orders otherwise. The court needed to determine whether this default rule should apply. A related question was whether any costs award should be limited to the acknowledgment of service and summary grounds stage on a Mount Cook basis, or whether the full costs of the proceedings were recoverable. A secondary issue was the personal liability of the litigation friend for any costs order made against the child Claimants, governed by CPR 21.12.

The Parties’ Positions

The Defendant’s Position: The Council observed that by filing the Notice of Discontinuance, the Claimant had triggered liability for the Defendant’s costs under CPR 38.6(1). The Defendant made no positive application for costs but noted that the Claimant had made no application to reverse the general rule. The Defendant accepted that, given the litigation friend’s personal circumstances, any costs order should not be enforceable without the court’s permission.

The Claimants’ Position: The litigation friend did not attend the hearing and made no formal submissions on costs. In her witness statement dated 5 January 2026, she acknowledged that the Defendant’s costs were “highly likely to be passed on to me by way of a costs order.” No application was made to demonstrate a good reason for departing from the CPR 38.6 default rule.

The Court’s Decision

The court ordered that the Claimants, and therefore the litigation friend, pay all the Defendant’s costs of the proceedings — not simply the cost of preparing the acknowledgment of service and summary grounds on a Mount Cook basis — to be assessed if not agreed. The order was not to be enforced without the court’s leave.

In reaching this decision, the court applied the clear terms of CPR 38.6(1). As the Claimants had discontinued and had made no application to displace the general rule, it applied. The court had regard to the fact that the litigation friend was unrepresented and disabled, and the need to make reasonable adjustments to ensure fairness. However, it found that being a litigant in person does not exempt a party from compliance with the Civil Procedure Rules and Practice Directions, citing the Administrative Court Guide 2025 at paragraph 4.2.1. The court was satisfied that the litigation friend must be taken to be aware of the costs consequences of discontinuing under CPR 38.6, noting the Administrative Court Guide is designed to be accessible to litigants in person.

On the issue of personal liability, the court referred to CPR 21.12 and the certificate of suitability of litigation friend signed on 30 May 2023. This certificate contained an undertaking in the following terms: “I undertake to pay any costs which the above named claimant may be ordered to pay in these proceedings subject to any right I may have to be repaid from the assets of the claimant.” The court held that the litigation friend must be taken to be aware of her personal liability, a point she herself had acknowledged in her 5 January 2026 statement.

The court expressly declined to limit recovery to the Mount Cook basis, ordering all of the Defendant’s costs pursuant to CPR 38.6(1) and noting that no application had been made to displace the default rule. The judgment separately records a protracted procedural history involving multiple interlocutory applications, directions hearings, and the Defendant’s attendance at the final hearing by counsel — context which underscores why the costs exposure following discontinuance extended well beyond the acknowledgment of service stage.

Finally, the court recorded — though it was not in a position to act upon it — that had it retained jurisdiction, it would have refused permission to apply for judicial review and dismissed the claim as totally without merit. The court found the Claimants had an adequate alternative remedy by way of statutory appeal to the SENDisT. The court further indicated it would have been strongly inclined to refer the matter for consideration of a general civil restraint order, but was precluded from doing so by the valid discontinuance. By virtue of CPR 38.7, the Claimants will not be permitted to bring another claim arising from the same or similar facts without the court’s permission.

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The High Court’s decision in Smith v Campbell [2026] EWHC 144 (Ch) confirms that the test for a trustee’s indemnity following removal is whether they defended in the interests of the trust and acted reasonably in all the circumstances — not whether they were ultimately successful in resisting removal.

Background

The claimants, Nathan James Smith, Leah-Jane Styring, and Suzanne April Smith, beneficiaries of the Graham Cheslyn-Curtis Will Trust, brought proceedings against the four trustees. The claim was for the removal and replacement of all trustees; as recorded in this costs judgment, it involved “numerous allegations of breach of trust and misconduct,” the majority of which were ultimately dismissed. The trial on the merits resulted in a written judgment on 17 November 2025 (Smith v Campbell [2025] EWHC 3011 (Ch)) (the “Main Judgment”). In that judgment, the court ordered the removal of two trustees, Ian Patrick Campbell (‘Paddy’) and Malcolm Ronald Taylor, but declined to remove the remaining two, Sarah Cheslyn-Curtis and Maldwyn Stephen Henry Worsley-Tonks MBE. Following that decision, the parties agreed to the appointment of Freeths Trustees Limited as a replacement professional trustee. The only outstanding matter was the determination of costs, which was the subject of a hearing on 14 January 2026.

Costs Issues Before the Court

The court was required to determine two distinct but related costs issues. The first was the incidence of costs as between the claimant beneficiaries and the defendant trustees, to be decided under the court’s general discretion pursuant to section 51 of the Senior Courts Act 1981 and CPR rule 44.2. The second issue was whether the trustees should be deprived of their right to an indemnity from the trust fund for their costs of the proceedings, which is governed by section 31(1) of the Trustee Act 2000, implemented in the litigation costs context by CPR rule 46.3 and Practice Direction 46.

The Parties’ Positions

The claimants, represented by Paul Burton, argued they were the substantially successful party as they had achieved “regime change” by securing the removal of two trustees and the appointment of an independent professional trustee. They submitted the trustees had unreasonably refused to mediate and had rejected offers of settlement made shortly before trial which reflected the ultimate outcome. The claimants sought an order that the trustees pay their costs on the standard basis and that the trustees be deprived of their indemnity from the trust fund, contending it was unreasonable for Paddy and Malcolm to have “fully and determinedly defended their removal.”

The trustees, represented by Alexander Learmonth KC, submitted they were the successful parties in substance. They emphasised that the claimants had failed to remove two trustees and had advanced numerous allegations of misconduct which were almost entirely dismissed. They argued the claimants’ true objective was commercial, relating to Paddy’s directorship of the underlying company, Millpledge, and that the claimants had acted unreasonably by issuing proceedings without any pre-action correspondence and by rejecting reasonable settlement offers, including an early proposal for Paddy to retire as trustee. The trustees sought an order that the claimants pay their costs, or circa 90% of them, and that they retain their full right of indemnity from the trust.

The Court’s Decision

On the incidence of costs between the parties, the court held that the claimants were the partially successful party, having achieved the removal of two of the four trustees. The starting point pursuant to CPR rule 44.2(2)(a) was therefore that the trustees should pay the claimants’ costs. However, the court exercised its discretion to depart from this rule. The court found the claimants’ conduct was unreasonable in several key respects: they issued proceedings without any pre-action correspondence or compliance with the Practice Direction – Pre-Action Conduct; they made and pursued “myriad allegations of misconduct” against the trustees which were unjustified and exaggerated, and which formed the bulk of the litigation costs; and they were primarily responsible for the failure to engage in early alternative dispute resolution. On this last point, the court found the claimants had not accepted early offers of mediation and had rejected outright the trustees’ December 2024 proposal that Paddy retire as a trustee. Although shortly before trial the parties exchanged without prejudice save as to costs offers with substantive terms closely reflecting the eventual outcome, the principal remaining dispute was costs, and time ran out before a resolution could be reached. In all the circumstances, the court ordered that there be no order as to costs between the parties.

On the trustees’ right of indemnity, the court held that their costs were not improperly incurred and they were entitled to be indemnified from the trust fund. The court found it was proper and reasonable for the trustees to defend themselves against the numerous allegations of breach of trust and misconduct, the majority of which were dismissed. Furthermore, the trustees had made a good faith and reasonable attempt to address the legitimate relationship issues by making an open offer in December 2024 for Paddy to retire or for a demerger of the trust assets involving an independent trustee. The claimants’ rejection of that proposal, on the basis that Paddy would remain a company director, was not a reasonable basis on which to refuse an offer that sought to address their concerns about trust administration. The trustees had not acted perfectly—for example, Malcolm’s position was not addressed in their open proposal—but their conduct in defending the allegations and making a constructive settlement proposal was not such as to justify depriving them of their indemnity. The court also noted, obiter, that it was doubtful whether it had jurisdiction to order a partial deprivation of indemnity, but declined to decide the point and stated it would not have exercised any such jurisdiction on the facts of this case.

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