Conditional Value Reservation Does Not Prevent Rendering Of Interim Statute Bills Where No Uplift Agreed

The High Court’s decision in Mehta v Howard Kennedy LLP [2026] EWHC 968 (KB) confirms that a reservation in standard terms of business permitting a value or importance element to be charged in a concluding bill does not prevent earlier invoices from constituting interim statute bills where the retainer contains no success-related, conditional, or contingent fee arrangement.

Background

Vishal Mehta was subject to a worldwide freezing order and instructed Howard Kennedy LLP to act for him in that litigation. In related civil proceedings, a fraud of US$1 billion was alleged. Over the period from 22 June 2022 to 5 May 2023, Howard Kennedy delivered 24 invoices to Mr Mehta with a total value of £3,124,674.04, many of which had been paid.

Mr Mehta subsequently issued Part 8 proceedings under the Solicitors Act 1974, seeking an assessment of the costs billed by Howard Kennedy. The central question was whether the 24 invoices constituted interim statute bills — each final and complete in respect of the period they covered — or whether they formed a series of interim invoices comprising a so-called “Chamberlain” bill, which would only become final upon delivery of the last invoice in May 2023. The distinction was critical: if the invoices were interim statute bills, the time limits under s. 70 of the 1974 Act would apply, and Mr Mehta would be debarred from seeking assessment of those bills in respect of which the relevant time limits had expired.

On 25 April 2025, Costs Judge Whalan handed down judgment on three preliminary issues: Mehta v Howard Kennedy LLP [2025] EWHC 1008 (SCCO). He found against Mr Mehta on all three issues, holding that the invoices were interim statute bills, that the retainer was not a Contentious Business Agreement (“CBA”) within the meaning of ss. 59 to 63 of the 1974 Act, and that there were no special circumstances justifying assessment under s. 70(3).

Mr Mehta appealed to the High Court. The appeal was heard by Mr Justice Kimblin, sitting with Costs Judge Nagalingam as an assessor, on 17 April 2026, with judgment handed down on 24 April 2026. Robin Dunne of counsel appeared for Mr Mehta, instructed by JG Solicitors. Dan Stacey and Chris Cooke appeared for Howard Kennedy, instructed by the firm itself.

Costs Issues Before the Court

Three preliminary issues fell to be determined, each arising from the application of the 1974 Act to the retainer between Mr Mehta and Howard Kennedy.

The first issue was whether the 24 invoices delivered by Howard Kennedy were interim statute bills — each final and complete in respect of the period covered — or whether they were interim invoices forming part of a composite “Chamberlain” bill, which would only crystallise as a statute bill upon delivery of the final invoice. This distinction is of considerable practical importance. Under s. 70 of the 1974 Act, a client has an absolute right to seek assessment within one month of delivery of a statute bill. Between one and twelve months after delivery, assessment remains available but is at the court’s discretion. After twelve months from delivery, assessment requires the demonstration of special circumstances and, critically, is entirely barred twelve months after payment. If the invoices were statute bills, Mr Mehta’s right to seek assessment of the earlier invoices was either time-barred or subject to the special circumstances threshold.

The second issue was whether the retainer constituted a CBA within the meaning of ss. 59 to 63 of the 1974 Act. A CBA is not subject to the time limits in s. 70, and a finding that the retainer was a CBA would therefore have opened the door to assessment regardless of when the invoices were delivered or paid. The court stayed determination of this issue pending the Court of Appeal’s forthcoming judgment in Barnes v BDB Pitmans (CA-2025-000773), listed for hearing on 13 May 2026, which was said to raise strongly overlapping issues.

The third issue comprised two distinct sub-questions. The first was whether certain invoices had been “paid” within the meaning of s. 70(4) of the 1974 Act, given that some had been discharged not by Mr Mehta personally but by third party companies and by Hogan Lovells in respect of an adverse costs order. The second was whether, even if the invoices were statute bills and had been paid, special circumstances existed under s. 70(3) sufficient to justify an order for assessment notwithstanding the time limits.

The Parties’ Positions

Issue 1 — Statute Bills

For Mr Mehta, it was submitted that the invoices were not interim statute bills because the retainer reserved to Howard Kennedy the right to revisit charges in a concluding bill by reference to the “value” or “importance” of the matter. Reliance was placed on paragraph 5(2) of the Terms of Business, which provided that if the value or importance element was achieved only as a result of the completion or final settlement of the case, and had not been taken into account in earlier bills, Howard Kennedy reserved the right to take it into account in the concluding bill. It was argued that this reservation qualified the finality and completeness of the earlier bills, such that they could not be interim statute bills, applying the principles in Ivanishvili v Signature Litigation LLP [2024] EWCA Civ 901. The argument proceeded on the basis that this reservation applied to all retainers entered into on Howard Kennedy’s standard Terms of Business.

For Howard Kennedy, it was submitted that the Terms of Business were clear: paragraph 5(2) stated in terms that “each bill issued to you is a final bill covering the total charge for the work carried out within the stated period” and that “each bill has the status of a statute bill”. The value and importance reservation was conditional in nature and had no application to this retainer, which was not concerned with any particular outcome amounting to success and contained no conditional or contingent fee arrangement. There was no agreed uplift and no conditional fee, distinguishing the position from Ivanishvili. The invoices themselves contained the necessary features of a statute bill, being detailed and setting out the client’s rights under the 1974 Act.

Issue 3(a) — Payment

For Mr Mehta, it was submitted that payments made by third party companies and by Hogan Lovells did not constitute payment by Mr Mehta for the purposes of s. 70(4). It was argued that only Mr Mehta, as the signatory to the retainer and the party chargeable, could make a payment capable of triggering the absolute bar under s. 70(4). Reference was also made to Bill 445657, in respect of which a payment of £80,000 was said to have been made on the same day as the bill was raised, which it was submitted could not satisfy the requirements identified by the Supreme Court in Oakwood Solicitors Ltd v Menzies [2024] UKSC 34.

For Howard Kennedy, it was submitted that the payments made by third parties were made with Mr Mehta’s knowledge and consent, as established by witness statement evidence. Reliance was placed on Re Jackson [1915] 1 KB 371, cited in Menzies, for the proposition that payment by a third party at the direction of or with the knowledge of the client constitutes payment for the purposes of s. 70. The Costs Judge had found nothing irregular or ineffective in such payments, and those findings of fact were said to be unimpeachable.

Issue 3(b) — Special Circumstances

For Mr Mehta, three special circumstances were advanced: first, that Howard Kennedy had failed to provide adequate estimates of future costs; second, that the size of the bills was itself a special circumstance; and third, that the fact of rendering interim statute bills was itself capable of constituting a special circumstance. It was submitted that the Costs Judge had failed to address the second and third of these matters adequately.

For Howard Kennedy, it was submitted that Mr Mehta had received regular, itemised invoices with detailed accounts of the work done, had paid approximately 80% of the invoices, and had received appropriate estimates of future costs throughout the retainer. The Costs Judge’s evaluative judgment that no special circumstances existed was said to be correct and not susceptible to challenge on appeal.

The Court’s Decision

Issue 1: Statute Bills

Kimblin J dismissed the appeal on the first issue. Applying the principles of contractual interpretation in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, he held that the meaning of the retainer documents was that which a reasonable reader would understand, having all of the background knowledge of the parties at the time the retainer was entered into on 1 June 2022.

The judge agreed with the Costs Judge’s analysis. The Terms of Business stated clearly that “each bill issued to you is a final bill covering the total charge for the work carried out within the stated period” and that “each bill has the status of a statute bill”, unless otherwise stated. The Terms of Business also referred to the solicitor’s right to sue.

The reservation at paragraph 5(2) concerning value or importance was conditional in nature and had no application to this retainer. The retainer was not concerned with a particular outcome which would amount to ‘success’, nor were there any conditional or contingent fees or payments. The value and importance term within paragraph 5(2) was conditional on two matters. First, it was conditional on ‘value’ or ‘importance’ being achieved only as a result of the completion or final settlement of the case. This was a term of the contract which may or may not apply, depending on the type of work being undertaken and the way in which the fee structure was agreed. Second, it was conditional on the ‘value’ or ‘importance’ not being taken into account in earlier bills. Per paragraph 1 of the Terms of Business, the level of fees was explained as reflecting a number of factors, including value and importance. An hourly rate may be set having regard to these factors and so be included in monthly bills.

The judge added that Section 8 of the retainer letter concerned “Payments on account”, requesting £40,000 and making clear that further payments would be requested. It warned Mr Mehta that “We are bound to apply funds received from you on account to settle any bills we may render to you.” It was therefore clear that funds on account would be used to pay bills which would be delivered, usually monthly.

The judge also noted that Part 30 of the Terms of Business stated that the retainer letter prevails in the event of conflict. While there was no conflict, this served to emphasise the point that the retainer letter did not suggest any conditionality in the fee agreement.

The General Notes, though not forming part of the contract, were relevant to its interpretation because they comprised material on which Mr Mehta elected to sign the retainer and enter the contract. The Notes confirmed that the additional fee reservation was only applicable if it was discussed in advance or referred to in the engagement letter. Insofar as no such discussions took place with the solicitor, it did not apply.

The judge rejected the submission that the retainer was ambiguous by reason of the statement that each bill was a statutory bill but was not necessarily a final bill in the matter. This term was simply a consequence of billing every month. It explained that the bill was final for the month but not for the case. Another way of putting it would be that it was not necessarily the last bill in the matter.

The invoices themselves contained the necessary features of a statute bill, being both detailed and stating the rights available under the 1974 Act. Taken together, the terms and the facts of the case established that the invoices were statute bills.

Kimblin J acknowledged the policy concerns identified by the Court of Appeal in Ivanishvili and other cases regarding the scheme of s. 70, which is problematic from the point of view of a client who must either challenge the very solicitor representing him in hard fought litigation or change solicitor with the disruption to his case which that entails. However, those policy issues were not for the Costs Judge to resolve, nor did they form part of the court’s role on appeal.

Issue 2: Contentious Business Agreement

The Costs Judge had held that the retainer was not a Contentious Business Agreement under s. 59 of the 1974 Act, to which the time limits under s. 70 do not apply. Kimblin J stayed consideration of this issue pending the Court of Appeal’s decision in Barnes v BDB Pitmans (CA-2025-000773), listed for hearing on 13 May 2026, which was said to raise issues which at least strongly overlap with the issues in this appeal. The judge did not see any impediment to informing the parties of his decision on the first and third issues and should not delay communication of those decisions without good reason. Ground 2 therefore remains undetermined.

Issue 3(a): Payment

Kimblin J dismissed the appeal on the payment issue. The Supreme Court in Oakwood Solicitors Ltd v Menzies [2024] UKSC 34 held at [71] that payment by deduction or retention requires a settlement of account, which in turn requires an agreement to the sum taken or to be taken by way of payment of the bill of costs. Such an agreement may in an appropriate case be inferred from the parties’ conduct and in particular from the client’s acceptance of the balance claimed in the delivered bill. A payment by a third party at the direction of or with the knowledge of the client can be payment for the purpose of s. 70: Re Jackson [1915] 1 KB 371, cited in Menzies.

The Costs Judge had held that all payments were made in accordance with the court’s provision and scrutiny in the worldwide freezing order. He found nothing irregular or ineffective in payments from a third or non-chargeable party, so long as these payments were made with the knowledge and consent of the client. The witness statement adduced in support of Howard Kennedy’s position established these payments were made with Mr Mehta’s knowledge and consent.

A further issue arose in relation to Bill 445657, which was said to be paid in full yet payment of £80,000 was said to have been made on the same day as the bill being raised. The judge noted that this could not satisfy the Menzies criteria, and that it was not explained how or why the bill was part paid from client account and part paid from office and which entity paid which elements. This issue was not considered at all by the Costs Judge.

Kimblin J nonetheless had no good reason to interfere with the Costs Judge’s findings of fact, nor his application of the law. Moreover, they were correct. Mr Dunne’s argument was artificial and unsupported by any factual context which suggested anything other than Mr Mehta causing his liabilities to be discharged from the variety of sources at his disposal. It would produce counter-intuitive results, contrary to the scheme of s. 70. If the argument were correct, it would create an easy mechanism to avoid the terms of the agreement which the client had entered into, namely to ensure that payments were made by some legal entity other than the person signing the retainer. That would have a large impact on the scheme of s. 70.

Issue 3(b): Special Circumstances

Kimblin J dismissed the appeal on the special circumstances issue. Whether special circumstances exist is essentially a value judgement, comparing the particular case with the run of the mill case in order to decide whether a detailed assessment in the particular case is justified, despite the restrictions contained in s. 70(2): Falmouth House Freehold Co. Ltd v Morgan Walker LLP [2010] EWHC 3092. Special circumstances do not have to be exceptional circumstances but can be established by something out of the ordinary course, sufficient to justify departure from the general position under s. 70 of the 1974 Act.

The Costs Judge did not find that special circumstances existed because Mr Mehta received regular, itemised invoices with detailed accounts of the work done and so understood his ongoing liability. He paid almost 80% of the invoices.

Kimblin J was not persuaded that the Costs Judge failed to consider whether the fact of rendering interim statute bills was itself a special circumstance. The Costs Judge stated that Mr Mehta was neither unaware nor disadvantaged by the size of the payments demanded by Howard Kennedy, as invoices were delivered on a regular, monthly basis. Those were sufficient reasons to address the point raised.

Further, Mr Mehta did receive appropriate estimates of future costs. On 30 June 2022 the partner with care and conduct sent an email to estimate costs and to highlight how high they were: £11,000 plus VAT per day plus counsel’s fees. On 26 January 2023, in response to a request for a projection of costs, a summary estimate was provided in a total sum of £486,983 excluding VAT. There were other similar types of estimate such as that of 24 March 2023. In the light of these materials, the submission that there was a special circumstance which derived from the lack of estimates was not sustainable.

Whether or not there are special circumstances is an evaluative judgement. It was for the appellant to show that the Costs Judge was wrong, and that had not been shown.

Conclusion

Grounds 1, 3, and 4 of the appeal were dismissed. The court invited the parties to seek to agree draft directions or an order within 14 days of judgment in Barnes v BDB Pitmans in respect of the outstanding CBA issue.

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SCCO Lacks Jurisdiction to Order Security for Costs of Detailed Assessment Proceedings

The Senior Courts Costs Office’s decision in Magomedov v Rabinovich [2026] EWHC 962 (SCCO) addresses whether the court conducting a detailed assessment has jurisdiction to order security for the costs of that assessment under CPR 25, or whether its powers are confined to the interim costs certificate procedure under CPR 47.16.

Background

The underlying litigation arose from two alleged unlawful means conspiracies. The Respondents (Claimants in the original proceedings) brought claims against the Applicants — the Eleventh, Twelfth, and Fourteenth Defendants, described as the Rabinovich Defendants — together with nineteen other defendants. The first alleged conspiracy concerned the sale of an indirect interest in a company to a Russian state-owned oil pipeline company at an undervalue, in respect of which the Respondents claimed approximately US$5 billion. The second alleged conspiracy concerned the wresting of control and practical ownership of the Respondents’ stake in one of the largest transport and logistics companies in Russia, with a claimed value of approximately US$8.8 billion, including an entitlement to acquire a further interest under option agreements.

The substantive proceedings were determined by Mr Justice Bright, whose judgment is reported at [2025] EWHC 59 (Comm). At a hearing on 3 May 2024, Bright J awarded security for costs in favour of the Applicants in the sum of £1,162,000. He rejected the Applicants’ alternative application for summary judgment or strike out in respect of certain parts of the Respondents’ claim but held that there was no jurisdiction to hear any of the Respondents’ claims. By order dated 17 January 2025, the Eleventh and Twelfth Defendants were awarded 75% of their costs on the standard basis, and the Fourteenth Defendant was awarded its costs on the indemnity basis. By order of 17 February 2025, substantial interim payments on account of costs were awarded: £1,162,000 in favour of the Eleventh and Twelfth Defendants and £211,286 in favour of the Fourteenth Defendant.

The Respondents’ funding arrangements were described as opaque. Following Bright J’s judgment, a further application was heard by Bryan J for disclosure in respect of those arrangements. That application was granted, with costs awarded in the Applicants’ favour. An interim payment on account of costs of approximately £73,116 was awarded in connection with the disclosure application, and a further interim payment of £32,312 was made in respect of a freezing injunction. The total interim payments awarded across all relevant orders amounted to approximately £1.8 million, a figure supported by an agreed schedule produced to the court. Permission to appeal Bright J’s decision was refused, though a renewal application was due to be heard shortly at the time of the costs hearing.

The Applicants served a Notice of Commencement of Detailed Assessment and a Bill of Costs in the sum of £4.2 million in respect of four costs orders made in their favour, with two further orders relating to an injunction application. At the time of the hearing before Costs Judge Brown on 11 March 2026, Points of Dispute had not yet been served — they were due on 27 March 2026 — and no Request for a Detailed Assessment Hearing had been filed. It was in this procedural context that the Applicants made an application to the Senior Courts Costs Office for security for the costs of the detailed assessment proceedings in the sum of £336,000, representing 70% of an estimated total of approximately £480,000.

The Application and Opposing Arguments

The Applicants sought security in the sum of £336,000, said to represent 70% of the estimated future costs of the detailed assessment. Those estimated costs comprised £220,000 for preparation of the Bill of Costs and approximately £259,000 for preparing Replies, conducting settlement negotiations, and representation at the detailed assessment hearing — giving a total estimate of approximately £480,000. The Applicants contended that there had been material changes of circumstances since the original security for costs order made by Bright J, which justified the court revisiting the position and granting further security specifically referable to the costs of the assessment proceedings. They identified four material changes: the award of costs on the indemnity basis in favour of the Fourteenth Defendant; the applications before Bryan J and his costs orders; the CPR 52.30 proceedings; and an increased risk of non-payment, given that the First Claimant was said to be incarcerated in Russia and had been made bankrupt, and that the Respondents would have no incentive to pay costs if permission to appeal were refused.

The Applicants, represented by Mr Thomas Mason of Fieldfisher LLP, contended that CPR 25.1 and CPR 25.2 conferred jurisdiction on the SCCO to make an order for security for the costs of the detailed assessment proceedings. They submitted that CPR 25.2(1) expressly permits an interim remedy to be made “at any time, including before proceedings are started or after judgment has been given”, and that this language was broad enough to encompass an application made in the context of detailed assessment proceedings following the determination of the substantive claim. They further submitted that, for the purposes of CPR 25.26, they should be regarded as defendants — having been compelled to participate in the original litigation — and that the costs proceedings were sufficiently ancillary to the substantive claim to bring them within the scope of the security for costs jurisdiction.

The Respondents, represented by Mr Imran Benson of Seladore Legal Limited, objected on two principal grounds. First, they submitted that the SCCO lacked jurisdiction to entertain the application at all, on the basis that the court’s powers in detailed assessment proceedings are limited to those set out in CPR 47, and that the only relevant interim measure available is the power to issue an interim costs certificate under CPR 47.16. Second, they argued that even if jurisdiction existed, the application should be dismissed on conventional principles applicable to security for costs applications, including the principle that security cannot be ordered against a party who is, in substance, the defendant to the claim in question. The Respondents contended that, in substance, the receiving party in a detailed assessment is more akin to a claimant pursuing a monetary claim, and that the paying party is in the position of a defendant compelled to participate in those proceedings.

The Respondents accepted that the relevant “gateways” for a security for costs application were satisfied and did not contend that an award would stifle the assessment proceedings.

The Jurisdictional Question

Costs Judge Brown described the application as unusual, if not unprecedented, in the context of inter partes detailed assessment proceedings in the SCCO. Neither advocate was able to find any cases on it, nor was the judge aware of any such application ever having been made in that court.

The judge began by reviewing the fundamental principles governing security for costs. As Lord Millett explained in CT Bowring v Corsi & Partners [1994] BCC 713, the purpose of the jurisdiction is to prevent “the injustice which would result if a plaintiff who was in effect immune from orders for costs were free to litigate at the defendant’s expense even if unsuccessful”. An order for security can be made only against a plaintiff; it cannot be made against a defendant, because a plaintiff institutes proceedings voluntarily whereas the defendant has no choice in the matter and must be allowed to defend himself without being subjected to the embarrassment of having to provide security for the plaintiff’s costs. The court must have regard to the substantial and not the nominal position of the parties.

The judge noted that it appears clear from a number of decisions that when dealing with the substantive claim a court can order security for the costs of the detailed assessment proceedings as costs of proceedings. Thus, while the costs sought under a costs order may be seen as a ‘claim’ by a winning defendant against a losing claimant, the costs of detailed assessment proceedings may form part of the security that the court provides to a defendant in a claim. The decisions appear to assume “proceedings” in CPR 25.26(2) must be understood as including the detailed assessment proceedings for the purpose of determining the amount of security, presumably on the basis that such proceedings are ancillary to the main proceedings, or as it may be put, the assessment of costs are part of the ‘working out’ of the substantive claim.

However, the judge held that it does not follow that merely because the court dealing with the substantive claim could include such costs as part of the security, the court in the detailed assessment proceedings can be assumed to have the same powers under CPR 25.2, rather than the more limited power under CPR 47, once the claim has been determined.

The judge observed that the meaning of the term ‘proceedings’ depends on its statutory context and on the underlying purpose of the provision in which it appears. In Serbian Orthodox Church – Serbian Patriarchy v Kesar & Co [2021] EWHC 1205 (QB), Foxton J held that detailed assessment proceedings were a distinct phase of the proceedings, not an originating process. However, the court was not addressing the issue as to whether for other purposes costs proceedings may be regarded as separate from the substantive proceedings, in particular for the purpose of deciding whether the terms of CPR 25 apply.

Costs Judge Brown reasoned that detailed assessment proceedings have their own particular procedure. They do not set out expressly any power to grant security for the costs of detailed assessment, nor is there any express importation of CPR 25. The only interim measure provided for is the power to order an interim certificate, which is itself a method of providing security for a claim. Whilst CPR 25.2 permits the court dealing with the substantive claim to make an interim order “after judgment has been given”, the use of the word ‘interim’ in CPR 25 at least points to the jurisdiction to make such orders being linked to determination of the claim which the court is then dealing with. It is perhaps difficult to read “after judgment” as extending the power so that it can be used at any time after judgment and even in later cost proceedings, rather than as part of the process of giving judgment.

The judge distinguished the power to order security from ordinary case management powers such as disclosure or requests for further information. Whilst the court does have power to order disclosure under its case management powers or CPR 31, and generally to order a Part 18 request for further information even though the power might not be expressly set out, the power to order security is qualitatively different from ordinary case management powers. The former are rather more obviously case management powers which are integral and necessary to the determination of disputes which arise in detailed assessment, whereas orders for security on claims which have already been determined are not.

The judge held that had it been intended that there should be a power to make orders for security in detailed assessment proceedings, the rules would have said so expressly and made clear the circumstances in which it could be applied for, and indeed who is to be regarded as the defendant and who the claimant for these purposes. The previous status of the parties as claimant and defendant for the purposes of the CPR rules is changed in detailed assessment, so that the parties are referred to as receiving party and paying party. Whilst the fact that the parties are renamed may not be decisive, it is indicative. If the Applicants were right that they should still be regarded as the defendants and CPR 25 did apply independently in costs assessment, then both parties might be able to apply for security, as the receiving party might say they were the defendant to the claim for costs. This would seem to be a highly improbable interpretation.

The judge further held that if CPR 25 had been intended to apply, the rules would have dealt with the difficult issue as to the point at which a claim for costs ceases to be merely ancillary to the original substantive claim and as to whether the court is imposing security for a claimant on a claim — which it is clear the court should not, at least in general, do.

In contrast to the position when the court is dealing with the substantive claim, there is no obvious sanction to enforce an order for security. Mr Mason did not show the judge any basis in law for striking out Points of Dispute, which are not regarded as statements of case, not being documents which require a statement of truth. In any event, in many instances such an order might be a disproportionate sanction.

The judge observed that there is no obvious need for any power to order security in detailed assessment proceedings given the wide powers of the court dealing with the substantive claim. It is far from the ordinary role of the costs court to deal with issues such as the ‘gateways’ and broader considerations which might apply in the event that there were risks of stifling — issues which are outside the SCCO’s normal remit. It is difficult to see how the Costs Court can readily determine whether there has been a material and sufficient change of circumstances when it is not the court dealing with the substantive claim. These can be expensive and time-consuming applications.

The judge noted that an order for interim payment is a form of security, and the court thus has the express power to provide security by way of an interim costs certificate. In the circumstances, and for the reasons set out, the judge was not persuaded that he could read into the provisions of CPR 47, which are at least intended to be part of a self-contained code for detailed assessment, powers that go beyond that.

Following the approach in GFN SA v Bancredit Cayman Limited [2010] Bus LR 587, the court can look to the settled practice of the court and, as the judge indicated, it does not seem that there is any practice of the court making such orders in inter partes claims. If the judge were to accept that the Applicants were right, it would be effectively to import or instigate the risk of a substantial amount of satellite litigation. Had there been such a jurisdiction it would surely have been enthusiastically employed to ward off any challenge to the claim for costs. There is good reason to believe such a jurisdiction would be used oppressively and would give rise to disproportionate costs. Such concerns strongly weighed against what seemed to the judge a novel interpretation of the rules.

The application itself appeared to have generated some £150,000 in costs. Costs proceedings are intended to be costs efficient and afford access to justice in circumstances where parties are often depleted in resources. The judge accepted that there are circumstances where a defendant to a claim may not be fully protected in respect of the costs of detailed assessment, but there are ample means of achieving security before the court dealing with the substantive claim. That must in itself be good reason for rejecting an application for security.

Costs Judge Brown concluded that he was not persuaded that the court dealing with the assessment of costs does have power to order security. But even if there were technically a jurisdiction to do so, the position is akin to a lack of jurisdiction and he should in limine refuse the application.

Material Change of Circumstances and Discretion

The judge went on to consider, in case he was wrong about jurisdiction, whether there had been a material change of circumstances justifying a revisiting of the security previously ordered, and whether in any event the application should be refused as a matter of discretion.

A defendant may obtain an order seeking an increase in security previously allowed if they can justify the further increase by reference to a material change of circumstances; and if the defendant proves such a material change of circumstances the court has a discretion to recalculate afresh the totality of the security. The judge was not satisfied that there had been any adequate or substantial change of any substance justifying the revisiting of the security for the costs of detailed assessment. Whilst the Applicant may be able to identify some changes, these were at best slight. As a matter of discretion, the judge was firmly of the view, in the particular circumstances, that he should not revisit it.

As to the indemnity costs order, the judge accepted that when a court is dealing with the substantive claim, the award of costs on an indemnity basis may amount to a material change of circumstances. However, not only was it not at all clear on what basis the security was granted in this case, the judge was not confident what, if any, difference it would make to the amount of the required security. Proportionality is unlikely to be a factor. Whether on the indemnity basis or standard, the court is required to determine the reasonableness of the costs, and the court is required to apply an objective standard of reasonableness when deciding whether costs have been reasonably incurred. In many cases the court may have little doubt about the reasonableness of the costs it is to award so that there is no need to exercise any doubt in favour of the receiving party. The basis of assessment may thus make no difference. Beyond referring to the award of costs on an indemnity basis, Mr Mason did not provide any clear basis for thinking that the basis of assessment would necessarily affect the extent of the security required. In any event the place for this point was before Bright J, not at this stage of the costs proceedings.

As to the order of Bryan J, if this changed anything it was marginal, as a substantial interim payment had been made against the costs of the disclosure application and a freezing injunction application. The judge may well have taken the view that the award of such an interim payment provided adequate security generally. The further difficulty was the failure to explain why the matter was not raised before the judge who would have been in a far better position to deal with it. In any event additional costs associated with the detailed assessment of perhaps relatively short applications would be modest. This could not justify a general revisiting of the amount of security.

As to the Part 52.30 application, plainly it was not for this court to give security in respect of other applications. It had not been heard at the time of the hearing and presumably the costs of it were not in the Bill.

As to greater risk, the judge accepted that if permission to appeal is refused the Respondents may no longer have an incentive to comply because judgment has already been given. But security is not set as a function of risk. Once the gateways are established and there is a risk of non-payment, then full security is provided. Mr Mason did demur from the judge’s suggestion that security in this case had been set on such a basis. Accordingly, the judge did not accept that the matters relied on were sufficient to justify revisiting the security.

Discretionary Refusal

The judge held that in any event he would reject the application in his discretion.

First, it seemed to the judge that the Applicants could have raised these matters before Bright J, or indeed before Bryan J, in any event when the Court was concerned with the extent of the interim payment. No adequate explanation as to the failure to raise this at an earlier stage had been provided.

Second, the fact that the Applicants recovered only 75% of their costs before Bright J seemed to weigh in favour of reducing the amount of security and may be a reason why the Applicants were content with security as it was. In any event, this confirmed the judge’s view that he would not have increased the security.

Third, there was no obvious nor appropriate sanction if the Respondents did not comply with an order of payment into court. Mr Benson was not saying that the Respondents would not pay any security ordered, but if the Respondents did not pay there would need to be consideration of the sanction. Such a consideration led the court to refuse security in Dar International FEF Co v Aon Ltd [2003] EWCA Civ 1883. The order sought did not include any unless provision, and the judge remained unclear as to what effective sanction might be provided by way of an unless order. It was difficult to see what effective and proportionate measures would follow if no payment were made. The striking out of the Points of Dispute, even if the judge had jurisdiction to do this, was liable to be disproportionate. The benefits of a Days Healthcare order (depriving the paying party of representation at any detailed assessment hearing or the right to attend) were highly questionable. In circumstances where the costs of further hearings on this issue were likely to be substantial and disproportionate, such concerns must weigh against the order in the first instance.

Fourth, although in general it is not appropriate to consider the merits of a claim when dealing with a claim for security, in a costs claim the court may be in a good position to form a relatively clear, albeit necessarily provisional, view as to the amount reasonably recoverable. Bryan J appeared to take the view that at least some of the Applicants had a real prospect of recovering more than the amount allowed by way of interim payment. Neither party suggested the judge was bound by these views and that he could not exercise his own judgment. But in any event things had moved on since then. The Applicants had produced a Bill of Costs. The judge had not been shown it and could have been shown it. The decision not to produce it in the hearing bundle seemed significant. It was later offered by the Applicants at the hearing. It would no doubt take time to consider this Bill but it should provide details of the claim and the judge could then perhaps have taken a reasonable view as to the likely reasonableness of the costs claims and possibly a more informed view than the court ordering the original interim payment.

The judge made clear his concern about the amount of costs claimed. The hearing before Bright J proved to be lengthy and the issues arising appeared intricate, but these applications were interlocutory, not trials. Fees for counsel were said to be some £800,000. They may of course be justified but this was a large sum when seen particularly in the context of the fact that much of the work was or would have been shared with other Defendants. There was quite possibly a remarkable increase in the solicitor’s costs from the costs intimated by an open letter dated February 2025 and the Bill of Costs. If the statement of costs on the application the judge was dealing with, and the number of the attendance of fee earners at the hearing, was anything to go by, it would suggest that the costs claimed in the substantive matter may be very substantially reduced. In any event there is no reliable standing or predictable measure of a disallowance on an assessment of costs whether on a standard basis or on an indemnity basis — each claim depends on its facts. Reductions for unreasonable multiple fee-earner attendance, duplication, administrative work on bundles not properly chargeable can give rise to a large reduction of costs.

The judge noted that costs of preparing the Bill were put at £220,000; at £135-140 per hour for a Grade D costs draftsman that would equate to over 40 weeks’ work at 24/25 hours per week. The hourly rate may be open for debate and there might be some involvement of higher grades of fee earner. Nevertheless these figures appeared to be very concerning in a case where substantial time had already been spent dealing with costs, preparing for the security of costs application, the statements of costs for the interim costs application, and in circumstances where the solicitors might reasonably be expected to have kept reasonable ledgers which will have been provided in detailed bills to their clients.

The judge accepted that the sums involved in the underlying claim were huge and that it would be said that the claim was of considerable importance to the parties. Without the Bill of Costs and without Points of Dispute, it was difficult to form a view with any confidence that the further security sought was reasonably necessary for the “working out” of the claim or whether it was security to pursue a significantly overstated claim for costs. The judge’s concern was that it may be the latter but, in any event, unless he was confident that it was the former, it seemed plain from first principles that he should not in his discretion grant it.

Quantum

The judge went on to consider what amount of security might have been appropriate, had jurisdiction been established and the discretion exercised in the Applicants’ favour.

The judge held that it was impossible to say with any confidence how long a detailed assessment in this case would take, certainly without Points of Dispute. However neither party was suggesting that there were any particularly difficult features to the assessment.

The judge could see that junior costs counsel might be instructed to deal with hourly rates, if in dispute, and counsel’s fees. Such counsel might reasonably be expected, on hourly rates of circa £250-325 per hour, possibly for one day, so that the fee might be put at about £7,000-9,000. One might reasonably expect a costs draftsman and/or a costs lawyer to be primarily concerned with the Replies, if any were required. Such an individual, having been involved with preparing the Bill of Costs and having already considered the underlying files, would be familiar with the documentation, and could ordinarily be expected to deal with the rest of the assessment.

There would be work preparing the files for submission to the court and ordinarily a short inter partes bundle. However, files could be expected to be in good order. Those files should not be filleted — the full files should be provided to the court. It should not take a costs draftsman familiar with the files long bookmarking the relevant documentation so that they can be shown to the assessing judge. The most demanding element of this part of the assessment is retrieving the relevant documents and if they cannot be found, explaining their absence. But in any event the assessment generally just involves going through the documents, most of which speak for themselves, and by process of sampling and extrapolating reasonable sums, a well-ordered file should not take a long time to assess.

The judge indicated that detailed assessment in this case, assuming the typical points are taken, might be nearer 5 days, if the file is well ordered and the representation effective. That may be optimistic. It could take longer. If a long time is spent explaining why documents have not been produced to the court pursuant to the normal order for production, it could take substantially longer, but that will be a matter which might lie at the door of the receiving party. But in any event dealing with the ‘nuts and bolts’ of the assessment is rarely for counsel and normally appropriate for a costs draftsman or a costs lawyer, with limited involvement of the more senior fee earners.

In short, the judge would reckon the future costs of the detailed assessment for the purposes of security to be nearer to the relatively low £10,000s. This was a fraction of the costs said to have been incurred, albeit by both parties, in the application.

It followed that even if the judge had been persuaded to give further security, he would not have done so on the basis of the estimate of costs provided by the Applicants. It was very difficult to estimate the costs of a detailed assessment in circumstances where the judge did not have the Points of Dispute. He could not see why he should not assume that the assessment would be undertaken in an efficient manner and the underlying files were well kept and in order. But whatever the reasonable figure, it struck the judge that it was a sum that was as likely to fall within a margin of error on the initial award of security for costs or the awards of interim payment costs — a matter which might confirm his concerns about proportionality and the decisions he had set out above.

The application was dismissed.

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Default Costs Certificate Upheld Despite Variation For Irrecoverable VAT

The Senior Courts Costs Office’s decision in MT Construction Limited v Frieze [2026] EWHC 813 (SCCO) addresses the requirements for setting aside a default costs certificate under CPR 47.12, both on the mandatory ground that the receiving party was not entitled to obtain it and on the discretionary ground that there is good reason for the detailed assessment to continue.

Background

MT Construction Limited brought an application for an injunction against Dennis Frieze and Anne Saunders. By an order dated 17 July 2025, the Defendants were ordered to pay the Claimant’s costs of that application on the indemnity basis, to be assessed if not agreed. The order also provided for a payment on account of £20,000, which was duly made.

The Claimant’s costs agents, TLS, prepared a Bill of Costs and Notice of Commencement and began attempts to serve the Service Pack on the Defendants’ solicitors, Hunters Solicitors, from September 2025 onwards. Those attempts were met with some difficulty: Hunters would not confirm whether the Bill had been received when first served by post, nor would they confirm whether they would accept service by email. On 17 October 2025, TLS served the Service Pack by first class post, and Royal Mail tracking confirmed delivery on 20 October 2025. The Notice of Commencement stipulated a deadline of 11 November 2025 for Points of Dispute.

Also on 17 October 2025, a telephone call took place between Mr Collins of TLS and Mr McGuinness of Hunters Solicitors. The parties’ accounts of that call diverged in a material respect. Mr McGuinness’s evidence was that Mr Collins had agreed in principle to grant a 21-day extension for Points of Dispute if service by email were accepted. Mr Collins’s evidence, supported by a file note made on the same day, was that the call recorded only that Hunters did not have instructions for accepting service by email, with no agreement as to any extension.

On Saturday 8 November 2025, Hunters sent an email purporting to record that an agreement had been reached: that if service by email were accepted, 21 days for Points of Dispute would be agreed, and confirming that this was agreeable to Hunters. By that point, Hunters had been in possession of the correctly served Service Pack for 19 days. On Tuesday 11 November 2025, TLS replied by email confirming that Points of Dispute remained due by close of play that day and warning that a request for a Default Costs Certificate (“DCC”) would be filed if Points of Dispute were not received by 4 pm. No Points of Dispute were served, and no application was made to the court for an extension of time. On 12 November 2025, TLS filed a request for a DCC, which was sealed by the court on 14 November 2025, communicated to Hunters by email the same day, and delivered by post on 17 November 2025.

On 28 November 2025, the Defendants issued an application to set aside the DCC, supported by a witness statement from Mr McGuinness. Hunters Solicitors were subsequently intervened into by the Solicitors Regulation Authority on 4 March 2026, and Mr McGuinness moved to Alpha Alexis Law Firm, where he continued to act under the supervision of Mr Mahesh Kakkar.

In open correspondence in December 2025, the Claimant offered to consent to the DCC being varied to remove the VAT element, which would have reduced the certified sum from £47,005 to £39,271. The Defendants did not accept that offer and instead pursued the application to set aside the DCC in its entirety. Points of Dispute were not served with the set-aside application and were not served until shortly before the hearing on 25 March 2026. The matter came before Deputy Costs Judge Erwin-Jones, with judgment handed down on 8 April 2026.

Costs Issues Before the Court

The central issue before the court was whether the Default Costs Certificate dated 14 November 2025 should be set aside under CPR 47.12. Two distinct grounds were in play.

The first was the mandatory ground under CPR 47.12(1), which requires the court to set aside a DCC if it is shown that the receiving party was not entitled to obtain it in the first place. The Defendants contended that a binding agreement had been reached to extend the deadline for Points of Dispute to 1 December 2025, such that the DCC had been obtained prematurely and the receiving party had not been entitled to it.

The second was the discretionary ground under CPR 47.12(2), which permits the court to set aside or vary a DCC where there is some other good reason for the detailed assessment proceedings to continue. Practice Direction 47, paragraph 11.2 sets out the procedural requirements for such an application: it must be supported by evidence, the court must consider promptness, and as a general rule the applicant must file a draft of the Points of Dispute it proposes to serve if the certificate is set aside.

Where the mandatory ground is not established and the court exercises its discretion under CPR 47.12(2), the three-stage framework from Denton v White [2014] EWCA Civ 906 applies. The court is required to assess the seriousness and significance of the breach, the reasons for it, and all the circumstances of the case, including the need to conduct litigation efficiently, proportionately, and in a manner that enforces compliance with the Rules, Practice Directions, and audits. It is clear that good reason for the failure must be established before the court proceeds to consider the wider circumstances.

A further, narrower issue arose in relation to the VAT element of the DCC. The Claimant had offered in open correspondence to consent to the DCC being varied to remove the VAT element, on the basis that the VAT certificate within the Bill confirmed that the Claimant was able to recover VAT as input tax from HMRC. The certified sum of £47,005 would, on that basis, be reduced to £39,271. The Defendants did not accept that offer and pursued the full set-aside application instead.

The costs of the set-aside application itself were also in issue, with the Claimant seeking a summary assessment of its costs of and occasioned by the application.

The Parties’ Positions

The Defendants argued, in the first instance, that the mandatory ground under CPR 47.12(1) was made out. Their case was that a binding agreement had been reached on 17 October 2025 during the telephone call between Mr Collins and Mr McGuinness, to the effect that a 21-day extension would be granted for Points of Dispute in exchange for acceptance of email service. The email of 8 November 2025 was said to record and give effect to that agreement, extending the deadline to 1 December 2025. On that basis, the DCC had been obtained before the extended deadline had expired and the receiving party had not been entitled to it.

In the alternative, the Defendants relied on the discretionary ground under CPR 47.12(2). They submitted that the failure to serve Points of Dispute in time was inadvertent, that Mr McGuinness had genuinely believed an extension was in place until 1 December 2025, and that the period around 11 November 2025 had been one of heavy professional commitments involving High Court work in Birmingham, Manchester, and London. The Defendants further argued that the draft Points of Dispute served before the hearing demonstrated genuine issues to be resolved on assessment, and that setting aside the DCC would cause no prejudice to the Claimant, given that £20,000 had already been paid on account and the remaining sum in dispute was relatively modest.

The Claimant resisted the application in its entirety. On the mandatory ground, the Claimant’s position was that no binding extension agreement had been reached. Mr Collins’s evidence, supported by his contemporaneous file note, was that the 17 October call had recorded only that Hunters did not have instructions to accept email service, with no agreement as to any extension. The Claimant submitted that the email of 8 November 2025, sent unilaterally by Hunters on a Saturday with one working day remaining before the deadline, could not constitute a written agreement of both parties for the purposes of CPR 2.11, and that TLS’s silence in response to that email did not amount to agreement, particularly given that TLS’s email of 11 November 2025 had expressly and unambiguously asserted the original deadline.

On the discretionary ground, the Claimant submitted that the breach was serious and significant, that no good reason had been established for it, and that the reasons advanced—a mistaken belief in an extension and pressure of other commitments—were insufficient. The Claimant further contended that the draft Points of Dispute were in general terms and did not identify with particularity what items were to be challenged or on what basis, and that it would be disproportionate for the assessment to continue given that the proposed costs of the hearing alone totalled over £17,000 in a claim where the net sum in dispute was approximately £39,000 and £20,000 had already been paid on account.

The Court’s Decision

Deputy Costs Judge Erwin-Jones refused the application to set aside the DCC, but varied it to remove the irrecoverable VAT element, reducing the certified sum to £39,271. The varied DCC was ordered to stand as a costs order in the proceedings in respect of the Claimant’s costs of the injunction application.

The Mandatory Ground: CPR 47.12(1)

The judge was satisfied that the Service Pack was validly served and delivered on 20 October 2025 as confirmed by Royal Mail tracking. The period of 21 days prescribed by CPR 47.19 therefore expired on 11 November 2025. On the factual dispute concerning the telephone call of 17 October 2025, the judge preferred Mr Collins’s version of events on the balance of probabilities. The judge found that the email of 8 November 2025 did not satisfy the requirements of CPR 2.11 for a binding written agreement to vary time. An email sent unilaterally by one party after having received documents by postal service, purporting to record the terms of an earlier oral conversation 20 days earlier which the other party denied having had in those terms, could not of itself constitute a written agreement of both parties. TLS’s immediate silence in response to that email did not constitute agreement, particularly since their email of 11 November 2025 expressly and unambiguously asserted the original deadline.

The judge was conscious that 8 November was a Saturday, leaving one whole working day before the deadline at a time when the deadline must have been apparent to Hunters. Having considered all of the evidence, the judge was not persuaded that a binding extension agreement had been reached. The mandatory ground under CPR 47.12(1) was therefore not established.

The Discretionary Ground: CPR 47.12(2)

Turning to the court’s discretion under CPR 47.12(2) and applying the Denton framework, the judge found that the breach was serious and significant. The Defendants’ solicitors had been in possession of the Bill by service since at least 20 October 2025 and almost certainly for several weeks if not over a month beforehand. The 21-day period prescribed by CPR 47.19 is sufficient in all but the most complex cases, and no Points of Dispute were served by the deadline or indeed before the week of the hearing.

Mr McGuinness’s reasons for the breach were that the failure was inadvertent, that he believed there was an extension in place until 1 December, and that the period around 11 November 2025 he was engaged in heavy High Court commitments in Birmingham, Manchester and London. The judge noted that there was no evidence about the systems in place at his firm for supervision, for receiving and distributing email and postal correspondence, no evidence about diary management systems, no explanation as to why email service was initially refused, and nothing to explain what the systems were to cover the work of a busy fee earner working all over the country.

Even accepting that Mr McGuinness believed there was an extension in place, that belief was not objectively reasonable in the absence of any written agreement from TLS and in view of the fact that the Bill of Costs and Notice of Commencement had been served on 20 October and sent by email previously. The unanswered email of 8 November 2025 did not constitute any agreement, but it was relevant that even if one assumed the deadline was 1 December 2025, Points of Dispute were still not served by that date.

The reason for the breach was at best a combination of a mistaken belief in an extension and the pressure of other commitments. These were not sufficiently good reasons within the meaning of the authorities. The court took into account the need to conduct litigation efficiently and at proportionate cost. The Defendants argued that the Points of Dispute now served demonstrated genuine issues to be resolved on assessment and that setting aside the DCC would cause no prejudice to the Claimant because the Claimant had already received £20,000 on account.

The judge found that the draft Points of Dispute served before the hearing were in general terms and did not identify with any specific particularity what items were to be challenged and on what basis. In any event, the mere existence of draft Points of Dispute in a claim of around £39,000 net where £20,000 had already been paid on account did not of itself demonstrate there was good reason for the assessment to continue. It would be disproportionate for it to do so in any event. The proposed costs schedules for the hearing alone together totalled over £17,000.

On promptness, there was a delay of between 14 and 11 days before the application to set aside was issued. Mr McGuinness explained this by reference to the SRA intervention and transition. The judge took that into account but noted that the SRA intervention did not occur until 4 March 2026, well after the application was issued. The delay in November was not explained by that.

The judge was not satisfied that a good reason had been shown for the detailed assessment to continue. The mandatory grounds failed and the discretionary grounds also failed. The application was therefore refused.

Variation for VAT

The Claimant had offered in open correspondence to consent to the DCC being varied to remove the VAT element. In any event, the VAT certificate within the Bill confirmed that the Claimant was able to recover VAT as input tax from HMRC. The DCC was varied under CPR 47.12(2) to reduce the certified sum to £39,271. The payment of £20,000 made on account on 14 August 2025 was to be credited against the varied DCC sum in the ordinary way upon enforcement.

Costs of the Application

The Claimant had succeeded in resisting the application to set aside the DCC. The Defendants brought the application and failed on a substantive ground. The set-aside was refused. The variation of the DCC to remove VAT was, on the Claimant’s open offer, always going to happen. The Defendants chose not to accept the offer to vary and instead pursued a full set-aside. Accordingly, the Defendants were ordered to pay the Claimant’s costs of and occasioned by the application. The judge summarily assessed those costs at £4,250, noting that no VAT was claimed.

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Indemnity Costs Awarded for Libel Claim Used to Pressure Anonymous Artist

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

Background

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

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

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

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

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

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

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

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

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

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

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

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

Legal Principles

Indemnity costs

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

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

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

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

Non-party costs orders

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

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

The Indemnity Costs Application

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

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

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

The Court’s Analysis on Indemnity Costs

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

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

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

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

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

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

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

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

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

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

The Non-Party Costs Application

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

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

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

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

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

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

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

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

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

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

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

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

Conclusion

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

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Engagement Letter Not A CBA Where Hourly Rate Increases Entirely At Solicitor’s Discretion

The Senior Courts Costs Office’s decision in Safra v Wilmer Cutler Pickering Hale and Dorr LLP [2026] EWHC 703 (SCCO) addresses fundamental questions about the requirements for contentious business agreements and interim statutory bills in the context of a high-value international arbitration retainer.

Background

The claimant retained the defendant solicitors in September 2022 to represent him in five consolidated LCIA arbitrations and related proceedings concerning disputes within his family over his late father’s US $23 billion estate. The engagement letter provided for remuneration by reference to specified hourly rates, with provision for the defendant to review and revise billing rates periodically, notifying the client of changes as and when they occurred.

Between December 2022 and September 2024, the defendant rendered invoices totalling over US $35 million. The claimant made payments totalling approximately US $16.4 million but disputed the balance. In December 2024, the claimant applied for assessment of the defendant’s bills under Part III of the Solicitors Act 1974.

The parties agreed that a number of preliminary issues should be determined before any assessment proceeded, including whether the engagement letter constituted a contentious business agreement (CBA), whether the defendant’s invoices were interim statutory bills, when any statutory bills were delivered, and whether the court should order assessment.

Was the Engagement Letter a CBA?

Costs Judge Leonard held that the engagement letter was not a CBA within the meaning of section 59 of the Solicitors Act 1974. While the letter provided for remuneration by reference to hourly rates (a permissible basis for a CBA following the 1990 amendment to section 59), it lacked the requisite certainty.

The critical defect was the engagement letter’s provision for hourly rate reviews. The letter stated that rates would be reviewed periodically and could be revised, with changes notified to the client as and when they occurred. Crucially, the timing and amount of any increases were entirely at the defendant’s discretion, with no fixing mechanism.

The judge distinguished cases such as Acupay System LLC v Stephenson Harwood LLP [2021] EWHC B11 (Costs), where a CFA provided for annual increases at a fixed rate of 3%. Here, the defendant’s right to increase rates was “entirely open-ended” as to both timing and amount. The defendant’s only obligation was to notify the client when increases took effect; there was no requirement for prior consultation or agreement.

Applying Wilson v The Specter Partnership [2007] 6 Costs LR 802, the judge held that “the purpose of a CBA is to fix the fees, or provide a fixing mechanism, so that the parties (and in particular the client) know where they stand.” The engagement letter’s unilateral, open-ended review provisions created “a significant element of uncertainty” inconsistent with CBA status.

The judge also noted that the engagement letter’s reference to the client’s right to apply for assessment under Part III of the Solicitors Act 1974 was inconsistent with it being a CBA, which would have restricted that right under sections 60 and 61.

Would the CBA Have Been Unreasonable?

Although unnecessary given the finding that the engagement letter was not a CBA, the judge considered whether it would have been unreasonable under section 61(2)(b) if it had been a CBA.

The judge found that the negotiation process was fair. The hourly rates were individually negotiated with experienced lawyers acting for a sophisticated businessman, and were set by reference to comparable rates charged by other advisers. The defendant was under no obligation to explain the distinction between CBA and non-CBA retainers.

However, the judge would have found the agreement unreasonable. A retainer providing for entirely open-ended hourly rate increases, while simultaneously removing the client’s rights under section 70 to challenge those rates on assessment, would have been unreasonable. Had the engagement letter been a CBA, it would have been set aside and the defendant’s costs assessed in their entirety.

Did the Engagement Letter Permit Interim Statutory Bills?

The judge held that the engagement letter did contractually permit the delivery of interim statutory bills. The letter provided for “monthly statements for work performed and expenses recorded on our books during the previous month,” stated that such statements were “due and payable upon receipt,” and required the client to raise any queries “in a timely fashion.”

While the word “ordinarily” qualified the timing of monthly statements, the engagement letter clearly indicated that each statement would cover all work performed during the previous month. The reference to expenses “recorded on our books” did not prevent the statements from being interim statutory bills, given the principle in Slade v Boodia [2018] EWCA Civ 2667 that separate bills may be rendered for profit costs and disbursements.

Were the Invoices Actually Interim Statutory Bills?

Despite the contractual right to deliver interim statutory bills, the judge held that the defendant’s invoices were not in fact interim statutory bills because they lacked the essential characteristic of finality.

Each invoice (whether draft or finalised) contained the wording: “Includes only Services and disbursements posted to date.” The judge held that the clear meaning of this phrase was that some work performed during the period covered by each invoice might not have been recorded at the time of delivery and might have to be included in a subsequent invoice. The invoices were therefore expressly not final for the periods they covered.

The defendant’s attempt to interpret this phrase as merely indicating that further charges might be rendered for subsequent periods was rejected as not viable. There would be no reason for an invoice covering a specified period to include a redundant warning about charges for future periods.

The judge also noted discrepancies between draft and finalised invoices. For example, the figure for legal fees in the March 2023 invoice changed from US $967,337 in the May 2023 draft to US $1,011,675 in the September 2023 draft to US $1,017,435 in the September 2024 final version. This supported the conclusion that it could take months for the defendant’s fees for a given month to be finalised, consistent with the warning that invoices might not comprise all fees for the period covered.

The Chamberlain Bill

Since the individual invoices were not statutory bills, the judge held that the complete series of invoices together comprised a single “Chamberlain bill” (following Chamberlain v Boodle & King and Bari v Rosen [2012] 5 Costs LR 851). This bill was delivered on 17 September 2024, when the defendant sent the claimant a comprehensive set of finalised invoices.

The claimant’s application for assessment was made on 17 December 2024, within three months of delivery. The Chamberlain bill was part-paid. Accordingly, the court had jurisdiction under section 70(2) to order assessment without the need to establish special circumstances under section 70(3).

Allocation of Payments

Although unnecessary given the Chamberlain bill analysis, the judge addressed how the claimant’s payments should have been allocated had the invoices been interim statutory bills.

The defendant contended that payments should be allocated to the oldest outstanding invoices first (following the rule in Clayton’s case and minimising interest). The claimant argued that monthly payments of US $400,000 (later US $600,000) were intended to be allocated to the corresponding monthly invoices.

The judge preferred the defendant’s analysis. Under Simson v Ingham (1823) 2 B&C 70, it was incumbent on the claimant to specify how payments should be allocated; failing that, allocation was for the defendant. The only evidence of specific instructions was the claimant’s witness evidence given under cross-examination, which the judge found unreliable. The defendant had clearly explained in October 2023 how it was applying payments, and the claimant had not objected at the time.

Special Circumstances

Again addressing the position had the invoices been interim statutory bills, the judge considered whether special circumstances justified assessment of bills falling within section 70(3).

The judge held that special circumstances did exist, primarily relating to the provision of costs information. The defendant had failed to comply with its obligation under paragraph 8.7 of the SRA Code of Conduct to ensure the client received the best possible information about costs as the matter progressed.

Costs information was provided sporadically. For example, no information was given for the period December 2023 to July 2024 (when bills totalling over US $14 million were incurred) until after termination of the retainer in September 2024. The defendant offered costs information on three occasions but should not have waited to be asked; it was obliged to provide such information proactively and regularly.

The judge also attached weight to the defendant’s response to concerns raised in December 2022. The claimant’s representative had explained that the claimant could not afford fees at the level of the first three months and asked whether fees could be managed at around US $400,000 per month. The defendant’s partner responded: “We’ll find a way to make that or something else he wants work.” This assurance was comparable to a costs estimate and relevant to assessment of reasonableness, following Mastercigars Direct Ltd v Withers LLP [2009] 1 WLR 881. In the event, fees averaged about US $1.5 million per month.

The judge rejected arguments based on the size of individual time charges or expenses, finding these generally explicable given the scale and complexity of the arbitrations. However, the failure to provide adequate costs information as fees accrued to levels far beyond what the client had indicated he could afford constituted special circumstances justifying assessment.

Conditions of Assessment

The judge declined to impose any conditions on the order for assessment. While the claimant was based outside the jurisdiction and was understood to be extremely wealthy, he had already paid almost 50% of the claimed fees. The defendant had been aware from the outset that the claimant was based abroad and could have taken steps to protect its position. The current situation was “at least as much the responsibility of the defendant as the claimant,” particularly given the inadequate provision of costs information.

 

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Pre-Action Solicitor Costs Recoverable Where Insurer Settles Damages But Refuses Costs

The Senior Courts Costs Office’s decision in Alphabet (UK) Limited v AXA Insurance UK plc [2026] EWHC 674 (SCCO) concerned whether a vehicle leasing company acted reasonably in instructing solicitors before issuing proceedings to recover vehicle damage, and whether fixed recoverable costs applied to any resulting costs order.

Background

Alphabet (UK) Limited, a vehicle leasing company forming part of the BMW Group, was the registered owner of a Citroën van leased to Acorn Engineering Limited (“Acorn”). The van was insured by AXA Insurance UK plc under a policy taken out by Acorn. On 8 February 2023, the van was seriously damaged in a road traffic accident and was subsequently written off as uneconomical to repair. Regulations 2 and 3 of the European Communities (Rights Against Insurers) Regulation 2002 permitted Alphabet to pursue a claim directly against AXA in respect of the loss.

By 28 March 2023, solicitors had been instructed on behalf of Alphabet. On that date, the solicitors wrote to AXA notifying them of their instruction, nominating motor engineers to value the van and its salvage in the event of any dispute, and making a Part 36 offer to settle the claim for vehicle damage at £12,408.70. The letter made clear that costs were also being sought. On the same day, AXA’s agent, Copart UK, responded asserting entitlement to credit for a £500 policy excess and offered £11,909.88 in settlement of the damages claim. No mention was made of costs in that counter-offer. Alphabet subsequently delivered a bill for its costs totalling £1,006.80 plus VAT. AXA declined to pay those costs.

Proceedings were issued in the Civil National Business Centre on 12 March 2024 under Part 7 of the Civil Procedure Rules. The issue arising was understood to concern costs only and District Judge Worthington, sitting in the County Court in Willesden, transferred the matter to the SCCO on 29 May 2025. At a directions hearing on 3 September 2025, Costs Judge Brown, sitting as an ex officio District Judge of the County Court, determined that the principal issue was whether a costs order should be made at all, rather than merely the quantum of costs, and that the matter should therefore remain in the County Court.

The substantive hearing took place on 16 January 2026, with a further hearing on 13 March 2026. Benjamin Williams KC appeared for Alphabet, instructed by Clifford James Consultants Limited. Elahe Youshani appeared for AXA, instructed by Kennedys Law LLP. The judgment was handed down on 23 March 2026.

An earlier argument advanced by AXA—that the claim had been settled before the commencement of proceedings without costs—was withdrawn at the directions hearing. A further question as to whether the Part 36 offer had been accepted was also raised but was quickly resolved; it was clear that no such acceptance had taken place.

Costs Issues Before the Court

Three distinct costs issues fell to be determined. The first was whether the proceedings themselves constituted an abuse of process, AXA’s position being that it was abusive to issue Part 7 proceedings solely for the purpose of obtaining a costs order where there was no genuine dispute as to the underlying damages claim. The second, and more substantively argued, issue was whether it had been reasonable for Alphabet to instruct solicitors at all, given the prompt settlement of the damages claim and Alphabet’s status as a sophisticated commercial entity with regular experience of such matters. The third issue—which emerged as perhaps the most technically complex—was the basis upon which any costs order should be framed, specifically whether the fixed recoverable costs (FRC) regime under CPR Part 45 applied, and if so, what sum was recoverable.

The FRC point arose in an unusual way. Prior to the January 2026 hearing, both parties had proceeded on the common assumption that any costs would be assessed on the standard basis. Shortly before that hearing, it was argued that the FRC regime under CPR 45 applied, on the basis that the normal track for the claim was the fast track and that it would be assigned to complexity band 1, producing a fixed costs figure of £599. Mr Williams KC then contended that the January hearing itself constituted a “trial” for the purposes of the FRC regime, which would entitle Alphabet to the full fixed costs for a trial, including an advocate’s fee—a significantly higher sum. Neither party had addressed this point in their earlier submissions, and the judge requested further clarification before the March 2026 hearing.

The judge also raised, of his own motion, the question of whether the costs of the proceedings themselves could be dealt with proportionately, noting that the current dispute did not sit easily within the FRC framework as drafted, and querying whether the matter might have been more appropriately brought under Part 8 rather than Part 7.

The Parties’ Positions

Alphabet (Claimant)

Alphabet’s position was that the claim as a whole had not settled, because although there had been no dispute as to the value of the damages, AXA had not agreed to pay costs in circumstances where Alphabet had made clear, before AXA’s offer was made, that no complete agreement existed. Alphabet relied on the witness evidence of Mr Jackson, its Used Car Operations Manager, who explained that the company habitually engages solicitors to recover its losses in claims exceeding £10,000, and that it aims to recover the costs of doing so. Mr Jackson’s evidence set out a number of reasons why solicitor instruction was a reasonable and necessary part of Alphabet’s business operations: insurers frequently attempt to under-settle, raise liability issues, and seek to retain salvage to which they have no entitlement; insurers commonly make offers limited to the remaining finance rather than the pre-accident value less salvage; and the appointment of lawyers enables Alphabet to operate on equal terms against major insurers with in-house legal expertise. Mr Jackson also noted that the prompt instruction of solicitors had in fact led to an expeditious resolution of the claim, and that solicitor involvement enabled Alphabet to police the terms on which vehicles are written off and their salvage disposed of by licensed agents—a matter of public safety importance.

On the FRC point, Mr Williams KC argued that the normal track for the claim was the fast track, and that the FRC regime therefore applied. He submitted that the existence of a fixed costs provision for claims of this nature in Table 12 of CPR 45 was itself indicative that the instruction of solicitors in such claims was reasonable—otherwise there would be no provision for fixed costs at all. He further submitted that the January 2026 hearing constituted a “trial” or “final hearing” for the purposes of CPR 45.45(1)(d), relying on Bird v Acorn [2017] 1 WLR 1915, such that Alphabet was entitled to the full fixed costs for a trial together with an advocate’s fee.

On the abuse of process point, Alphabet relied on Birmingham City Council v Lee [2008] EWCA Civ 891, Ayton v RSM Bentley Jennison [2018] EWHC 285, and Moreira v French (HHJ Stewart, CC, 30 September 2008), all of which supported the proposition that where a defendant refuses to pay pre-action costs, the claimant’s only remedy is to issue proceedings.

AXA (Defendant)

AXA advanced two principal arguments. First, it contended that the proceedings were an abuse of process, there being no real dispute as to the damages claim which had already been paid. This argument was not ultimately pressed with any vigour at the hearing, and Ms Youshani appeared to acknowledge the force of the authorities relied upon by Alphabet.

Second, and more substantively, AXA argued that it had not been necessary for Alphabet to instruct solicitors. The submission was essentially that Alphabet, as a sophisticated commercial body dealing with such matters on a regular basis, had been too quick to instruct solicitors and should have allowed time for the matter to resolve itself. As events demonstrated, had Alphabet waited, an offer would have been received without the need for legal representation. Ms Youshani pointed to the fact that arrangements were already being made to deal with the damaged vehicle, and that agents had been appointed to deal with uninsured losses arising from the accident. The test, she suggested, was whether it had been necessary to instruct solicitors, rather than merely reasonable to do so.

On the FRC point, AXA’s position was that if a costs order were made, the applicable sum under the FRC regime would be £599, on the basis that the claim would normally be allocated to the fast track and complexity band 1.

Abuse of Process

Costs Judge Brown rejected the abuse of process argument. It was well-established that where a defendant refuses to pay costs properly incurred in the pre-action process, a claimant may issue proceedings to recover them. This was recognised by the Court of Appeal in Birmingham City Council v Lee, where Hughes LJ explained the importance of ensuring that defendants cannot evade liability for pre-action costs by strategically conceding damages only. Similarly, in Ayton v RSM Bentley Jennison, May J held that when a defendant tendered damages but refused to pay the claimant’s pre-action costs, “the only option left to a claimant” was to issue proceedings. This reasoning was echoed in Moreira v French, where the court observed that absent agreement, a claimant would have to issue proceedings for a nil-damages claim merely to recover costs.

There was an obvious problem with AXA’s position. In many claims—the judge gave the example of damages claims by victims of mesothelioma—the instruction of solicitors is plainly reasonable. Many such claims are settled before proceedings, and parties are encouraged in various pre-action protocols to settle their claims without the need for litigation. If AXA were right, an unscrupulous defendant could simply pay damages which are claimed and refuse to pay costs, and there would be no remedy for the claimant.

Further, the provisions of Part 36 contemplate that a claim may be settled before issue with the benefit of a costs order (see CPR 36.7). The rules anticipate that in respect of a claim where the normal track is the fast track for a claim for vehicle damage arising out of a road traffic accident, in the event of the claim being settled before proceedings are commenced the claimant would ordinarily be entitled to costs of £599. The judge reasoned that where there is an entitlement to an order for payment of this amount there must be a means of obtaining it. Accordingly, and in the absence of any other apparent means of doing so, a claimant whose claim for damages is settled before proceedings are commenced must be able to issue proceedings for an order for costs.

Reasonableness of Instructing Solicitors

The judge turned to the more substantive issue: whether it had been reasonable for Alphabet to instruct solicitors. Neither party had provided any authority which provided any principled or binding determination on this issue. The judge was not satisfied that the test was, as Ms Youshani suggested, whether or not it was necessary for Alphabet to instruct lawyers. There appeared to be no basis in law for such a high hurdle. If she were right it would be open to a losing party to argue that it would have been possible for someone to represent themselves (in many cases that may be so) and that the costs they actually and reasonably incurred would not be recoverable. The question was whether it was reasonable for solicitors to be instructed, albeit that test inherently imports at least some element of need.

The judge accepted that the line drawn in Table 12 was at least indicative for this purpose, so that in a claim for in excess of £10,000 it was prima facie reasonable to instruct solicitors. The judge did not think that merely because Alphabet was a commercial organisation, possibly of some size, with a degree of sophistication or that they would be dealing with these matters on a regular basis, made it unreasonable to instruct solicitors. Just because the company had experience and expertise in car leasing did not mean it had the expertise to deal with a claim for damages. Such a claim might involve consideration as to whether there is responsibility as a matter of law for an accident. Moreover the higher the value of the claim the more important the claim can be assumed to be, and the more important and complex it may be.

Perhaps recognising the force of these points, Ms Youshani’s emphasis was on the assertion that it was premature to instruct solicitors even if it were reasonable in general to instruct solicitors in a claim such as this. True it was that arrangements were being made to deal with the damaged vehicle and agents were appointed to deal with uninsured losses arising out of the accident. However much of the material she relied on was not known by Alphabet at the material time. Moreover, there was no admission of liability by the date of instruction and it seemed to the judge not unreasonable for Alphabet to instruct lawyers from the outset of any potential claim.

On the limited information available, the judge was unable to conclude that there was any degree of certainty that AXA would accept liability or make an offer in the amount claimed. In the event AXA made an offer for the full sum Alphabet said was due on same day as the various letters sent by Alphabet’s solicitors, and this happened very rapidly after solicitor’s instruction. Had Alphabet delayed instruction they may not have received an offer so quickly. In fact liability was somewhat transiently put in doubt at some point thereafter. It appeared that whilst AXA acted promptly once solicitors were instructed, whether they would have acted so quickly if no solicitors were instructed and costs were not payable was perhaps a matter of speculation.

The judge noted that he could readily understand that if there were a protocol or mutual understanding by which insurers were required unilaterally to inform interested parties, such as the owner of the vehicle, if liability is disputed and make a suitable offer within a certain period, things might be different. He was not however made aware of any such protocol or understanding. Alphabet was entitled to proceed with the claim promptly and the judge could see why the prompt resolution of these claims was important for their business. It was not suggested that it was improper or unreasonable for them to press for an admission of liability.

The judge accepted Mr Jackson’s witness evidence as to the reasonable business need to instruct solicitors. There had been no cross-examination of Mr Jackson on the contents of his witness statement. Ultimately it should benefit insurers to have claims presented with the benefit of some legal assistance. For these reasons the judge accepted that it was reasonable to instruct solicitors.

Application of Fixed Recoverable Costs

Before turning to the FRC analysis, the judge noted that having looked at the bill of costs, the costs claim had the appearance of being unreasonably high. He was concerned that before any Part 36 offers were made the parties should first have been clear that a dispute arose. Further, it was difficult to justify any involvement of a Grade A fee earner, and it struck the judge that if payable in principle it was difficult to see how the reasonable cost might have exceeded a very modest sum. It seemed that before the FRC regime came in, it would have been at the very least doubtful that a claim would have been made by the claimant to recover any costs.

The judge noted that where a party represents itself, the FRC do not apply (see CPR 45.4). This exception might be relevant where it is said that no representation was reasonable.

The judge agreed that the normal track for this claim was the fast track. A District Judge may have allocated this matter to the small claims track having regard to the factors in CPR 26.13. The claim may have had limited complexity. But merely because that might have happened was not relevant for the purposes of CPR 45.43. For these purposes the term “normal track” is a term of art, relying on the unreported decision of Costs Judge Haworth in Thaxton v Goodman (23 November 2010).

The judge addressed a conceptual difficulty: it appeared from Table 12 that even if there is settlement of the claim before issue, some view must be taken as to whether the claim “would normally be” allocated to the fast track. Plainly at that stage nobody would have known how long the trial would be, or indeed as to whether there might be the need for expert evidence, so the parties and the court cannot ascertain whether it was the normal track for the purposes of allocation under CPR 26.9(5). CPR 45.43 assumes that the “normal track” can be ascertained even in a claim which settles before issue. It seemed to the judge that the drafter of the rules must have assumed that in deciding whether the Table 12 fixed costs apply to claims which settle pre-issue, the parties and the court should look to the amount of the claim and the nature of the claim but not the provisions of CPR 26.9(5) (length of trial etc.) in deciding the track to which the claim would normally be allocated.

The judge added that he was not sure that it was open to AXA to complain that the costs were too high in this case, albeit the work actually done was very modest. It is in the nature of a fixed costs regime that there will be instances where the payment exceeds that which would be assessed as being reasonable; but there may be other more difficult cases where the fixed costs payable are less than would be reasonable. If the judge were to parse back the costs so that only reasonable costs were allowed it would undermine the ‘swings and roundabouts’ nature of the scheme.

It followed that if the claim was treated as having settled, Alphabet was entitled to £599. Had AXA accepted that in principle that would have been the end of the matter.

The Costs of the Proceedings

The question of what order to make as to the costs of the proceedings themselves emerged as perhaps the more difficult element of the dispute between the parties. Both parties, at least in their written submissions following the hearing in January, appeared to indicate that if the judge were to accept Alphabet’s case on the above two points, it ought to follow that the FRC apply and indeed that that hearing should be treated a “trial” for these purposes. Reference was made to CPR 45.45(1)(d) which provides that the reference in Table 12 to a ‘trial’ is a reference to a ‘final hearing’, and to Bird v Acorn [2017] 1 WLR 1915.

As both advocates observed, the current dispute did not sit easily within the FRC as drafted. The difficulty was perhaps not so obvious in this case given the sums involved but if in principle Alphabet were right about this, and the costs of these proceedings can only be awarded on the basis that the hearing that took place were a ‘trial’, then the costs payable in similar circumstances involving a Complexity Band 4 case might be said to be highly disproportionate (c. £10,000 plus VAT). It might be questioned whether Parliament can have intended such an outcome.

Ms Youshani made it clear that she was not arguing that Alphabet acted unreasonably when issuing the claim under Part 7. The judge was told that in other cases insurers appear to have equated the position to that which applies in Costs-only proceedings, when there is an agreement that costs are payable (see CPR 46.14). Here there was no agreement that costs were payable. But since, on one view, the only real issue was about costs the judge raised the question as to whether this claim could be dealt with under the more general provisions of Part 8. If there is, as the parties agree, a discretion as to whether pre-issue costs are payable then it might be said that there must be a proportionate way of resolving any issue that might arise as to the exercise of that discretion.

The judge determined that it was not necessary or appropriate to determine the issue as to the order as to costs at that stage. He stated that his comments were not intended to do anything more than indicate some concern, not binding determinations. The matter was reserved for further submissions.

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Contractual Terms Permitting Interim Statute Bills Upheld Where Unambiguous

The Senior Courts Costs Office’s decision in Hammond v Herrington Carmichael LLP [2026] EWHC 701 (SCCO) concerned whether 29 invoices totalling approximately £174,183.36 delivered during family finance remedy proceedings constituted interim statute bills or a series of interim payments forming a single Chamberlain bill, the resolution of which determined the applicable time limits under section 70 of the Solicitors Act 1974.

Background

The Defendant had been instructed by the Claimant from 10 August 2023 to 26 June 2025 (with an effective hiatus between January and March 2025) in family finance remedy proceedings. The litigation was protracted and comparatively complex. Over the course of the retainer, the parties concluded four separate but continuous retainers. The Defendant delivered 29 invoices between 25 August 2023 and 7 August 2025, covering costs, disbursements and VAT in the total sum of approximately £174,183.36. It was common ground that many of those invoices had been paid or part-paid by the Claimant.

The Claimant applied for a detailed assessment of all 29 invoices pursuant to s.70 SA 1974. It was agreed by both parties that two invoices—225141 (dated 27 June 2025) and 226664 (dated 7 August 2025)—could properly be the subject of such an assessment. The Defendant challenged the Claimant’s entitlement to assessment in respect of the remaining 27 invoices.

The Part 8 claim was issued by the Claimant on 14 August 2025. The matter came before Costs Judge Whalan in the Senior Courts Costs Office, with the hearing taking place on 23 February 2026. Judgment was handed down on 24 March 2026.

The Claimant appeared in person. Ms Aldred appeared on behalf of the Defendant, instructed by Herrington Carmichael LLP.

One notable feature of the underlying litigation was that the Claimant’s legal costs had been substantially funded by his brother-in-law, Mr Garry Moore. After the Claimant had paid the first nine invoices himself (totalling approximately £39,461), he effectively ran out of funds. Thereafter, invoices were settled from monies drawn down from an escrow account funded by Mr Moore, who deposited a total of £120,000 into that account. It was conceded by the Claimant that the monies drawn down from the escrow account constituted “payments” for the purposes of the SA 1974.

The substantive family proceedings had attracted judicial comment regarding the level of costs incurred. On 26 June 2025, HHJ Farquhar observed that the combined costs of both parties amounted to approximately £366,000, representing 73% of the sole non-pension asset, a property valued at £500,000. The judge described the costs as “frankly ludicrous” and referred to “litigation misconduct” on the part of the parties. These observations formed part of the backdrop to the Claimant’s application.

Costs Issues Before the Court

The judgment addressed two principal issues. The first was whether the 29 invoices delivered by the Defendant constituted interim statute bills or whether they formed part of a series of interim invoices delivered on account, which together comprised a single Chamberlain bill that became final only upon delivery of the last invoice in August 2025. The resolution of this question was determinative of the Claimant’s right to seek assessment under the SA 1974, given the time limits imposed by that Act.

The second issue, which arose in the alternative, was whether the Claimant could demonstrate “special circumstances” pursuant to s.70(3) SA 1974, sufficient to justify the court ordering a detailed assessment of those invoices in respect of which the primary time limits had expired or in respect of which the court’s discretion would otherwise need to be exercised.

The practical significance of the interim statute bill/Chamberlain bill distinction is well established. Where invoices are properly characterised as interim statute bills, each bill is treated as a self-contained, final bill for the period it covers. The time limits in s.70 SA 1974 run from the delivery and payment of each individual interim statute bill. By contrast, where invoices are merely interim requests for payment forming part of a Chamberlain bill, the entire series is treated as a single bill, and the s.70 time limits run only from delivery of the final invoice. The Claimant’s case depended on establishing the latter characterisation, which would have brought all 29 invoices within the scope of a single assessment application.

The s.70 SA 1974 framework provides that under s.70(1), where an application for assessment is made within one month of delivery of a bill, the court must order assessment without requiring payment into court. Under s.70(2), where the application is made after that one-month period, the court has a discretion to order assessment on such terms as it thinks fit. Under s.70(3), where the application is made after the expiration of 12 months from delivery of the bill, after judgment has been obtained, or after the bill has been paid (but within 12 months of payment), no order for assessment shall be made except in special circumstances. Under s.70(4), the court has no power to order assessment on the application of the paying party after the expiration of 12 months from payment of the bill.

Applying those provisions to the facts, the court identified three distinct categories of invoices. First, nine invoices delivered and paid more than 12 months before the issue of the Part 8 claim on 14 August 2025 fell entirely outside the court’s jurisdiction under s.70(4). Second, three invoices (211203, 211953 and 211946) could only be assessed if special circumstances were demonstrated under s.70(3). Third, the remaining 15 disputed invoices (dated between 27 August 2024 and 29 May 2025) were subject to the court’s general discretion under s.70(2).

The Parties’ Positions

Interim Statute Bills or Chamberlain Bill

The Claimant submitted that the invoices delivered by the Defendant did not constitute interim statute bills but rather formed part of a single, entire Chamberlain bill. He argued that the Defendant had acted under a single continuous retainer (matter reference HAM540) throughout the relevant period, that the invoices were sequential and related to the same litigation, and that work was ongoing and carried forward between invoices. In oral submissions, the Claimant emphasised that the invoices comprised “very much a running account”, notwithstanding his concession that each invoice covered a defined period. His position was that he had been discharging his fees by instalments as the case progressed, in circumstances where the account, like the litigation, comprised a continuous process.

The Defendant submitted that the invoices were interim statute bills. It was argued that the Client Care Letters, Terms of Business Letters and, in particular, the Standard Terms of Engagement, contained a clear and unambiguous contractual right to render statute bills as final bills for each relevant period. The Defendant relied on three authorities: Richard Slade & Company plc v Erlam [2022] EWHC 325 (QB); Abedi v Penningtons [2000] 2 Costs L.L. 205; and Boodia v Richard Slade & Company [2024] Costs L.L. 753. From those authorities, three general propositions were drawn: the burden of proving that the retainer provides for interim statute bills falls on the receiving party; the retainer must be construed as a whole; and any fundamental ambiguity should be resolved against a construction that permits interim statute bills. The Defendant submitted that, on the proper construction of the retainer documents, there was no such ambiguity. The Standard Terms of Engagement expressly stated that any reference to “an interim invoice” meant an interim statute bill, and each invoice was a complete and final account for the relevant period, with no accumulation of charges between invoices.

The Court’s Analysis

Contractual Construction

Costs Judge Whalan accepted the three general propositions derived from the authorities cited by the Defendant. The burden of proving that the retainer provides for the delivery of interim statute bills, in contrast to requests for interim payments generally, falls on the receiving party. When construing the retainer, it is necessary to refer to the relevant contractual provisions as a whole. In determining whether a retainer does allow the solicitor to render interim statute bills, the court should resolve any fundamental ambiguity against that construction.

The parties had effectively agreed four separate retainers within the relevant period. Each contractual agreement comprised a Client Care Letter (sometimes supplemented by a Terms of Business Letter) and annexed Standard Terms of Engagement. The Standard Terms of Engagement were revised by the Defendant on several occasions during the relevant period, but the following provisions were cited in each version or iteration of the Terms:

Invoicing

In many cases, we will normally render our invoice at or towards the end of your matter (a Final Bill). However, if your matter becomes protracted or we have notified you that Interim Statutory Bills (ISBs) will be issued regularly as the case progresses, we will deliver an ISB to you from time to time. An ISB is an invoice covering the work carried out up to the date of the ISB or a specified earlier date, and issued before the matter ends. This will help you to budget for costs. Also, we may ask you for further payments to settle disbursements that are in excess of the initial payment on account. The initial sum paid on account will not be accounted for in an ISB but will be shown as a credit in the Final Bill. Any reference in correspondence or on invoices to “an interim invoice” means an ISB.

The invoices delivered by the Defendant to the Claimant followed a common format, insofar as they comprised the Invoice, a breakdown or Billing Guide and a Covering Letter. Each invoice set out the costs, expenses and disbursements incurred for the relevant period and provided a payment due date. The invoice was signed and included a note that the Claimant may be entitled to have his charges reviewed by the Court under sections 70, 71 and 72 of the Solicitors Act 1974. The Billing Guide outlined a very detailed breakdown (by date, time and fee earner, with an accompanying narrative) of all the costs and charges incurred during the relevant period. The Covering Letter referred to the invoice and summarised sums due from the Claimant.

Costs Judge Whalan was satisfied, on the proper contractual interpretation of the retainers, that the invoices delivered by the Defendant to the Claimant were interim statute bills, and not just a series of interim invoices delivered as part of a Chamberlain bill. The Terms of Engagement were unequivocally clear. They provided for the delivery of interim invoices and stated that they had the status of interim statute bills. Indeed, the ‘Invoicing’ provision provided for no real alternative characterisation, given that: “Any reference in correspondence or on invoices to ‘an interim invoice’ means an ISB”. Invoices delivered by the Defendant to the Claimant exhibited all the relevant requirements of interim statute bills. They were drafted with considerable detail, meaning that the Claimant was provided with a clear breakdown of the costs, expenses and disbursements. They were signed, provided a payment due date and displayed clearly his right of assessment under the SA 1974.

The court found accordingly that the 29 invoices delivered by the Defendant to the Claimant between 25 August 2023 and 7 August 2025 were interim statute bills within the meaning of the 1974 Act.

Application of Section 70

The effect of this finding, in combination with the fact that various monies had been transferred from (or on behalf of) the Claimant to the Defendant constituting payment within the meaning of the 1974 Act (as confirmed in Oakwood Solicitors v Menzies [2024] UKSC 34), was that some of the invoices delivered by the Defendant to the Claimant could not be the subject of a SA 1974 assessment. Specifically, the court could not order an assessment of the nine invoices delivered and paid more than 12 months before the Claimant issued his Part 8 claim on 14 August 2025. They were: 200405 (25 August 2023), 201690 (29 September 2023), 202391 (27 October 2023), 204546 (21 December 2023), 205426 (30 January 2024), 206520 (28 February 2024), 207616 (28 March 2024), 208840 (2 May 2024) and 210651 (27 June 2024). These fell outside the court’s jurisdiction under s.70(4).

Insofar as the remaining 18 disputed invoices delivered (and paid/part-paid) between 18 July 2024 and 29 May 2025 were concerned, an assessment of 3 invoices—211203 (18 July 2024), 211953 and 211946 (31 July 2024)—could only be ordered at the discretion of the court and subject to the finding of “special circumstances”, pursuant to s.70(3) of the 1974 Act. The other 15 disputed invoices (dated between 27 August 2024 and 29 May 2025) were subject simply to the discretionary power of the court under s.70(2).

Special Circumstances

In Falmouth House Freehold Co Ltd v Morgan Walker LLP [2010] EWHC 3092 (Ch), Lewison J, having reviewed the case law relevant to special circumstances, stated that whether special circumstances exist is essentially a value judgement. It depends on comparing the particular case with the run of the mill case in order to decide whether a detailed assessment in the particular case is justified, despite the restrictions contained in section 70(2). Special circumstances do not have to be exceptional circumstances. As Costs Judge Rowley confirmed in Masters v Charles Fussell & Co LLP [2021] EWHC B1 (Costs), they can be established by something out of the ordinary course, sufficient to justify departure from the general position under s.70 of the 1974 Act.

In Raydens Ltd v Cole [2021] 7 WLUK 539, Costs Judge Leonard, in citing with approval the guidance of Lewison J in Falmouth, added that a helpful test is to consider whether there is something in the fees claimed by the invoices, or in the circumstances in which they were charged, which “call for an explanation”. If they do call for an explanation or further scrutiny, that is a strong indication that there should be an assessment. This is not the time for the explanation to be given and evaluated in detail. That is the purpose of the assessment procedure and the scrutiny it provides.

The Claimant cited four potential special circumstances: (i) judicial findings on costs, proportionality and litigation conduct; (ii) pension disclosure issue; (iii) representation and escalation of costs; and (iv) assertions concerning third parties (Garry Moore).

The Claimant’s core assertion was that the Defendant allowed his litigation costs to increase exponentially to a point where they were unreasonable and disproportionate. He cited specifically the comment made on 26 June 2025 by HHJ Farquhar during the substantive proceedings, who stated that the costs were “frankly ludicrous” and that the total costs between the two parties were £366,000, representing 73% of the sole non-pension asset. The judge went on to refer to “litigation misconduct” and stated: “I simply look at the costs and accept there is litigation misconduct”. The third issue, representation and escalation of costs, was an essentially amplified repetition of this central submission.

During the interlocutory process of the financial proceedings litigation, an issue arose as to the valuation of the Claimant’s pension. Papers disclosed by or on behalf of the Claimant failed (at least initially) to include a Cash Equivalent Value, and it seems that the submission contributed to some confusion or protraction of the proceedings. The Claimant cited a paragraph from the Respondent’s s.25 statement suggesting that had a CEV been provided earlier, it may not have been necessary to pursue whether it was possible to serve a pension order in Ireland. It was submitted that the omission was an error and that this mistake, in turn, contributed to the unreasonable inflation of costs.

The Claimant submitted that the arrangement whereby his legal costs were largely paid or indemnified by Mr Garry Moore, his brother-in-law, contrasted with the run of the mill case and justified a detailed assessment.

The Defendant submitted that the Claimant’s special circumstances submissions “do not bear scrutiny”. The fees, expenses and disbursements were incurred on the instruction of the Claimant who, like his ex-wife, was determined to pursue the litigation “to the bitter end”. At all times the Claimant knew about the costs that he was incurring, as he was being billed monthly (or at least very regularly), and he latterly had regular conversations with the firm about costs. The fact that the costs incurred may be held to be disproportionate on an inter partes evaluation is of little or no relevance to a Solicitors Act detailed assessment, as the bill is assessed on the indemnity basis. The Claimant made no contemporary criticism of his legal representation by the Defendant. His subsequent allegations were unpersuasive, as demonstrated by the fact that he was willing to enter (or re-engage) in four retainers, culminating in an agreement dated 24 March 2025. There was no evidence at all to suggest that the Defendant’s work for the Claimant was inadequate and that this led to the unreasonable inflation of his costs liability. Insofar as the pension issue was concerned, the error was essentially that of the Respondent, for failing to acknowledge or accept that a foreign (Irish) pension could never have been made subject to a pension sharing order by an English court. The escrow account was a necessary security against non-payment by the Claimant, in circumstances where the Defendant would not have continued to act without such a guarantee of reasonably prompt payment. The arrangement was endorsed enthusiastically by the parties—the Claimant, Mr Moore and the Defendant—and it was conceded that monies drawn down on this account constituted “payments” for the purposes of the SA 1974. There was no credible or sustainable suggestion that these payments were in any way unauthorised.

The Defendant further submitted that a number of additional points militated against the court exercising the discretion in favour of the Claimant. Throughout the period of his representation, the Claimant gave repeated assurances to the Defendant that his costs would be paid, assurances which encouraged the Defendant to continue to act on his behalf, particularly after January-March 2025, when the firm had come off the court record. The Claimant was a capable litigant in person who exhibited a clear understanding of time limits; he started the Part 8 claim himself. The fact that his substantive costs were underwritten by Mr Moore suggested that he may ultimately struggle to satisfy any order for costs made following ongoing assessment proceedings.

Decision on Special Circumstances

Costs Judge Whalan was not satisfied that the Claimant had demonstrated the existence of special circumstances. There was nothing, in the court’s conclusion, that “calls for an explanation” or the scrutiny of the court. Pursuant to the retainers, the Defendant delivered regular, itemised invoices that exhibited very detailed breakdowns of the profit costs, expenses and disbursements that the Claimant had incurred during each relevant period. These costs were incurred pursuant to his instruction and he was aware of his ongoing, accumulating liability. Most of the invoices delivered by the Defendant were paid, within the meaning of the SA 1974.

Although the substantive parties’ costs may well have been incurred (individually and collectively) to a level that was disproportionate inter partes, that was of no general relevance to a solicitor/client assessment, which proceeds on the indemnity basis. This distinction between inter partes proportionality and indemnity basis assessment was the key reason why the judge found the judicial criticism of costs levels irrelevant to the special circumstances analysis. It was hard to foresee that the presumption of reasonableness would be dislodged on the particular facts of this case. No identifiable or sustainable criticism was made of the Defendant during the period(s) of representation, and the fact that the Claimant was content to be represented by the firm was illustrated by his willingness to re-engage the Defendant after March 2025. This absence of contemporary criticism and the Claimant’s voluntary re-engagement directly undermined his retrospective complaints about representation quality and cost escalation.

Insofar as special circumstances were not demonstrated, it followed that the court could not exercise its discretion to order the detailed assessment of the 3 invoices 211203 (18 July 2024), 211953 and 211946 (31 July 2024). Insofar as the remaining 15 disputed invoices were concerned, it was not appropriate, having regard to the matters set out in paragraphs 29 and 30 of the judgment (including the Claimant’s repeated assurances of payment, his sophistication as a litigant in person, and the potential difficulty in satisfying any costs order), for the court to exercise discretion to order a detailed assessment.

Conclusion

The court concluded that the retainers concluded by the Claimant and the Defendant provided for the delivery of interim statute bills. The invoices delivered by the Defendant to the Claimant between 25 August 2023 and 7 August 2025 were interim statute bills. The Claimant was not entitled to an assessment of the invoices that were delivered and paid between 25 August 2023 and 27 June 2024. The Claimant was not entitled to an assessment of the invoices delivered and paid/part-paid dated between 18 July 2024 and 29 May 2025. There were no special circumstances arising in this case and, at the discretion of the court, a detailed assessment was refused. The Claimant was—by concession and agreement—entitled to a detailed assessment of two invoices, 225141 (27 June 2025) and 226664 (7 August 2025), should he wish to pursue this.

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Settlement Sum Not Determinative Of Track Allocation Under CPR 46.13

The Senior Courts Costs Office’s decision in Smith v Wigan Borough Council [2026] EWHC 660 (SCCO) concerned whether a claimant’s recoverable costs should be restricted to Small Claims Track levels following settlement of a housing disrepair claim for £1,000 plus repairs.

Background

The Claimant, Gillian Smith, an elderly and vulnerable tenant, brought a claim against her landlord, Wigan Borough Council, for disrepair of her residential premises and associated damages. The parties reached settlement during pre-action correspondence in accordance with the Pre-Action Protocol for Housing Disrepair Cases. The Defendant’s final Part 36 offer (dated 30 January 2025) provided for specified repairs to be completed within 56 days and payment of £1,000 in damages, plus the Claimant’s reasonable legal costs to be assessed if not agreed. Following a clarifying phone call on 4 February 2025 confirming the costs term was “on a standard basis”, the Claimant accepted the offer. The Claimant subsequently commenced detailed assessment proceedings via a Part 8 costs-only claim, resulting in an order for costs to be assessed on the standard basis. Following provisional assessment by a costs officer, who rejected the Defendant’s argument that costs should be restricted to Small Claims Track levels, the Defendant requested an oral review. That review was ultimately confined to a single issue: whether CPR 46.13 required restriction of costs to those allowable on the Small Claims Track.

Costs Issues Before the Court

The sole issue was whether, pursuant to CPR 46.13, the court should restrict the Claimant’s recoverable costs to those allowable on the Small Claims Track. This required a hypothetical retrospective analysis of whether the underlying disrepair claim would have been allocated to the Small Claims Track had proceedings been issued rather than settled pre-action. The determination turned on the application of CPR 26.9(1)(b), which provides that the Small Claims Track is the normal track for tenant disrepair claims where “the cost of the repairs or other work to the premises is estimated to be not more than £1,000” and “the value of any other claim for damages is not more than £1,000”. The Defendant contended the £1,000 settlement sum was highly persuasive, if not definitive. The Claimant argued the true value of the damages claim exceeded £1,000 and that the Defendant’s conduct in making Part 36 offers demonstrated acceptance that the claim would not be allocated to the Small Claims Track.

The Parties’ Positions

The Defendant’s Position: Mr Munro submitted that CPR 46.13 entitled the Defendant to argue for Small Claims Track costs notwithstanding the earlier costs order on the standard basis. He contended the court must conduct the CPR 46.13 exercise by examining the evidence, with the agreed settlement sum of £1,000 being a highly persuasive factor. He argued that as the Claimant had provided no evidence to support a pleaded value exceeding £1,000, the court should find the claim would have been allocated to the Small Claims Track. He distinguished Birmingham City Council v Lee [2008] EWCA Civ 891 on the basis it did not address the specific retrospective analysis required by CPR 46.13.

The Claimant’s Position: Mr Poole accepted the settlement sum had some relevance but argued it could not be the sole consideration. He placed significant weight on the Defendant’s conduct during settlement negotiations, specifically its use of three formal Part 36 offers, each referring to costs “to be assessed if not agreed”. As Part 36 does not apply to small claims under CPR 27.2(1)(g), he submitted this demonstrated the Defendant’s implicit acceptance that the claim would not be allocated to the Small Claims Track. He further argued that, based on the duration of disrepair (from December 2023), the Claimant’s vulnerability, and applicable rent diminution principles, the true value of the damages claim would have been pleaded at over £1,000. He relied on the Claimant’s detailed contemporaneous calculation of £1,304.96 to support this valuation.

The Court’s Decision

Costs Judge Nagalingam upheld the costs officer’s decision and rejected the Defendant’s CPR 46.13 argument. The court’s reasoning was multi-faceted.

First, the judge noted that CPR 46.13 is discretionary (“it may restrict”) and requires a holistic, hypothetical assessment using the language of “would have” and “if”, not a mechanistic application of the settlement figure. Significantly, the judge observed at paragraph 80 that “There is no reference to the settlement sum within the rule, and one observes that such a provision would likely have been included by the legislature were the settlement sum intended to be a definitive measure of retrospective allocation.” The judge found that “where parties agree a financial dispute by way of compromise, the settlement sum may be one measure of value but it is not definitive”.

Second, the court conducted a detailed analysis of the pre-action correspondence and the circumstances of the claim. The Claimant was an elderly, vulnerable tenant with multiple health issues, acknowledged as such by the Defendant. The disrepair persisted for over a year, during which the Claimant paid full rent. The judge calculated that the £1,000 settlement, when spread over the 69-week period of disrepair, represented compensation of £14.49 per week from the £80 weekly rent—a diminution of around 18%. At paragraph 79, the judge noted the Defendant had provided no “cogent explanation” as to why the court should accept the claim would have been allocated to the Small Claims Track, save for the settlement sum agreed. Crucially, the judge found at paragraph 91 that the Claimant’s contemporaneous damages calculation of £1,304.96, based on rent diminution principles and the Claimant’s circumstances, was “compelling contemporaneous evidence” that was “uncontradicted by any valuation evidence from the Defendant”.

Third, the court attached importance to the Defendant’s conduct. The making of three Part 36 offers, each stating costs would be “to be assessed if not agreed”, was incompatible with Small Claims Track procedure and, as the judge found at paragraph 56, “might reasonably lead one to conclude that the Defendant acknowledged the likelihood of this case being allocated to the Fast Track had it been issued”. The judge found at paragraph 54 that the Defendant’s wording “likely led to the Claimant assuming that no form of fixed costs argument would be advanced”, and at paragraph 88 that the final offer’s terms “strongly inferred no intention to argue costs on the basis of allocation to the Small Claims Track”. Allowing the Defendant to resile from this position would, the judge stated at paragraph 89, “imperil future settlements” and encourage the “undesirable practice” of parties trading offers which “either by pennies or a few pounds exceed the threshold to escape ‘would-be’ allocation to the Small Claims Track”. The judge linked this directly to the overriding objective, observing at paragraph 90 that it “is not best served by an approach to litigation which, in effect, requires Claimants to issue proceedings in order to achieve certainty as to costs recovery”.

Applying CPR 26.9(1)(b), the judge was satisfied that, based on the evidence of the claim’s circumstances and value at the time, it would not have been allocated to the Small Claims Track. At paragraph 87, the judge concluded: “I am in no doubt that the facts and circumstances as at the date of acceptance were such that had proceedings instead been commenced, this claim would not have been allocated to the Small Claims Track on the basis that pursuant to CPR 26.9(1)(b)(iii) the Small Claims Track would not have been the normal track for a ‘claim which includes a claim by a tenant of residential premises against a landlord’ where the value of the claim for damages would have reasonably been pleaded at more than £1,000 based on the circumstances presented at the time.” The provisional assessment was therefore finalised, with the Defendant ordered to pay the Claimant’s costs of the assessment and the oral review.

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Summary Assessment Reduced by 20% On Broad-Brush Proportionality Grounds Despite Rejecting Specific Challenges

The High Court’s decision in Garden House Software Ltd v Marsh & Ors [2026] EWHC 568 (Ch) illustrates how a court may reject itemised costs challenges yet still impose a substantial global reduction on broad-brush proportionality grounds.

Background

HHJ Cadwallader had dismissed an application by the First, Second, Sixth and Seventh Defendants (collectively, “THD”) for reverse summary judgment and to strike out the Claimant’s claims. The parties agreed that costs should follow the event and be summarily assessed on the standard basis. The dispute concerned quantum alone. The Claimant sought £87,698.30 (solicitors’ fees £37,698.30; counsel’s fees £50,000). THD contended this was disproportionate and proposed £39,460.40, achieved through reductions to hourly rates, disallowing one senior fee earner’s time entirely, halving counsel’s fees, and cutting time spent preparing the statement of costs.

Costs Issues Before the Court

The court was required to conduct a summary assessment, determining what was reasonable and proportionate under CPR 44.3. The judge addressed each of THD’s specific challenges before applying a final, broad-brush assessment of overall proportionality. Specific issues arose concerning: (i) whether hourly rates should be reduced to London 2 Guideline Hourly Rates; (ii) whether the deployment of both a Partner and a Grade-A Legal Director was justified; (iii) whether instructing both leading and junior counsel at a combined fee of £50,000 was excessive; and (iv) whether 5.1 hours spent preparing the statement of costs (costing £2,549.70) was disproportionate.

The Parties’ Positions

The Claimant argued its costs were reasonable and proportionate. The application was a heavy one, listed for a full day with half a day’s judicial pre-reading, in a high-value specialist commercial and insolvency claim. THD had shifted the basis of their application following detailed correspondence from the Claimant’s lawyers before the hearing, advancing new points under time pressure, which necessitated preparation to address both the original and revised arguments. The application was brought only three months before a 12-day trial where substantial security for costs had been provided.

THD characterised the hearing as involving short points of law, not heavy or complex, justifying only modest costs. They advanced several specific challenges:

  • Hourly Rates: All rates should be reduced to London 2 GHR on the basis the matter was straightforward.
  • Team Composition: All time recorded by the Grade-A Legal Director (Mr Abdul) should be disallowed; the work of the Partner should have sufficed.
  • Counsel’s Fees: Instructing both a King’s Counsel and a junior was excessive; their combined fees should be capped at £25,000, half the amount claimed.
  • Statement of Costs: The 5.1 hours spent (1.1 hours by a Grade C fee earner and 4 hours by a Senior Costs Lawyer) was excessive and should be reduced to 2 hours total.

THD also pointed to their own costs of approximately £44,228 as a comparator, suggesting the Claimant’s higher spend demonstrated disproportionality.

The Court’s Decision

HHJ Cadwallader awarded the Claimant £70,158.64, representing a 20% reduction from the sum claimed. The judge addressed each of THD’s challenges in turn before applying a global reduction.

Character of the Application

The court rejected THD’s characterisation of the hearing as involving short, simple points of law. The application was listed for a day with half a day’s judicial pre-reading and was a heavy application, albeit the judge’s judgment was terse. THD had shifted the basis of their application following detailed correspondence from the Claimant’s lawyers before the hearing, advancing new points, so that under time pressure the Claimant had to deal with both the original and new points, which increased the preparation required. The application was brought only three months before a 12-day trial where very substantial security for costs had been provided.

Hourly Rates

The judge declined to reduce rates to London 2 GHR. This was a heavy application in a high-value, specialist commercial and insolvency claim, for which London 1 rates were not inappropriate. GHR are a starting point, not a cap. The judge noted that THD’s own Grade-A rate of £595 per hour (Birmingham) exceeded National 1 GHR and indeed the London 1 Grade-A GHR. Having regard to the application’s complexity and importance and the nature of the underlying issues, London 1-level rates were justified.

Team Composition

The court rejected THD’s submission that all time recorded by the Grade-A Legal Director should be disallowed. The Claimant’s explanation—that two senior fee earners were appropriate to manage a complex, high-stakes application with evolving arguments, and to ensure efficient division of labour—was persuasive. The deployment of a Partner and a Grade-A Legal Director was reasonable. The total time taken by both was also reasonable, and THD identified no duplication.

Counsel’s Fees

The instruction of both leading and junior counsel was held to be reasonable. Leading counsel had familiarity with the case and its history and had drafted statements of case; the use of junior counsel to support him should have allowed costs to be kept down. The combined fees of £50,000 were considered reasonable and proportionate, given the factors already identified.

Time Spent on the Statement of Costs

The time spent on the statement of costs (1.1 hours by a Grade C fee earner plus 4 hours by a Senior Costs Lawyer, totalling £2,549.70) was found to be in context neither unreasonable nor disproportionate.

Comparative Spend

The judge acknowledged that THD’s own costs for the application were approximately £44,228, roughly half of the Claimant’s figure. However, comparative spend can be a cross-check; it is not determinative. The question is what was reasonable and proportionate on the part of the Claimant. Given the points already made, it was unsurprising that the Claimant incurred a higher figure than THD.

Overall Proportionality

While THD’s proposed global reduction to £39,460.40 was not a fair reflection of what it reasonably cost the Claimant to oppose the application, and the specific challenges did not warrant the sweeping reductions sought, the judge nevertheless stepped back and looked at the matter in the round. He considered that the overall figure of £87,698.30 must be reduced, for reasons of proportionality, by 20%, to £70,158.64, which he considered to be reasonable and proportionate.

Analysis

The decision demonstrates the two-stage nature of summary assessment under CPR 44.3. A court may find that individual elements of a costs claim—hourly rates, team composition, counsel’s fees—withstand specific challenge when tested against the reasonableness criterion, yet still conclude that the aggregate figure requires reduction when assessed against the proportionality criterion.

The judgment confirms that Guideline Hourly Rates remain a starting point, not a cap, and that the nature, complexity and importance of the matter may justify rates at the higher end of the spectrum. The judge’s observation that THD’s own rates exceeded certain GHR benchmarks provided a useful comparative point that undermined their argument for strict application of lower guideline rates.

On team composition, the decision illustrates that deploying multiple senior fee earners is not inherently unreasonable where the matter is complex, high-stakes, and involves evolving arguments requiring efficient division of labour. The absence of identified duplication was significant.

The instruction of both leading and junior counsel was justified by leading counsel’s existing familiarity with the case and the judge’s finding that the use of junior counsel should have allowed costs to be kept down. The combined fee of £50,000 was assessed in the context of a full-day hearing with substantial pre-reading in a high-value specialist claim.

The most significant aspect of the decision is the application of a 20% global reduction after rejecting the specific challenges. The judge gave limited reasoning for this reduction beyond stating it was required “for reasons of proportionality” when looking at the matter “in the round”. This broad-brush approach reflects the court’s residual discretion to stand back from the detail and assess whether the total figure is proportionate to the matter in issue, even where individual components are reasonable.

The decision serves as a reminder that success in defending itemised challenges to a costs claim does not guarantee recovery of the full sum claimed. Proportionality operates as an independent control mechanism, and a receiving party should anticipate that a court conducting summary assessment may apply a global reduction even where specific criticisms are rejected.

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Senior Costs Judge Establishes 25% Markup Cap For Medical Reporting Organisation Fees

The Senior Courts Costs Office’s decision in JXX v Archibald & Anr [2026] EWHC 630 (SCCO) establishes a new framework for assessing Medical Reporting Organisation fees in personal injury litigation, rejecting both parties’ primary submissions and crafting a novel middle path.

Background

This matter concerned the recoverability of Medical Reporting Organisations fees (MROs) in personal injury litigation. The Senior Costs Judge was required to determine the approach to assessing such fees following the settlement of all other costs in two lead cases: JXX v Archibald & Anr and HLA v LXA & Anr.

In JXX, a reserved judgment was handed down on 17 January 2025. This judgment put the claimant to an election regarding providing further information on medical evidence fees. The claimant chose to provide that information with the agreement of the MRO involved, Medical and Professional Services Limited (MAPS), which was subsequently joined as a Third Party. Given the significance of the issues, an application was made in the related case of HLA for it to be heard concurrently. This was granted, and the MRO in that case, Premex Services Limited (Premex), was also joined as a Third Party. An application by the Association of Medical Reporting Organisations (AMRO) to intervene was refused in July 2025.

By early October and November 2025 respectively, the bills of costs in both the JXX and HLA cases were agreed save for the fees attributable to the MROs. The experts’ own fees were also agreed. Consequently, the hearing between 17 and 20 November 2025 constituted a detailed assessment focused solely on the recoverability and quantum of the MRO fees. The parties, including the third-party MROs, filed 27 witness statements, with half a dozen witnesses cross-examined on behalf of the defendants.

Costs Issues Before the Court

The central issue was how the court should assess the reasonableness of fees charged by an MRO for its services in arranging and administering the procurement of medical expert evidence. The dispute crystallised around two competing legal and evidential approaches.

The first, advocated by the defendants, was based on the county court decision in Stringer v Copley (2002). This approach, sometimes called “the Stringer Cap”, required the receiving party to demonstrate that the MRO’s charges did not exceed the reasonable and proportionate cost of the work if it had been done by the instructing solicitors themselves. This necessitated a detailed breakdown distinguishing the expert’s fee from the MRO’s charges.

The second approach, advanced by the claimants and the MROs, argued that MRO fees should be treated as a disbursement and assessed for reasonableness in amount on a holistic basis, looking at the aggregate invoice. They contended that a retrospective, time-based breakdown was artificial and impossible as MROs do not record time like solicitors. Their model involved applying a percentage markup to the expert’s fee, calculated on a macro, business-wide basis rather than being specific to individual cases.

The court was therefore required to determine: (1) the correct characterisation of MRO fees (as outsourced solicitors’ work or a disbursement); (2) the appropriate legal test for assessing their reasonableness; (3) whether any elements of the fee (such as costs associated with deferred payment or write-off facilities) were irrecoverable as “funding costs”; and (4) if recoverable, how to quantify a reasonable fee.

The Parties’ Positions

The Defendants’ Position: The defendants, represented by Roger Mallalieu KC, argued that the court should follow the approach established in Stringer v Copley and affirmed in subsequent cases such as the Claims Direct Test Cases and CXR v Dome Holdings Ltd. They submitted that MRO fees were only recoverable if shown not to exceed the cost of a solicitor doing the work. This required a clear breakdown separating the expert’s fee from the MRO’s administrative charges. The defendants contended that the claimants had failed to provide sufficient evidence to satisfy this test. They also argued that elements of the MRO fee relating to deferred payment terms and write-off facilities constituted irrecoverable “funding costs” pursuant to the principle in Hunt v R.M. Douglas (Roofing) Ltd. In the absence of a breakdown to excise these irrecoverable elements, the entire MRO fee should be disallowed.

The Claimants’ and MROs’ Position: The claimants and the joined MROs (represented by Benjamin Williams KC, Robert Marven KC and Nicholas Bacon KC) contended that the Stringer approach was flawed. They argued that MRO fees were properly characterised as a disbursement, not outsourced profit costs. The correct test was simply whether the aggregate fee for the medical evidence (expert’s fee plus MRO charge) was reasonable and proportionate. They emphasised the valuable services provided by MROs, including maintaining expert databases, ensuring compliance, and managing administration efficiently. They denied that their commercial terms involved providing “funding”, arguing that deferred payment was an inherent part of the personal injury costs landscape, analogous to a solicitor’s retainer. They submitted that the fees were set by a competitive market and that the court should not engage in an artificial “deconstruction” of a globally priced service. In the absence of evidence from the defendants showing the fees were unreasonable, they should be allowed in full.

The Court’s Decision

Senior Costs Judge Rowley handed down a detailed judgment which departed from both parties’ primary submissions and established a new framework for assessing MRO fees. The significance of the decision lies in its rejection of both the defendants’ Stringer-based approach and the claimants’ holistic aggregate approach, crafting instead a novel percentage-based cap.

Characterisation and Legal Test: The judge held that MRO fees are a disbursement, not outsourced solicitors’ work. This was the fundamental legal holding that distinguished the judgment from previous approaches. Applying the test from Crane v Canons Leisure Centre, which focuses on the nature of the work done (whether it is solicitors’ work) and where responsibility for the work lies, the judge concluded that the work was not “solicitors’ work” in the requisite sense. The work done by MROs was described in Stringer as “administrative work”, which could be carried out by non-fee earning staff. Furthermore, once the expert was chosen, the MRO was left to organise matters until the report was provided, with responsibility for the report’s contents lying with the expert, not the solicitor. Consequently, the Stringer “cap” – requiring a comparison with a hypothetical solicitor’s cost – was not the correct legal test to apply. The court rejected the defendant’s argument that a quasi-solicitor breakdown was necessary because such a breakdown would be vulnerable to the challenge that the work was administrative rather than legal work in any event, and because the responsibility for the work did not lie with the solicitor in the manner described in Crane.

Recoverability of “Funding Costs”: The court rejected the defendant’s argument that deferred payment terms and write-off facilities rendered the fees irrecoverable. It found these were commercial features of the relationship between solicitors and MROs in a market where all participants typically waited for reimbursement until the end of a case. They did not constitute “funding costs” of the type prohibited by Hunt v Douglas Roofing. The judge’s reasoning was strengthened by a comparative analysis: he noted that experts who were instructed directly also effectively deferred payment, and solicitors operating under CFAs similarly delayed receipt of their fees. The purpose of the MRO terms was to provide medical evidence, not to provide credit, even though deferred payment was a byproduct of the agreement. This was entirely different from a disbursement loan from a bank or other litigation funder. The write-off facility was similarly a commercial element of the wider contractual relationship, not a separate service constituting funding. The judge emphasised that the MRO arrangement was consistent with the broader personal injury costs landscape, where staggered payment was an inherent feature affecting all participants.

Assessment of Reasonableness and Quantum: While rejecting the Stringer breakdown, the judge also rejected the claimants’ argument that the court could do no more than accept the aggregate fee as reasonable based on market competition. The evidence demonstrated that MROs applied a percentage markup to the expert’s fee – the judge accepted this evidence from the MROs themselves. Premex charged 35% or 45% for most evidence, and MAPS most commonly charged 53% but also 30%, with outliers ranging from 20% to 104%. However, the judge rejected the argument that these percentages were made reasonable by market competition or that they should be allowed in full between the parties.

The judge found the “tripartite tension” (where the payer is not the service chooser) meant market competition was an imperfect regulator of reasonableness between the parties. Those ultimately paying for the fees had no say in the competition between MROs. The judge also rejected the claimants’ assertion that MROs negotiated discounted rates with experts. The evidence, save for one expert (Professor Cosker) whose testimony the judge did not find convincing on this point, showed that expert fees were consistent regardless of whether instruction came via an MRO or directly from solicitors. In a market where the MRO placed a percentage markup on the expert’s fees, it would be self-defeating to seek to reduce the figure on which the markup would be applied. The MROs’ own evidence therefore showed that their fees inflated the experts’ fees by the percentage markups claimed.

The judge reached the 25% figure by applying a “cautious approach” based on several factors:

(i) limitations in the receiving parties’ evidence;

(ii) the lack of detailed cost analysis from the MROs demonstrating their cost base;

(iii) the tripartite tension which meant market competition was an imperfect regulator of reasonableness between the parties; and

(iv) the variation in percentages (ranging from 30% to 53% generally, with outliers beyond this) which reflected ongoing commercial relationships between solicitors and MROs rather than case-specific factors justifying different rates.

The 10% increase in Premex’s markup during the HLA case suggested later cases were making up for previous shortfalls rather than reflecting current case profitability.

On this basis, the judge held that a markup of 25% on the expert’s fee represented a reasonable amount recoverable between the parties. Any markup claimed below 25% would be allowed as claimed; any claimed above 25% would be reduced to that figure. Importantly, the judge held that this percentage should apply to the entire expert invoice, including disbursements such as expert travel costs, for reasons of simplicity and practicality. As the judge explained, “the percentage mark up is intended to achieve an overall sum” and allowing it only on certain elements would simply justify a higher percentage on those elements.

The judge concluded that this percentage-based approach provided a practical and fair method of quantification, avoiding the disproportionate cost of detailed deconstruction in every case while ensuring paying parties were not liable for unreasonable charges. He suggested that stating this maximum recoverable percentage on future invoices would assist transparency and contrasted this simple disclosure with the impractical “quasi-solicitors’ breakdown” that would not be workable in practice.

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