Unsuccessful Party’s Reasoned Refusal To Mediate Did Not Merit Indemnity Costs

Background

The substantive judgment in this matter was handed down on 4 February 2025, following which Mr Mark Chassy had succeeded in his claim against Left Shift IT Limited (the First Defendant) and was awarded damages of £236,601.91, subject to potential grossing up for tax liabilities. The claims against Mr David Silverstone (the Second Defendant) and Mr Mark Smith (the Third Defendant), both brought in their capacity as directors of the First Defendant, were dismissed. The First Defendant’s set-off defence based on alleged deliberate destruction of confidential information also failed.

Following judgment, the parties were invited to provide written submissions on the tax treatment of the award and to attempt agreement on the terms of a draft order. By 8 April 2025, the parties had effectively agreed the tax consequences, resulting in a final award of £275,397.65. However, substantial disagreement remained regarding the costs consequences of the judgment.

The parties’ positions on costs were so far apart that the Deputy Judge directed a further round of written submissions, which were received on 16 May 2025. The costs dispute centred on several distinct issues: the extent of the Claimant’s recoverable costs against the First Defendant, whether costs should be awarded on an indemnity basis, the appropriate payment on account, and the Second and Third Defendants’ entitlement to their costs of defending the unsuccessful claims against them.

Costs Issues Before the Court

The court was required to determine five principal costs issues arising from the split outcome of the proceedings. First, the extent to which the Claimant could recover his costs of the action from the First Defendant, given that he had succeeded against only one of three defendants. This raised the question of apportionment and whether the court should make a percentage order or leave the matter to detailed assessment.

Second, whether the Claimant’s costs should be awarded on an indemnity basis pursuant to CPR 36.17, following a Part 36 offer made on 5 June 2023 for £178,491.51. The offer had been made jointly to all three defendants without distinction, and the First Defendant’s liability at trial exceeded this sum.

Third, whether the Defendants’ alleged refusal to mediate in June 2022 justified an order for indemnity costs. This involved consideration of the mediation history and the parties’ respective positions on alternative dispute resolution.

Fourth, the appropriate sum for a payment on account of costs by the First Defendant, which required the court to consider the Claimant’s total costs of £328,800 (inclusive of VAT) and make a reasonable assessment of the likely recovery on detailed assessment.

Fifth, the Second and Third Defendants’ entitlement to their costs of successfully defending the claims against them, including whether any payment on account should be ordered. This raised particular difficulties regarding the Third Defendant, who had not participated in the trial and was an undischarged bankrupt.

The Parties’ Positions

Ms Grossman, for the Claimant, submitted that the First Defendant should pay “the Claimant’s costs of and occasioned by the action (i.e. the combined costs of the claim and the counterclaim)” without any reduction for the unsuccessful claims against the individual defendants. She argued that costs should be awarded on an indemnity basis for two reasons: first, the Defendants’ refusal to engage with mediation when proposed in June 2022, and second, the First Defendant’s failure to beat the Part 36 offer of £178,491.51.

On the payment on account, Ms Grossman sought 90% of the Claimant’s total costs of £328,800, producing a figure of £295,920. She further submitted that the Second Defendant should be jointly liable for half of the costs awarded against the First Defendant, based on the Claimant’s success on the equitable set-off defence and the mediation issue. She described any payment on account to the Second Defendant as “an affront to justice” given the uncertainties about whether he had actually incurred any costs in defending the personal claim.

Mr Innes, for the First and Second Defendants, contended that the costs order should explicitly limit recovery to the Claimant’s costs “of the action against that Defendant only (i.e. excluding the costs of the claim against the Second and Third Defendants)”. He relied on Re: IT Protect Limited [2020] EWHC 3001 (Ch) to argue that the Part 36 offer’s joint nature, requiring acceptance by all defendants including those with no liability, rendered it unjust to apply CPR 36.17 consequences.

Regarding mediation, Mr Innes submitted that the Defendants had not refused outright but had indicated in their 8 August 2022 letter that mediation could only occur after determination of their application to set aside default judgment. He highlighted that Freeths’ letter of 21 September 2023 had proposed settlement by the First Defendant alone with discontinuance against the individual defendants, demonstrating the significant gap between the parties’ positions.

For the payment on account, Mr Innes proposed £128,232, reflecting the uncertainties in detailed assessment. He sought the Second Defendant’s costs limited to those specifically incurred in defending the personal allegations, with a payment on account of £22,780.

The Court’s Decision

The Deputy Judge determined that the Claimant should recover 75% of his overall costs from the First Defendant, representing a 25% reduction for the unsuccessful claims against the Second and Third Defendants. The court preferred to make this assessment rather than leaving it entirely to the costs judge, noting that significant court time had been spent on cross-examination and submissions directed specifically at establishing director liability. The judge considered himself better placed than a costs judge to make this “broad-brush assessment”.

On the indemnity costs issue, the court declined to apply CPR 36.17 consequences despite the First Defendant’s liability exceeding the Part 36 offer. Following Re: IT Protect Limited, the judge found it would be unjust to apply the enhanced consequences where the offer was made jointly to all defendants. The court particularly noted that acceptance would have rendered the Second and Third Defendants liable for damages and costs despite having no liability, potentially exposing them to enforcement action given doubts about the First Defendant’s solvency.

Regarding the mediation issue, the court was not persuaded that the Defendants’ conduct justified indemnity costs. The judge accepted that the Defendants had not refused point-blank but had indicated mediation could follow resolution of the default judgment application. The significant gap between the parties’ positions suggested the case was unlikely to settle through mediation in any event.

For the payment on account, the court ordered £175,000, roughly splitting the difference between the parties’ positions. This reflected the 75% recovery rate applied to the Claimant’s total costs and allowed for uncertainties in detailed assessment. The court rejected any joint liability of the Second Defendant for the First Defendant’s costs liability, finding the set-off defence was solely the First Defendant’s claim.

The Second Defendant was awarded his costs limited to those incurred specifically in defending the personal allegations against him as a director, with these to be determined on detailed assessment if not agreed. A modest payment on account of £5,000 was ordered, significantly less than the £22,780 sought, reflecting the uncertainties about the extent of recoverable costs. The Third Defendant was also entitled to his costs in principle, but no payment on account was ordered given his non-participation in the trial and status as an undischarged bankrupt.

Did The Client Have Capacity To Enter Into A Valid Retainer? Solicitors’ Obligations To Investigate Considered

Background

The costs proceedings arose from a Part 8 claim for detailed assessment under section 70 of the Solicitors Act 1974, brought by Furley Page LLP against their former client, KFL. The defendant was a distinguished 91-year-old barrister and academic who had been diagnosed with mixed Alzheimer’s disease and vascular dementia in August 2020.

On 4th October 2020, the defendant purportedly entered into a retainer with the claimant solicitors to assist with creating a new will. The retainer comprised a Client Care Letter dated 29th September 2020 and additional Terms of Business. Between October 2020 and December 2021, the claimant delivered seven invoices totalling £72,850.64, of which £1,000 had been paid on account, leaving an outstanding balance of £71,850.64.

The retainer’s validity became contested in the context of wider Court of Protection proceedings. In October 2019, the defendant had executed Lasting Powers of Attorney appointing two former colleagues as attorneys. In late 2020, these attorneys received notice that the LPAs had been revoked and replaced by new attorneys (the defendant’s nephew and niece). This led to High Court proceedings in early 2021, with the Official Solicitor appointed as the defendant’s litigation friend.

Following expert assessments, the parties agreed by consent order in July 2021 that an application should be made for a statutory will. On 29th July 2021, Cobb J delivered judgment ordering that all parties bear their own costs in the High Court proceedings. By May 2021, Martin Terrell of Warners Solicitors had been appointed as the defendant’s Deputy for Property and Financial Affairs.

Costs Issues Before the Court

The preliminary issue before Costs Judge Whalan concerned whether the defendant had contractual capacity to enter into the retainer with the claimant solicitors on 4th October 2020. This issue was crystallised in Point 1 of the Points of Dispute, which asserted that the defendant lacked contractual capacity at the time of instruction and that the claimant knew or ought to have known of this incapacity.

The legal framework required consideration of the Mental Capacity Act 2005, particularly sections 3 and 4, and the associated Codes of Practice. The court needed to determine whether the defendant was capable of understanding the nature, terms and effect of the contract at the relevant time, applying the principle that capacity is presumed but rebuttable.

A secondary issue was whether, if the defendant lacked capacity, the claimant had actual or constructive knowledge of this incapacity, following the principle established in Dunhill v Burgin [2014] UKSC 18 that a contract made by a person lacking capacity could be avoided if the other party knew or ought to have known of the incapacity.

The Parties’ Positions

The defendant submitted that he lacked capacity to enter into the retainer, relying on five broad factors. First, the context showed minimal involvement from the defendant himself, with contact handled by the new attorneys. An attendance note from September 2020 described him as “very vulnerable”. Second, the absence of witness evidence from any fee earner involved at the time of the retainer invited an adverse inference.

Third, the defendant challenged the reliability of capacity assessments conducted by Peterkin Ofori of Mental Capacity Consult between October and December 2020. Counsel argued these assessments were of “little evidential value” as Mr Ofori’s qualifications were unclear and his questioning was highly leading. Fourth, expert evidence from Professor Robert Howard demonstrated that by November 2020 the defendant’s episodic memory was “extremely impaired” and by April 2021 he lacked capacity to contract. Fifth, evidence from Jon Turner, one of the original attorneys, suggested significant cognitive impairment around October 2020.

The defendant further argued that the claimant had actual or constructive knowledge of his incapacity, having failed to make adequate enquiries of the existing attorneys and ignoring warning signs in attendance notes and assessments.

The claimant, through Mr Waters (Costs Lawyer), maintained that the defendant retained capacity to enter into the retainer. They emphasised the high burden required to displace the presumption of capacity under the Mental Capacity Act 2005. The claimant relied on the Mental Capacity Consult assessments, which all concluded the defendant had capacity for the relevant decisions. They noted that the Office of the Public Guardian concluded in January 2021 that the defendant had capacity to make decisions about his lasting power of attorney.

The claimant argued they had acted appropriately by commissioning capacity assessments from the outset, demonstrating awareness of potential issues. They contended that any deterioration in the defendant’s condition was gradual, with no clear point marking loss of capacity. Mr Waters also argued that only actual knowledge, not constructive knowledge, would suffice to invalidate the contract – a submission rejected by the court.

The Court’s Decision

Costs Judge Whalan found that the defendant had capacity to enter into the contractual retainer on 4th October 2020. The judge determined that the burden of proving incapacity, which lay with the defendant on the balance of probabilities, had not been discharged. The court accepted that both actual and constructive knowledge of incapacity would suffice to avoid a contract, rejecting the claimant’s narrower interpretation.

The judge found that the Mental Capacity Consult reports accurately recorded and assessed the defendant’s capacity in October and November 2020. The court noted these assessments were commissioned properly by solicitors aware of the defendant’s dementia diagnosis and keen to ensure capacity. The Office of the Public Guardian’s conclusion in January 2021 that the defendant had capacity supported this finding.

Crucially, the court determined that the defendant lost capacity to contract from 22nd June 2021, based on the expert consensus reached at that time. The judge found that the claimant had actual knowledge of the defendant’s lack of capacity from 29th July 2021, when Cobb J delivered judgment in the High Court proceedings, though noted the material from those proceedings appeared to have been available contemporaneously.

The practical effect was that the retainer was valid from 4th October 2020 until 22nd June 2021, after which point the defendant lacked capacity to contract. The claimant could not rely on the retainer for work done after 29th July 2021, when they had actual knowledge of the incapacity. The judge indicated that the implications of these findings would be considered at an adjourned detailed assessment hearing.

Costs Not Capped At Estimates Where Client Consented To Further Work

Background

The case concerned a solicitor-client assessment brought by Mr Paul Evans against his former solicitors, Acuity Law Limited. The dispute arose from legal services provided between August 2022 and January 2023 across three distinct matters. Matter 1, which had been resolved between the parties, was not in issue. Matter 2 involved a family dispute concerning ownership of a vintage motorbike and a Rolex watch, whilst Matter 3 related to costs proceedings in which the Defendant had represented the Claimant.

The Defendant had rendered six invoices totalling approximately £11,200 plus VAT. The Claimant challenged these costs on multiple grounds, prompting the Defendant to request a detailed assessment hearing. The matter came before Costs Judge Nagalingam on 5 March 2025 as a preliminary issues hearing, with the court required to determine several fundamental questions before any line-by-line assessment could proceed.

A significant procedural issue had arisen concerning the manner of electronic disclosure. The Defendant had provided voluminous electronic files containing extensive duplication, with entire email chains repeated multiple times. Additionally, the original disclosure had suffered corruption, with all emails showing the disclosure date rather than their original dates. This had prevented the Claimant from preparing detailed points of dispute addressing individual items of work.

Costs Issues Before the Court

The court was required to determine four principal costs issues. First, whether the Defendant’s costs should be limited to the estimates provided at the outset of each matter. For Matter 2, an initial estimate of £900 plus VAT had been given, later revised to £3,600 plus VAT. For Matter 3, an estimate of £3,000 plus VAT had been provided for the “Initial Stage” of work.

Second, whether costs incurred in Matter 3 should be reduced to nil under CPR 46.9(3)(c) as “unusual” costs. The Claimant argued that pursuing an oral review of a provisional assessment with leading counsel, when success was virtually impossible, rendered all associated costs unusual and therefore irrecoverable.

Third, whether the Defendant’s termination of the retainer two days before the oral review hearing was unreasonable, such that no costs could be recovered under the principle of “entire contracts” established in cases such as Gill v Heer Manak Solicitors [2018] EWHC 2881 (QB).

Fourth, the court needed to address the procedural consequences of the defective disclosure and determine whether supplemental points of dispute would be required before any detailed assessment could proceed.

The Parties’ Positions

The Claimant, represented by Mr Mark Carlisle, argued that the Defendant had fundamentally failed in its duties by exceeding estimates without proper warning or obtaining informed consent. On Matter 2, Mr Carlisle submitted that the work never progressed beyond the “Initial Stage” as no injunction application was ever drafted, yet costs of £5,600 plus VAT had been charged against an estimate of £900-£3,600. He relied on the clear scope definition in the retainer and argued that work on the Rolex watch dispute fell outside this scope.

Regarding Matter 3, the Claimant’s primary position was that all costs should be disallowed due to unreasonable termination. The secondary position was that all costs were “unusual” under CPR 46.9(3)(c) because the Defendant had allowed the Claimant to pursue a hopeless oral review without proper advice about the irrecoverability of costs. Mr Carlisle emphasised that once the consumer regulations point had been conceded, achieving the necessary 20% reduction was impossible, particularly given the Part 36 offer of £47,000 against a provisionally assessed figure of £61,000.

The Defendant, represented by Mr Dean O’Connor, contended that Mr Evans was a sophisticated client who drove the litigation strategy and frequently rejected advice. On Matter 2, Mr O’Connor argued that the Claimant had expanded the scope by introducing the Rolex watch dispute and involving additional family members. He pointed to contemporaneous emails showing the Claimant’s active involvement and approval of the work undertaken.

On Matter 3, the Defendant maintained it had repeatedly warned the Claimant about costs risks and the difficulty of achieving sufficient reductions. Mr O’Connor cited extensive correspondence demonstrating warnings about the 20% threshold, the Part 36 offer implications, and recommendations to use junior rather than leading counsel. He argued that termination was justified by non-payment of fees and that the Claimant had already secured alternative representation through Kain Knight before the hearing.

The Court’s Decision

Costs Judge Nagalingam rejected the Claimant’s arguments on estimates, finding that neither Matter 2 nor Matter 3 costs should be capped at the estimated amounts. The court noted that both retainers clearly stated that “further work will be charged at our usual hourly rates” and found no evidence that the Claimant had treated the estimates as caps. For Matter 2, the court found that stage two work had been “substantially engaged” and that the Rolex watch dispute reasonably fell under “further work” with the Claimant’s clear knowledge and consent.

On the unusual costs argument under CPR 46.9(3)(c), the court found that the Claimant had not established that Matter 3 costs were sufficiently unusual to be deemed unreasonably incurred. The judge emphasised that the Claimant was “heavily involved, kept well informed and consistently provided both explicit and implied consent for the steps taken on his behalf.” Crucially, the court found that the Defendant had discouraged the use of leading counsel but the Claimant had insisted upon it.

Regarding termination, the court rejected the argument that the Claimant had been “thrown to the lions.” The judge found that the Claimant had already been in contact with Kain Knight and was in the process of instructing them at the time of termination. Non-payment of fees was recognised as a common and legitimate ground for termination.

However, the court accepted the Claimant’s criticisms regarding disclosure. The judge found that the corrupted and duplicative disclosure had prevented proper preparation of points of dispute and directed the Defendant to resubmit electronic disclosure in de-duplicated format with original dates preserved. The court ordered that supplementary points of dispute and replies be filed thereafter, with provision for a further hearing if required.

The judgment left open the possibility for the Claimant to challenge whether costs were reasonable in amount, whilst finding that the costs had been reasonably incurred with the client’s approval. The court declined to rule on the specific issue of whether Mr Marven KC’s £1,100 conference fee should have been included in the bill, leaving this for the parties to address in any subsequent proceedings.

Points Of Dispute Must Identify Specific Items Under Challenge

Background

The appeal arose from a detailed assessment of costs following the settlement of personal injury proceedings. The underlying claim concerned a road traffic accident on 18 September 2019 between Mr Paul Ward (the Appellant/Claimant) and Mr Gagandeep Rai (the Respondent/Defendant). The Respondent admitted liability for the accident, though causation and quantum remained disputed. The substantive proceedings were settled on 11 January 2023 by way of a Part 36 offer for £546,984.

On 3 August 2023, the Appellant commenced detailed assessment proceedings. Item 39 of the Appellant’s Bill of Costs claimed 134.1 hours for work done on documents, itemised across 24 pages in Schedule 2 to the Bill, comprising 418 individual entries detailing dates, nature of work, fee earner, and time spent.

The Respondent served Points of Dispute on 30 August 2023, advancing 25 points. Point 23 challenged Item 39, making various general criticisms about excessive time claimed, unnecessary administrative entries, and duplicative work. Crucially, Point 23 stated that the Respondent would “rely on an annotated documents schedule of objections” but offered a reduction to 68 hours 12 minutes without identifying specific challenged items or providing detailed grounds.

The Appellant served Replies on 4 January 2024, arguing that Point 23 should be dismissed as non-compliant with Practice Direction 47, paragraph 8.2(b), citing Ainsworth v Stewarts Law LLP [2020] EWCA Civ 178. The Appellant contended that the Point of Dispute contained no specific challenges, failed to identify bill entries, and lacked the mandatory nature and grounds of dispute. Despite this objection, the Appellant offered 130 hours for Item 39.

A two-day detailed assessment hearing was listed for 5-6 August 2024. At approximately 4:15pm on 31 July 2024, the Respondent filed and served the annotated document schedule referenced in Point 23. This schedule, for the first time, identified specific items in dispute and categorised objections, offering a primary case of 58.5 hours and an alternative of 58.8 hours.

During the hearing on 5-6 August 2024, Deputy Costs Judge Friston determined various preliminary and general points before addressing the contentious Point 23. The Judge declined to strike out Point 23 and permitted the Respondent to rely on the late-served annotated schedule, adjourning the assessment to a third day. The adjourned hearing took place on 8 November 2024, where the Judge assessed the Appellant’s Bill at £89,032.62 with £8,234.91 in interest.

Costs Issues Before the Court

The primary costs issue before Mrs Justice Hill was whether Deputy Costs Judge Friston had erred in his case management decisions regarding Point 23 of the Respondent’s Points of Dispute. This encompassed two interrelated questions: first, whether Point 23 should have been struck out for non-compliance with Practice Direction 47, paragraph 8.2(b) and the principles established in Ainsworth; and second, whether the Judge was correct to permit the Respondent to rely on the annotated document schedule served just two working days before the detailed assessment hearing.

The appeal engaged fundamental principles about the conduct of detailed assessment proceedings under CPR Part 47. Central to the dispute was the interpretation and application of paragraph 8.2(b) of Practice Direction 47, which requires Points of Dispute to be “short and to the point” and to “identify specific points, stating concisely the nature and grounds of dispute.” The court had to consider whether Point 23’s general assertions without itemisation satisfied these mandatory requirements.

A further issue concerned the proper exercise of discretion under paragraph 13.10(2) of Practice Direction 47, which permits the court to disallow variations to Points of Dispute or allow them subject to conditions, including costs sanctions. The court needed to determine the scope of this discretion and whether the Judge had exercised it in accordance with the overriding objective.

The appeal also raised questions about the duties of parties in detailed assessment proceedings, specifically whether the Appellant had any obligation to chase the Respondent for the promised annotated schedule, and whether the late service of that schedule constituted an “ambush” warranting its exclusion.

The Parties’ Positions

The Appellant advanced five grounds of appeal, with grounds 1-3 challenging the refusal to strike out Point 23 and grounds 4-5 challenging the permission to rely on the schedule. On Ground 1, the Appellant argued that Point 23 failed to comply with paragraph 8.2(b) as interpreted in Ainsworth, making only general assertions without identifying specific items or stating why individual items were disputed. The Appellant relied on several authorities where non-compliant Points of Dispute had been struck out, including O’Sullivan v Holmes and Hills LLP [2023] EWHC 508 (KB), St Francis Group 1 Ltd & Ors v Kelly & Anor [2025] EWHC 125 (SCCO), and Christodoulides v CP Christou LLP [2025] EWHC 214 (SCCO).

Regarding Ground 2, the Appellant contended that the Judge misdirected himself by finding that a “fairly broad-brush assessment” could have been conducted based on Point 23 alone. The Appellant argued this was inappropriate in “detailed” assessment proceedings where the paying party has the right to descend into whatever level of detail they wish.

On Ground 3, the Appellant submitted that the Judge wrongly criticised the Appellant for not chasing the Respondent for the annotated schedule. Relying on Barton v Wright Hassall LLP [2018] UKSC 12 and Woodward & Anor v Phoenix Healthcare Distribution Ltd [2019] EWCA Civ 985, the Appellant argued there was no duty to assist an opponent, as this could deprive a party of legitimate tactical advantages.

The Respondent argued that whether to strike out Point 23 was within the Judge’s discretion, which was “unfettered” and could involve marking displeasure through costs orders. The Respondent explained the delay in serving the annotated schedule as being due to ongoing settlement negotiations. Mr Lyons submitted that the types of objections in the schedule were “fairly obvious” to any costs practitioner and that many points were anticipated in the original Point 23. He emphasised that the Judge had wide powers under paragraph 13.10(2) to allow variations subject to conditions.

On the duty to chase issue, the Respondent supported the Judge’s view that there should have been liaison between the parties to ensure proper preparation for the assessment. The Respondent argued that both parties knew a further document was required and both were at fault for not ensuring it was available earlier.

The Court’s Decision

Mrs Justice Hill allowed the appeal, finding that Deputy Costs Judge Friston’s refusal to strike out Point 23 and his decision to allow reliance on the annotated schedule were wrong. The court held that Point 23 was not compliant with paragraph 8.2(b) of Practice Direction 47 or the principles in Ainsworth, as it made only general assertions without indicating which items they related to and failed to identify specific items in the Bill of Costs with clear reasons for dispute.

On Ground 1, whilst the court found Point 23 non-compliant, it noted the Judge had not specifically held it was compliant but rather focused on whether defects could be “cured” by the annotated schedule. The court recognised that whether to strike out non-compliant Points of Dispute involved an evaluative, discretionary question inextricably linked with whether to permit the variation through the annotated schedule.

Regarding Ground 2, the court dismissed this ground, finding the Judge had not misdirected himself. The Judge had recognised that detailed assessment proceedings entitled parties to a line-by-line approach and had not suggested conducting the assessment on a broad-brush basis. Rather, he was observing that the Appellant had been provided with sufficient information to understand broadly what case was being made.

On Ground 3, concerning the duty to chase, the court held it could not fairly criticise the Judge on appeal for this finding as the authorities on which the Appellant relied (Barton and Woodward) had not been raised before the Judge at the relevant time. Applying Allen v Bloomsbury Publishing Limited [2011] EWCA Civ 943, the court found it would be wrong to criticise a judge for failing to consider a point not raised with him.

The court upheld the Judge’s characterisation of his powers under paragraph 13.10(2) as “very wide”, finding this consistent with authorities such as Edinburgh v Fieldfisher LLP [2020] EWHC 862 (QB) and Celtic Bioenergy Ltd v Knowles Ltd [2022] EWHC 1223 (QB). However, the court found the Judge had failed to exercise these powers in accordance with the overriding objective.

Crucially, the court determined that the only reason the detailed assessment went into a third day was because the Judge declined to strike out Point 23 and allowed reliance on the schedule. The Respondent had been on notice of the Appellant’s Ainsworth objection for seven months but took no remedial steps until two working days before the hearing. The reason given for delay – ongoing settlement negotiations – was found to be circular, as settlement was more likely if the Appellant understood the detailed case against him.

The court concluded that the Judge’s decision failed to give sufficient weight to the requirements of paragraph 8.2(b) and Ainsworth, and failed to ensure the paragraph 13.10(2) power was exercised in accordance with the overriding objective of dealing with cases “justly and at proportionate cost”. The additional costs and delay caused by the third day of assessment were inconsistent with saving expense, dealing with cases expeditiously, and enforcing compliance with rules and practice directions.

Part 18 Requests in Costs Disputes | When Must Solicitors Answer Questions About Commissions?

Part 18 Requests in Costs Disputes | When Must Solicitors Answer Questions About Commissions?

Introduction

In solicitor own client assessments (SOCA), the accuracy of the cash account is often a critical issue. A recent High Court decision has clarified when solicitors must respond to Part 18 requests seeking information about potential undisclosed commissions, particularly regarding After the Event (ATE) insurance arrangements. The case of Turner v Coupland Cavendish Limited [2025] EWHC 1605 (KB) demonstrates that clients need not produce evidence of wrongdoing before being entitled to answers about possible commission payments.

Background

Mr Turner instructed Coupland Cavendish Limited to handle his personal injury claim. Following a successful settlement, the solicitors delivered their bill in March 2022, which Mr Turner challenged through SOCA proceedings. Two specific concerns emerged from the cash account: a £245 ATE insurance premium and a £750 payment to AJG Limited, a Gibraltar-based company.

In his Points of Dispute, Mr Turner raised concerns about potential undisclosed commissions and requested answers to Part 18 questions he had served in July 2022. The solicitors dismissed these as a “fishing expedition” and refused to respond. At the hearing before Costs Judge Rowley, Mr Turner made oral applications for orders requiring responses to the Part 18 requests and disclosure of AJG Limited’s company number. Both applications were refused.

The Costs Issues

The Cash Account Dispute

Following the Court of Appeal’s decision in Herbert v HH Law Ltd [2019] 1 WLR 4253, ATE premiums are treated as items in the cash account rather than solicitors’ disbursements subject to assessment. This created a particular challenge: while clients cannot directly challenge ATE premium amounts in section 70 assessments, they may still dispute the accuracy of the cash account itself, particularly if undisclosed commissions were received.

The fundamental question was whether a client must provide evidence of wrongdoing before being entitled to information about potential commissions. This engaged the established principle that solicitors must satisfy the court as to the accuracy of their cash accounts.

The Threshold for Part 18 Requests

Costs Judge Rowley had applied what he considered to be the approach from his earlier decision in Brown v JMW Solicitors LLP [2022] EWHC 2848 (SCCO), requiring evidence equivalent to an arguable case for pre-action disclosure. He distinguished Edwards v Slater and Gordon UK Ltd [2022] EWHC 1091 (QB), where Part 18 requests had been ordered, on the basis that in Edwards there was actual evidence of payments obtained from the ATE insurer’s administrators.

The Parties’ Arguments

Mr Turner argued that the mere fact of the cash account being disputed should trigger an obligation to provide information. He relied on agency principles from Yasuda Fire and Marine Insurance Co of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd [1995] QB 174, contending that as principal he was entitled to information from his solicitor as agent. He emphasised that the Part 18 questions sought simple yes/no responses under a statement of truth and could potentially resolve his concerns.

The solicitors maintained that requiring answers without evidence would constitute a “fishing expedition” and amount to “tarring all solicitors with the same secret commission brush”. They argued that their assertion that the cash account was complete should suffice in the absence of any positive case to the contrary. They also contended that the decision was a case management matter subject to the high threshold for appellate interference.

The Court’s Decision

Mr Justice Sweeting, sitting with Costs Judge Simon Brown as assessor, allowed the appeal on both grounds. The court made several significant findings about the threshold for Part 18 requests in costs disputes.

No Evidence Required

The court held that “the only threshold condition is that the information must relate to a matter in dispute in the proceedings.” There was no requirement for a witness statement or “positive case” to be established, particularly where facts lay within the exclusive knowledge of the other party. The judge explicitly rejected the analogy with pre-action disclosure, stating:

“There is no requirement on a party to ‘prove’ something that is not within their knowledge, especially when it lies within the exclusive knowledge of the other party. Part 18 requests are precisely designed for circumstances, amongst others, where clarification is needed, and the facts are not within the knowledge of the requesting party.”

Cash Accounts Are Not Statements of Case

The court found that Points of Dispute, Replies and Cash Accounts are not Statements of Case within CPR 22.1 due to the absence of statements of truth. Therefore, they could not be regarded as explicit statements that no commission had been received. The burden remained on the solicitor to satisfy the court as to the accuracy of the cash account.

The Edwards Case Was Not Exceptional

The court rejected the suggestion that Edwards was limited to its unusual facts. What was unusual in Edwards was not the arrangement itself but that information emerged from an unusual source (the insurer’s administrators). This actually supported the need for disclosure in other cases where clients would typically be unaware of commission arrangements.

Gibraltar Company Information

Regarding the Gibraltar company, the court held that where a debit for client money sent to an offshore entity appeared in the cash account, the client had a legitimate interest in understanding the nature and basis of the payment. It was inconsistent with a solicitor’s duties to transfer the onus onto the client to obtain fundamental details about a payment initiated by the solicitor from client funds.

Analysis | Why This Decision Matters

This judgment provides important clarification for costs practitioners on several fronts. First, it confirms that clients need not produce evidence before being entitled to ask questions about their solicitors’ financial arrangements. This recognises the reality that information about commissions typically lies exclusively within the solicitor’s knowledge.

Second, the decision reinforces that the burden remains on solicitors to satisfy the court as to the accuracy of their cash accounts. Queries raised by clients or the court place the account in dispute until answered satisfactorily. This is particularly significant given the fiduciary nature of the solicitor-client relationship.

Third, the judgment suggests that the existence of commission arrangements between solicitors and ATE insurers is sufficiently well-known to justify inquiries, even without specific evidence in individual cases. As the judge noted, if commission arrangements are acknowledged to be “a feature of some litigation arrangements”, this provides grounds for queries to be raised.

Practical Implications

This decision has significant implications for how cash account disputes are handled in SOCA proceedings. Solicitors can no longer simply assert that their cash accounts are complete and refuse to answer questions about potential commissions. The low threshold for Part 18 requests means that clients who raise legitimate queries about cash account items are likely to be entitled to answers.

For those drafting Part 18 requests, the judgment confirms that simple, direct questions seeking yes/no answers about commission receipts are appropriate and not unduly onerous. The court noted that “if no commission was received, the response will be simple.”

The decision also highlights the importance of transparency in solicitor-client financial dealings. Where payments are made to third parties from client funds, particularly offshore entities, solicitors should expect to provide full information about the nature and purpose of such payments.

Conclusion

Turner v Coupland Cavendish Limited represents a victory for transparency in solicitor-client financial relationships. By setting a low threshold for Part 18 requests about potential commissions, the High Court has ensured that clients can obtain information necessary to verify the accuracy of cash accounts without first having to prove wrongdoing.

The decision reinforces that in costs disputes, as in other areas of legal practice, the fiduciary obligations of solicitors require openness about financial arrangements that may affect their clients. For costs practitioners, this means being prepared to answer straightforward questions about commission arrangements when asked, rather than requiring clients to embark on fishing expeditions for evidence that lies within the solicitor’s exclusive control.

Applicants Awarded 50% Costs Due To Partial Success And Conduct Issues

Background

This costs judgment arose from proceedings in the Technology and Construction Court concerning a freezing injunction made on 15 August 2022. The applicants, Click Above Corben Mews Limited (acting by its fixed charge receivers) and Victoria Capital Trust, had sought clarification that the freezing injunction did not prohibit their dealing with and disposal of certain properties. The respondents comprised eleven parties, including a right to manage company, various individuals, and corporate entities.

The substantive judgment was handed down on 23 January 2025, following which the parties agreed terms for an order varying the injunction. The variation made clear that the injunction did not prohibit the dealing with and disposal of the Properties by the Receivers. The order provided that any issues as to costs would be determined following written submissions.

The background to the application involved a complex group structure where Click St Andrews was subject to the freezing injunction, whilst the Properties were owned by Click Above Corben Mews Limited. The applicants held a charge over the Properties and sought to enforce their security. The respondents had concerns about whether Click St Andrews might have a beneficial interest in the Properties, which uncertainty arose largely from Click St Andrews’ failure to comply with disclosure obligations under the freezing injunction.

Pre-action correspondence between February and August 2024 revealed the parties’ divergent positions. The applicants maintained that the Properties did not fall within the scope of the injunction and that their Charge took priority over any interest Click St Andrews might have. The respondents flagged risks that disposing of the Properties might breach the injunction and proposed ring-fencing £52,680 from the proceeds of sale as a practical solution.

Costs Issues Before the Court

The court was required to determine several discrete costs issues following the substantive application. First, the incidence of costs needed to be decided – whether costs should follow the event given the applicants’ success, or whether the court should make no order as to costs in light of the parties’ conduct and the circumstances leading to the application.

Second, the court needed to consider the basis of assessment. The applicants sought costs on the indemnity basis, arguing that the respondents’ conduct was out of the norm and had forced them to make an unnecessary application. The respondents resisted this, maintaining their conduct had been reasonable throughout.

Third, the court was asked to undertake a summary assessment of costs. Two versions of the applicants’ statement of costs were before the court: one filed in July 2024 totalling £24,058 plus VAT, and another filed in January 2025 totalling £42,338 plus VAT. The respondents objected to reliance on the January version and sought to cap costs at the July figure.

Finally, the court needed to consider an alternative submission by the respondents that a third party costs order should be made under CPR Part 46.2(1) against Click Group Holdings Ltd, Click St Andrews, or Aaron Emmett, on grounds that their breach of disclosure obligations had necessitated the application.

The Parties’ Positions

The applicants adopted a straightforward position: they were the successful party and costs should follow the event. They argued that the judgment vindicated their position that the freezing injunction did not prohibit their dealing with the Properties, and that the variation order simply clarified this position. They submitted that the respondents should pay their costs, assessed on the indemnity basis due to the respondents’ unreasonable conduct.

The applicants relied on early settlement offers made on 5 February 2024 and 22 February 2024, proposing no order as to costs if the respondents agreed to allow disposal of the Properties. They characterised the respondents’ conduct as “unresponsive, unreasonable, lacked any application of commercial common sense and in certain instances was nonsensical”, particularly regarding the priority issue.

The respondents advanced several arguments against a costs order. They contended the application was entirely avoidable, citing Taylor v Van Dutch Marine Holdings Ltd [2017] EWHC 636 (Ch) as authority that a creditor with security over an asset subject to a freezing order can enforce security without seeking variation of the order. They acknowledged this case was not cited to the court but argued the applicants should have been aware of the legal position.

The respondents maintained they had never positively asserted that the injunction prohibited the applicants from dealing with the Properties. Rather, they were unable to confirm the position due to uncertainty about Click St Andrews’ potential beneficial interest, arising from that company’s non-compliance with disclosure orders. They argued their proposal to ring-fence proceeds showed a reasonable desire to resolve matters without litigation.

On the indemnity basis issue, the respondents cited Arcadia Group Brands Ltd v Visa Inc [2015] EWCA Civ 883, arguing that weakness of a legal argument alone does not justify indemnity costs without evidence of hopeless proceedings or ulterior motives.

Regarding summary assessment, the respondents objected to the January 2025 statement of costs, noting the 75% increase from the July version. They argued that national guideline rates should apply given the applicants’ solicitors were based in Guildford, resulting in rates approximately 25% lower than those claimed.

The Court’s Decision

Mrs Justice Jefford determined that the applicants, as the successful party, were entitled to some portion of their costs. However, she declined to order full costs, instead ordering the respondents to pay 50% of the applicants’ costs. This reflected the court’s assessment of the overall circumstances, including what she termed “the conundrum” faced by the parties, their respective conduct, and the measure of success on various issues.

The court found that whilst the applicants were successful on the main issue, they had failed on several alternative arguments. These included unsuccessful applications for declarations, arguments that the injunction should be discharged entirely, and requests for retrospective undertakings as to damages. The judge noted these “far ranging” issues had consumed substantial time and cost.

On the basis of assessment, the court rejected the application for indemnity costs. Mrs Justice Jefford held there was “nothing so unreasonable in the respondents’ conduct that it was taken out of the norm of assessment on the standard basis.” She found the proceedings were not plainly hopeless nor pursued with ulterior motives, distinguishing the case from circumstances warranting indemnity costs.

Regarding summary assessment, the court expressed concern about the discrepancies between the two statements of costs. The judge found it “wholly unsatisfactory” that costs were allegedly omitted from the July version and questioned how over £5,000 of counsel’s fees could have been mistakenly excluded. She particularly scrutinised the increase in counsel’s fees from £2,750 to £8,000 and the additional £5,000 claimed for costs submissions.

The court summarily assessed costs at £34,100 before applying the 50% reduction, resulting in £17,050. A further 15% reduction was applied to account for the higher hourly rates claimed compared to national guideline rates, producing a final figure of £14,500 (excluding VAT). The parties were given 56 days to pay, recognising that the respondents were effectively individuals.

The court declined to make a third party costs order under CPR Part 46.2(1). Mrs Justice Jefford held that the applicants’ success turned on the priority of the Charge rather than whether Click St Andrews had any interest in the Properties. She found that disclosure failures, whilst explaining the respondents’ position, were not determinative of the application’s merits and did not justify a costs order against third parties.

Finally, the court considered a without prejudice save as to costs offer made by the applicants on 17 January 2025, proposing that the respondents pay costs on the standard basis rather than the indemnity basis sought. As the applicants did not achieve this minimum outcome (receiving only 50% of costs), no adjustment was made for this offer.

Probate Costs Recoverable Where Grant Obtained Exclusively For Litigation

Background

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

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

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

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

Costs Issues Before the Court

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

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

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

The Parties’ Positions

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

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

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

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

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

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

The Court’s Decision

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

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

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

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

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

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

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

Successful Claimant Awarded Only 50% Of Costs Due To “Imprecise, Vague And Wide-Ranging Case”

Background

The matter concerned an action brought by Illiquidx Limited against Altana Wealth Limited, Lee Robinson, Steffen Kastner and Brevent Advisory Limited for breach of confidence, infringement of trade secrets, breach of contract and copyright infringement. Following a liability trial, Mr Justice Rajah handed down judgment on 13 February 2025, finding that Altana and Brevent had breached a non-disclosure agreement and misused Illiquidx’s confidential information and trade secrets in establishing and operating the Altana Credit Opportunities Fund. The copyright infringement claim failed, as did the claim seeking to establish Mr Kastner’s liability for the acts of Altana or Brevent.

The procedural history revealed significant difficulties with Illiquidx’s pleadings throughout the litigation. In December 2020, Illiquidx attempted to reformulate its case on confidential information, seeking to adopt terminology from CF Partners v Barclays Bank by pleading a “Big Idea” with component elements called “the Detail”. Deputy Master McQuail rejected this formulation as incoherent and unintelligible, a decision upheld by Mr Justice Miles on appeal. Following further attempts at clarification in early 2022, Illiquidx reframed its confidential information as “the Business Opportunity” with component parts identified in writing as “the Detail”.

At the Pre-Trial Review, the court refused Illiquidx’s application to expand its case on confidential information from the written Detail to include oral conversations and narrative elsewhere in the pleading. Despite these rulings, Illiquidx’s trial skeleton continued an expansive approach, making extensive reference to matters both within and outside the Detail. During closing submissions, Illiquidx’s counsel substantially dropped reliance on the Detail and argued instead that the Business Opportunity was simply the high-level idea of a sanctions-compliant fund, evidenced by only a few documents in the Detail.

The costs hearing took place on 6 June 2025, with judgment reserved. Illiquidx’s costs were stated to be approximately £6.6 million, whilst the defendants’ costs totalled approximately £5.5 million. Mr Robinson had accepted liability for Altana’s liabilities pursuant to paragraph 128 of the liability judgment.

Costs Issues Before the Court

The court was required to determine several discrete costs issues arising from the liability judgment. First, whether costs should be reserved pending determination of quantum or dealt with immediately. The defendants argued that Illiquidx had greatly overstated the value of its claim at £10 million when the true value of damages would likely be £100,000 or less at any quantum trial, and that this potential exaggeration could only be properly assessed after quantum had been determined.

Second, the court needed to determine the appropriate percentage deduction from Illiquidx’s costs to reflect its failure on the copyright and joint liability claims. Illiquidx conceded that some deduction was appropriate, proposing 10%, whilst the defendants argued for 14.7% attributable to these failed claims.

Third, and most significantly, the court was asked to consider whether further deductions should be made to reflect Illiquidx’s conduct of the litigation, particularly its failure to plead its case with clarity and precision. The defendants sought a total deduction of 61.5% of Illiquidx’s assessed costs, incorporating both the failed claims and conduct issues.

Finally, the court needed to determine the appropriate rate of interest on costs (Illiquidx seeking 2% above base rate, the defendants proposing 1% above base rate) and the appropriate interim payment on account of costs, with Illiquidx seeking 60% of 90% of its costs and the defendants proposing 50% of any costs ordered, reduced to account for unpaid interim costs orders in their favour.

The Parties’ Positions

Illiquidx submitted that as the overall winner on liability, the starting point under CPR 44.2(2)(a) was that its costs should be paid by Altana and Brevent. It accepted that a 10% deduction was appropriate to reflect the failed copyright and joint liability claims, which it acknowledged were discrete claims for additional relief rather than alternative routes to the same outcome. Illiquidx argued that costs should be determined immediately rather than reserved, relying on the general principle established in Langer v McKeown that costs should follow the outcome of discrete issues to encourage professional conduct of litigation.

On the conduct issue, Illiquidx resisted any further deduction beyond the 10% for failed claims. Counsel argued that its case, whilst perhaps obscurely pleaded, had ultimately succeeded and was available on the pleadings. It submitted that matters of excessive disclosure costs should be left to detailed assessment rather than dealt with by way of percentage reduction at this stage.

The defendants’ primary position was that costs should be reserved pending the quantum trial, arguing that only then could the court properly assess whether Illiquidx had exaggerated its claim as permitted under CPR 44.2(4)(a) and 44.2(5)(c) and (d). They highlighted that no Part 36 offers had been made but indicated that “without prejudice save as to costs” offers existed which included quantum, though they were unwilling to waive privilege to put these before the court.

On the substantive costs issues, the defendants argued for a 14.7% deduction for the failed copyright and joint liability claims, based on Mr Seadon’s detailed analysis. More significantly, they sought a total deduction of 61.5% to reflect the unnecessary costs incurred due to Illiquidx’s conduct. Mr Seadon’s witness statement attempted to calculate the extent to which costs had been inflated by the “expansive, imprecise and vague” way the claim had been pleaded, including excessive disclosure costs of over £1.1 million resulting in 13,526 documents being disclosed, of which only 452 were referred to at trial.

The defendants emphasised the basic injustice of facing vague and expansive pleadings which failed to properly identify the case they had to meet, arguing this had discouraged settlement and placed them on an unequal footing. They submitted that the lack of clarity and precision justified a substantial departure from the general rule on costs.

The Court’s Decision

Mr Justice Rajah first addressed whether costs should be reserved, holding that they should be determined immediately. He applied the principles from Langer v McKeown, emphasising that requiring losing parties to pay costs as they lose encourages professional conduct of litigation and selectivity in points taken. The court noted that apart from policy considerations, it was desirable to deal with costs whilst the trial and judgment remained fresh in the judge’s mind.

On the reservation point, the court held that if the defendants wished exaggeration of the claim to be considered at the liability stage, they could have made a global Part 36 offer giving the claim its fair value, or some other costs-protective offer. The existence of “without prejudice save as to costs” correspondence was insufficient, particularly where the defendants were unwilling to waive privilege. The court applied the principle from Langer that parties cannot “have it both ways by withholding admission of the evidence of the offer but still asking the court to take account of it”.

Turning to the substantive costs determination, the court found that costs had been significantly increased by Illiquidx’s failure to identify its case clearly. The judgment detailed how costs had been increased “at every turn” – in pleadings, disclosure, evidence, trial preparation, cross-examination and inter-solicitor correspondence. The court particularly criticised the disclosure exercise, which resulted in millions of documents being harvested at a cost exceeding £1.1 million, describing Illiquidx’s approach as “casting about to find a case”.

However, the court declined to displace the general rule entirely. Three factors influenced this decision: first, Illiquidx had won on a case that was pleaded, however obscurely; second, the defendants’ defence remained unaffected but unsuccessful; and third, the defendants had advanced a false case that Mr Robinson was already aware of most of the information and had independently conceived the fund idea.

The court ordered the defendants to pay 50% of Illiquidx’s assessed costs on the standard basis, representing both a reduction for the failed claims and the court’s disapproval of how the claim had been prosecuted. Interest was awarded at 2% above base rate from the date of payment to Illiquidx’s solicitors until judgment. The interim payment was set at 50% of the reduced figure (i.e., 25% of total costs), taking a cautious approach given the high hourly rates exceeding guideline rates and outstanding interim costs orders of approximately £77,000 in the defendants’ favour.

The court expressly rejected the suggestion that excessive disclosure costs should be left to detailed assessment, holding that where disclosure had been ordered or agreed by reference to pleaded issues, the Costs Judge would not revisit whether a different disclosure exercise should have been undertaken. The 50% reduction therefore reflected both the court’s disapproval of Illiquidx’s conduct and the likely additional costs caused by that approach.

CPR 38.6 Presumption Partially Displaced By 20% Due To Collateral Use Of Witness Statements

Background

The Appellant, Charles Elphicke, a former Member of Parliament, commenced proceedings against Times Media Limited on 17 April 2019 regarding three articles published in The Sunday Times. The claims were brought in misuse of private information for all three articles and in defamation for two of them. The defamatory meaning alleged was that there were reasonable grounds to suspect the Appellant was guilty of rape.

Following the exchange of witness statements and approximately six weeks before the scheduled trial, the Appellant discontinued the claim on 22 March 2022. This discontinuance triggered the presumption under CPR 38.6 that the discontinuing party would pay the other party’s costs.

On 30 June 2022, the Respondent applied for an interim payment on account of costs in the sum of £260,000, relying on the CPR 38.6 presumption. The Appellant subsequently cross-applied on 6 January 2023 for an order disapplying this presumption, seeking to extinguish or reduce his costs liability to the Respondent.

Master McCloud heard the applications over three hearings spanning from 14 February 2023 to 14 March 2024. On 14 October 2024, she handed down a comprehensive judgment ordering that the Appellant pay 80% of the Respondent’s costs on the standard basis, to be assessed if not agreed, and that he make an interim payment. Following written submissions on the quantum of the interim payment, on 19 November 2024 the Master ordered payment of £229,848.41 within 28 days, including an element for the Respondent’s costs of the applications.

The Appellant’s application for permission to appeal was refused on the papers by Sir Stephen Stewart on 21 March 2025, leading to this renewed application before Mrs Justice Hill on 10 June 2025.

Costs Issues Before the Court

The primary costs issue was whether the presumption in CPR 38.6(1) should be displaced. This rule provides that unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant incurred on or before the date of discontinuance. The Master was required to apply the guidance in Brookes v HSBC Bank [2011] EWCA Civ 354, which established that the discontinuing party bears the burden of showing good reason for departing from this presumption.

The Master had to determine whether the Respondent’s conduct constituted sufficient grounds to displace the CPR 38.6 presumption. The conduct issues included admitted breaches of CPR 32.12(1) through wrongful collateral use of witness statements in publications after discontinuance, and alleged failures to preserve evidence when on notice of proceedings. Additional allegations included lying in pre-action correspondence and failing to engage in alternative dispute resolution.

If the presumption was displaced, the Master needed to determine what costs order would be appropriate in the circumstances. This required consideration of the seriousness of any misconduct found and the principle of proportionality set out in Abbott v Long [2011] EWCA Civ 874.

The Master also had to determine whether to order an interim payment on account of costs under CPR 44.2(8), which creates a presumption in favour of such payments unless there is good reason not to do so. The quantum of any interim payment required assessment of budgeted and unbudgeted costs.

Finally, the Master needed to determine the costs of the applications themselves, applying the general rule under CPR 44.2(2)(a) that the unsuccessful party pays the successful party’s costs.

The Parties’ Positions

The Appellant argued that the Respondent’s misconduct was sufficiently serious to justify complete displacement of the CPR 38.6 presumption. He relied particularly on the admitted breach of CPR 32.12(1) through publication of witness statement material in newspapers and social media after discontinuance. He characterised this as causing significant damage to the administration of justice, particularly given the sensitive nature of rape allegations referenced in the case.

The Appellant also alleged that the Respondent had breached its duty under CPR 31 and PD31B to preserve evidence, specifically citing the loss or destruction of a journalist’s electronic telephone information. He further contended that the Respondent had lied in pre-action correspondence about police interviews and had failed to engage properly in alternative dispute resolution.

On the interim payment issue, the Appellant submitted that the Respondent’s serious misconduct, which he characterised as amounting to contempt and abuse of process, constituted good reason not to order any payment on account. He invoked equitable principles regarding clean hands and policy considerations about protecting the administration of justice.

The Respondent defended its entitlement to costs under the CPR 38.6 presumption. Whilst acknowledging the breach of CPR 32.12(1), the Respondent had taken internal steps to improve working methods. It denied the allegations of lying in pre-action correspondence and failures regarding alternative dispute resolution, maintaining these were contested issues that would have required determination at trial.

The Respondent argued for an interim payment at the conventional level of 90% of budgeted costs, submitting that any misconduct issues had already been addressed through the primary costs order and should not result in double penalisation by refusing an interim payment.

The Court’s Decision Below

Master McCloud had concluded that the Respondent’s admitted breaches were sufficient to open the CPR 38.6 gateway but only to a limited extent. She found that the wrongful collateral use of witness statements and failure to preserve evidence were “unusual” failures that “went to the heart of the fairness of the proceedings”. The misuse of witness statements was deemed marginally more significant due to its potential implications for the wider administration of justice.

However, the Master declined to make findings on the contested allegations of lying in pre-action correspondence and failures regarding alternative dispute resolution. She held that determining these heavily disputed issues would effectively re-litigate matters abandoned on discontinuance. These issues were deemed more appropriate for consideration by the Costs Judge during detailed assessment under CPR 44.11.

In exercising her discretion on the appropriate costs order, the Master balanced the seriousness of the proven misconduct against mitigating factors, including the Respondent’s internal remedial steps. Applying the proportionality principle from Abbott v Long, she concluded that a 20% reduction from the Respondent’s costs was appropriate, ordering the Appellant to pay 80% of the Respondent’s costs on the standard basis.

On the interim payment issue, the Master rejected the Appellant’s arguments that the misconduct constituted good reason to refuse any payment on account. She held that using the misconduct as grounds for refusing an interim payment would constitute double penalisation, having already factored it into the primary costs order. She ordered an interim payment calculated at 80% of budgeted costs (after applying the 20% sanction) and 50% of unbudgeted costs, totalling £229,848.41.

Regarding the costs of the applications, the Master found that the Respondent had succeeded in defending its entitlement to costs save for the 20% reduction. She therefore ordered the Appellant to pay 80% of the Respondent’s costs of the applications, reflecting the Respondent’s degree of success.

Mrs Justice Hill, hearing the renewed permission application, found no arguable error of principle or excess of discretion in the Master’s approach. She emphasised that decisions under CPR 38.6 are fact-specific and that the Master’s detailed consideration fell well within the generous ambit of judicial discretion. Permission to appeal was refused on all grounds.

Credit Hire Companies Liable For Costs As Real Parties Under QOCS Exception

Background

These consolidated appeals concerned two road traffic accident cases where claimants had entered into credit hire agreements and subsequently brought proceedings that included claims for personal injury and credit hire charges. In both cases, the claims failed and costs orders were made in favour of the defendants. However, due to the operation of Qualified One-Way Costs Shifting (QOCS), these costs orders could not be enforced against the claimants. The defendants then sought non-party costs orders against the respective credit hire companies.

In the first case, Tescher v Direct Accident Management Limited, a motorcycle accident occurred on 19 November 2018. The claimant entered into credit hire agreements with Direct Accident Management Limited (DAML) and brought proceedings through solicitors Bond Turner. The claim included damages for personal injury and special damages of over £22,000, of which £19,633.36 related to credit hire charges for 88 days. The claimant pleaded impecuniosity. District Judge Swan dismissed the claim on 8 December 2022 and ordered the claimant to pay the defendant’s costs, subject to QOCS protection. The judge directed DAML be joined as a second defendant for costs purposes.

District Judge Jeffs subsequently heard the defendant’s application for a non-party costs order on 10 May 2023. Evidence was filed including documents showing DAML and Bond Turner were part of the Anexo group, which described itself as focused on providing replacement vehicles and legal services to impecunious customers involved in non-fault accidents. DJ Jeffs dismissed the application, finding DAML was not the “real party” and that causation had not been established. Permission to appeal was granted and the matter was transferred to the Court of Appeal.

In the second case, AXA Insurance v Spectra, an accident occurred on 23 October 2019 resulting in the claimant’s vehicle being written off. The claimant entered into a credit hire agreement with Spectra Drive Limited on the day of the accident. Liability was admitted on 28 October 2019, but the hire continued for 89 days. Proceedings were commenced against AXA Insurance under the European Communities (Rights against Insurers) Regulations 2002, claiming general damages for personal injury (unlikely to exceed £3,800) and special damages of £16,160.94, predominantly credit hire charges.

AXA made a Part 36 offer of £2,750 for the personal injury claim only on 18 November 2020. On 25 May 2021, AXA’s solicitors highlighted that the claimant had insured another vehicle within 10 days of the accident and threatened to plead fundamental dishonesty. The claimant discontinued on 28 May 2021, resulting in the usual costs order under CPR r38.6(1), subject to QOCS.

AXA applied for two orders: setting aside QOCS protection on grounds of fundamental dishonesty and a non-party costs order against Spectra. Deputy District Judge Carson found no fundamental dishonesty but initially awarded 65% of AXA’s costs (£3,432) against Spectra. On appeal, HHJ Gargan overturned various findings and refused the non-party costs order, noting AXA’s “good fortune in escaping a judgment and costs” as a factor against making such an order. He suggested general guidance would be welcome given the frequency of credit hire cases.

Costs Issues Before the Court

The central issue before the Court of Appeal was whether and in what circumstances non-party costs orders should be made against credit hire companies when credit hire cases fail and the claimant is protected by QOCS. This required the court to consider the interaction between the QOCS regime introduced in 2013 and the established principles governing non-party costs orders under section 51 of the Senior Courts Act 1981.

The court needed to determine whether credit hire companies could be characterised as “real parties” to the litigation or persons for whose financial benefit claims were made within the meaning of CPR r44.16(2)(a). This rule provides an exception to QOCS where proceedings include a claim made for the financial benefit of a person other than the claimant, and r44.16(3) expressly contemplates non-party costs orders in such circumstances.

A crucial subsidiary issue was causation – whether the credit hire companies’ involvement had caused the defendants to incur costs they would not otherwise have incurred. This included examining the nature and extent of control exercised by credit hire companies over litigation and whether a strict “but for” test applied.

The court also had to consider the proper approach to exercising discretion when the jurisdiction for non-party costs orders was engaged, including questions of attribution between different elements of mixed claims (personal injury and credit hire) and what proportion of costs should be ordered against the credit hire company.

The Parties’ Positions

The appellants (the defendants in the original proceedings) contended that non-party costs orders should have been made against both credit hire companies. They argued that the credit hire companies were the real beneficiaries of the litigation relating to hire charges and exercised sufficient control over the proceedings through the structure of their agreements. They submitted that the inevitability of litigation flowing from credit hire agreements with impecunious claimants satisfied the causation requirement.

The appellants relied on Farrell v Birmingham City Council [2009] EWCA Civ 769, where a non-party costs order was made against a credit hire company, arguing this established the principle in the credit hire context. They contended that Lord Mustill’s observation in Giles v Thompson [1994] AC 142 about “healthy discipline” through costs orders supported their position. They also argued that CPR r44.16(2)(a) and Practice Direction 44 paragraph 12.2 specifically identified credit hire as an example of claims made for another’s financial benefit.

Regarding the Spectra case specifically, the appellants submitted the judge erred in relying on AXA’s “good fortune” in obtaining a costs order following discontinuance, citing Nelson’s Yard Management Company v Eziefula [2013] EWCA Civ 235 that potential success at trial does not justify departing from the usual costs consequences of discontinuance.

The respondent credit hire companies argued that credit hire claims were legitimate claims by claimants, validated by Giles v Thompson and Lagden v O’Connor [2003] UKHL 64. They contended they were not the “real party” as they had no direct right to damages and the claimant retained a genuine legal liability for hire charges. They submitted that any benefit they derived was consequential rather than direct.

The respondents argued there was no principled distinction between credit hire companies and solicitors acting on conditional fee agreements, neither of whom face non-party costs orders in ordinary circumstances. They challenged Practice Direction 44 paragraph 12.2 as wrong and without legislative force. On causation, they argued for a strict “but for” test, submitting the defendants would have incurred similar costs defending the personal injury claims regardless of the credit hire element.

In the Spectra case, the Respondent’s Notice challenged the judge’s findings that Spectra was the principal beneficiary and primary cause of the litigation, arguing these conclusions were incorrect even without the “good fortune” point.

The Court’s Decision

The Court of Appeal allowed both appeals and made non-party costs orders against the credit hire companies. Lord Justice Birss, giving the leading judgment, established comprehensive guidance for future cases involving non-party costs applications against credit hire companies in the QOCS context.

The court held that credit hire companies in these circumstances satisfy the “real party in all but name” test. The essential characteristics of credit hire agreements – hire on credit with payment deferred until conclusion of damages claims – combined with claimants’ alleged impecuniosity made litigation inevitable for all practical purposes. The court found this created sufficient control over the litigation and established the necessary causation, as litigation was the only realistic means by which credit hire companies would be paid.

On the interpretation of CPR r44.16(2)(a), the court confirmed that credit hire claims are made for the financial benefit of a person other than the claimant. While QOCS was introduced to protect claimants in personal injury claims, it was not intended to protect non-parties for whose financial benefit claims were made. The court noted that r44.16(3) expressly contemplates non-party costs orders in these circumstances.

The court rejected the respondents’ analogy with solicitors acting on CFAs, distinguishing that solicitors are not the genesis of claims, their fees are not the subject of claims, and CFAs do not bind claimants to pursue claims. Credit hire companies, by contrast, were found to be the real beneficiaries of litigation for hire charge damages through the structure of their agreements.

Regarding causation, the court rejected a strict “but for” test, holding that the inevitability of litigation flowing from the credit hire agreement structure was sufficient. The court stated it was unnecessary to consider whether costs would be higher without the credit hire element, as such questions were better addressed at the stage of determining quantum.

The court proposed a two-stage approach for future cases: first, determining whether the non-party costs jurisdiction is engaged, and second, deciding the appropriate amount. Where credit hire claims are several times larger than personal injury claims, an order for all costs would likely be appropriate absent special circumstances.

In the DAML case, the court found the judge’s conclusions on the “real party” test and causation were incorrect. The court ordered DAML to pay all the defendant’s costs, given the credit hire charges were several times larger than the personal injury damages.

In the Spectra case, the court dismissed the Respondent’s Notice and found the judge correctly identified Spectra as the principal beneficiary. However, the judge’s reliance on AXA’s “good fortune” was held to be an error. The court reinstated the Deputy District Judge’s original order requiring Spectra to pay 65% of AXA’s costs.

The court emphasised that PD 44 paragraph 12.5(a) provides that when r44.16(2)(a) applies, courts will usually order the other person to pay costs, while it will only be exceptional to permit enforcement against the claimant. This guidance aligned with the court’s analysis that non-party costs orders against credit hire companies would be likely absent special circumstances.