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CPR 63.26(2) | IPEC Costs Order Quashed Where ‘Unreasonable Conduct’ Finding Overstated Application’s Lack Of Merit

The Court of Appeal’s decision in Costa v Dissociadid Ltd [2025] EWCA Civ 1475 establishes that findings of “unreasonable behaviour” under CPR 63.26(2) cannot rest on overstated characterisations of applications as “so lacking in merit” where key arguments have real prospects of success.

Background

The case concerned an appeal against three case management orders made by HHJ Hacon in the Intellectual Property Enterprise Court (IPEC). The underlying dispute involved a claim by Sergio Mendes Costa, a litigant in person, for copyright infringement against Dissociadid Ltd and Ms Chloe Wilkinson. The Defendants operated a YouTube channel for raising awareness of dissociative identity disorder, and Mr Costa alleged infringement of his copyright in certain works he provided, including a text used as a “Disclaimer” on the channel. The Defendants counterclaimed for damages, alleging that Mr Costa’s takedown requests to YouTube constituted the tort of causing loss by unlawful means.

In a judgment dated 22 July 2022, HHJ Hacon found that the Defendants had infringed Mr Costa’s copyright in some works. The counterclaim was partially successful, with the judge finding that Mr Costa had made misrepresentations to YouTube regarding his authorship of the Disclaimer. A declaration was made in the order of 10 November 2022 that the counterclaim was successful in relation to URLs disabled by YouTube on or about 25 June 2021 based on takedown requests concerning the Disclaimer. The assessment of the Defendants’ loss under the counterclaim was adjourned to be heard alongside an inquiry into copyright infringement.

Quantum proceedings were initiated by the Defendants in July 2023. Mr Costa defended these proceedings, contending that the scope of the claim was too broad and sought damages for losses outside the scope of the 10 November 2022 Order. By an order dated 19 January 2024, agreed by the parties, HHJ Hacon directed that the question of quantum would be determined on the papers. A subsequent order on 13 June 2024 permitted Mr Costa to provide further written submissions in response to the Defendants’ points of claim.

On 1 July 2024, Mr Costa issued an application (the “1 July Application”). Due to a character limit on the application form, the notice itself only specified an application to strike out parts of the Defendants’ points of claim. However, the attached draft order and supporting witness statement also sought orders for further information and disclosure, and a variation of the 13 June 2024 order. The Defendants opposed the application and sought their costs on the indemnity basis, citing unreasonable conduct.

HHJ Hacon dealt with the application on the papers by an order of 15 July 2024 (the “15 July Order”). The order dismissed the application and required Mr Costa to pay £2,500 in respect of the Defendants’ costs. The judge’s reasons addressed only the strike-out aspect of the application, finding it lacked merit and constituted unreasonable behaviour. He declined to deal with the requests for further information and disclosure, noting they were not specified in the application notice and could be pursued at a future case management conference.

Mr Costa subsequently applied on 19 July 2024 (the “19 July Application”) seeking, amongst other things, the recusal of HHJ Hacon and to set aside the 15 July Order. By an order of 29 July 2024, the judge dismissed the applications to set aside or stay the earlier orders and refused permission to appeal the 15 July Order. He stayed the recusal application pending the outcome of any application to the Court of Appeal. A further application by Mr Costa on 30 July 2024, seeking an extension of time for his final quantum submissions, was not directly addressed in the resulting order of 31 July 2024.

Costs Issues Before the Court

The central costs issue before the Court of Appeal concerned the order for costs made in the 15 July Order. Specifically, the court was required to determine whether HHJ Hacon erred in making an immediate costs order against Mr Costa on the basis that his 1 July Application was “so lacking in merit that it constitute[d] unreasonable behaviour“. This engaged the interpretation and application of CPR 63.26(2), which provides an exception to the general rule in IPEC that costs of an application are reserved to the conclusion of the trial. The appeal also raised issues regarding the procedural fairness of dealing with the application without a hearing and whether the judge should have addressed all parts of the application, including the request for further information, when making the costs order.

The Parties’ Positions

Mr Costa, acting in person, appealed the costs order on several grounds. He argued that:

- - the judge erred in principle by concluding his application was without merit and by penalising him for unreasonable conduct;
  - his arguments regarding the scope of the Defendants’ damages claim, particularly that it sought recovery for losses outside the parameters of the 10 November 2022 Order, were arguable and not so devoid of merit as to justify a finding of unreasonable behaviour; and
  - the judge failed to fully adjudicate the 1 July Application, as he did not consider the Part 18 request for further information, and therefore the costs order should not have encompassed the entire application.

The Respondents (Defendants), represented by counsel, defended the costs order. They submitted that:

- - the judge, with his extensive experience in IPEC, was in the best position to assess the reasonableness of the application; and
  - the judge was entitled to find the strike-out application unreasonable because it generated unnecessary costs and consumed court resources, irrespective of the ultimate merits of the underlying arguments on quantum.

They supported the judge’s characterisation of the application as lacking in merit and his decision to exercise his discretion under CPR 63.26(2) to make an immediate costs order.

The Court’s Decision

The Court of Appeal allowed the appeal in relation to the costs order. The lead judgment, given by Lord Justice Zacaroli (with whom Lord Justice Newey agreed), held that the judge’s conclusion that the application was “so lacking in merit” that it constituted unreasonable behaviour was unsustainable. The court found that one of Mr Costa’s key arguments – that the Defendants’ quantum claim sought damages for losses falling outside the scope of the 10 November 2022 declaration – could not be described as so lacking in merit to justify a finding of unreasonable conduct. This was particularly so given the Defendants’ own shifting position on this point during the appeal.

Furthermore, the Court of Appeal found that the judge had erred by not addressing the Part 18 aspect of the 1 July Application. As the application, when viewed as a whole including the draft order and evidence, clearly encompassed a request for further information, the judge should have considered this element. The failure to do so meant that the costs order, which was made in respect of the entire application, was flawed. The court held that any justified costs order should have been apportioned to reflect only the costs of resisting the strike-out aspect.

Lord Justice Arnold delivered a dissenting opinion on the costs issue. He would have dismissed the appeal on ground 7, arguing that the judge was entitled, as a case management decision, to find the making of the strike-out application itself constituted unreasonable behaviour due to the costs and resources it consumed, regardless of the underlying merits. He emphasised the judge’s wide discretion and experience in managing IPEC proceedings.

Ultimately, the majority allowed the appeal on the costs issue. The costs order in the 15 July Order was set aside. The case was remitted to the IPEC for the recusal application to be considered first, followed by directions for the future conduct of the quantum proceedings, with the court noting it was difficult to see how quantum could be fairly determined without a hearing.

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SCCO Rules That Solicitors Act Proceedings Qualify As “Claims” For CPR 25.26 Purposes But Dismisses Security Application On The Facts

New Costs Blog

The Senior Courts Costs Office’s decision in Pickering v Thomas Mansfield Solicitors Limited [2025] EWHC 3021 (SCCO) confirms that security for costs applications are procedurally permissible in Solicitors Act assessment proceedings and applies CPR 25.27(b)(vi) to conclude that mortgage repayments and property investments did not constitute putting assets beyond reach.

Background

The matter concerned an application by Thomas Mansfield Solicitors Limited (TM) dated 25 September 2025 for security for costs in the sum of £150,000 against Lisa Pickering (LP). The application arose within detailed assessment proceedings under the Solicitors Act 1974, where TM’s invoices totalling £2,533,579.14 were subject to assessment. TM had already received payments on account amounting to £1,175,849.50. [§8]

A previous order dated 9 April 2025 had required LP to make a payment on account of £276,000 in instalments. LP had initially failed to comply with that order, leading to an unless order. However, she had since complied with the instalment schedule, and at the time of the hearing was not in breach. The final instalment was due by 4 November 2025. [§9-11]

The detailed assessment hearing was scheduled to commence on 25 November 2025, with preliminary issues to be determined, followed by further hearing days in January 2026. The application for security for costs was made approximately two months before the detailed assessment was due to begin, despite the notice of detailed assessment hearing having been issued on 15 April 2025. [§5-7]

Costs Issues Before the Court

The court was required to determine TM’s application for security for costs, which was brought under CPR 25.27(b)(vi), and alternatively under CPR 3.1(3)(a) & (b), CPR 3.1(5)(a) and (b), and CPR 25.21(2). [§4]

The primary issue was whether LP had taken steps in relation to her assets that would make it difficult to enforce an order for costs against her, pursuant to CPR 25.27(b)(vi). [§51, §61]

A threshold procedural issue arose as to whether the application was permissible in Solicitors Act proceedings at all, given that such proceedings are initiated by a client’s statutory application for assessment under Section 70 of the Solicitors Act 1974 rather than by traditional claim form. This raised the question of whether they constitute a “claim” for CPR 25.26 purposes. [§32-37]

Additional issues included whether the court should exercise its general case management powers under CPR 3.1 to impose conditions or order a payment into court, and whether an automatic sanction for non-compliance should be attached. [§15-22]

The Parties’ Positions

TM’s Position

TM argued that security for costs was justified under CPR 25.27(b)(vi) because LP had taken steps in relation to her assets that would make enforcement of a costs order difficult. They pointed to LP’s voluntary financial disclosures, which showed she had realised approximately £1.8 million from the sale of gold bars, coins, and jewellery between February 2023 and July 2025. TM highlighted that LP had used £650,000 of these funds to repay alleged debts, pay off mortgages early, purchase a bed and breakfast property for her son, and make other expenditures, without setting aside funds for her liability to TM. [§53-54]

TM submitted that these actions amounted to a dissipation of assets and sought to rely on Keary to support drawing adverse inferences from LP’s financial disclosures. They also contended that the court should use its powers under CPR 3.1 to order a payment into court with an automatic sanction for non-compliance. [§55, §62, §15-18]

LP’s Position

LP opposed the application on multiple grounds. Firstly, she argued that Solicitors Act proceedings did not constitute a “claim” for the purpose of an application for security for costs under CPR 25.26. [§33]

On the substantive issue, LP maintained that her financial transactions did not meet the threshold under CPR 25.27(b)(vi), as she had not taken steps to put assets beyond TM’s reach. LP explained that her actions, such as paying down mortgages on properties like Westholme Farm and Hopewell House, were legitimate financial management that increased equity in enforceable assets. Similarly, the purchase of a bed and breakfast for her son and the repayment of a £215,000 loan to Yorkshire Metal Recycling were investments or debt reductions that did not dissipate assets. [§63-81]

LP noted that TM had not used procedural mechanisms such as Part 18 requests or specific disclosure applications that were available to obtain further financial information from LP. She emphasised that she had never claimed impecuniosity and therefore bore no burden to prove her financial position. [§46-47, §58-59]

LP also criticised TM’s estimated costs of assessment of £400,000 as excessive and unjustified. [§97]

The Court’s Decision

The court dismissed TM’s application for security for costs. [§100]

The Jurisdictional Point

On the threshold procedural point, the court held that Solicitors Act proceedings, though initiated via a Part 8 application under Section 70 of the Solicitors Act 1974, qualified as a “claim” for the purposes of CPR 25.26. [§39-41]

Costs Judge Nagalingam reasoned that whilst a client’s application for assessment is not a claim in the traditional sense, the “case in question” is the Solicitors Act proceedings as a whole, in which the solicitor is defending a challenge to their fees. The court noted that the word “claim” is not defined in CPR 25.26, but the White Book editorial guidance indicates it “usually refers to the whole of the case in question.” [§38]

The court concluded that whilst such applications are unusual and seldom invoked, this did not render them procedurally barred. The court held that CPR 25.26 is permissive and that, on balance, TM had a right to make the application. [§40-44]

CPR 25.27(b)(vi) | The Asset Dissipation Test

The court found that TM had not satisfied the condition under CPR 25.27(b)(vi), which requires proof that “the claimant has taken steps in relation to their assets that would make it difficult to enforce an order for costs against them.” [§87, §94]

The court emphasised the critical distinction between asset dissipation and asset preservation or conversion. LP’s steps in relation to her assets—including selling gold and jewellery, paying off mortgages, investing in property, and repaying debts—did not make it difficult to enforce a costs order. Instead, these actions converted liquid funds into other enforceable assets, such as unencumbered properties, which remained available for realisation. [§87-90]

Specifically, the court found:

- - Mortgage repayments: Paying down mortgages on Westholme Farm (to achieve a mortgage-free property) and Hopewell House (reducing encumbrances) converted liquid funds into increased equity. The court held that “taking steps to make one asset (Westholme Farm) mortgage free, and another (Hopewell House) a nearly unencumbered property, arguably amounts to the taking of steps which makes it easier to enforce an order for costs.” [§64-67, §70]
  - Property investment: The purchase of a bed and breakfast property, which LP’s son intended to use to run a business, represented a conversion of funds into property rather than dissipation. The court observed that “that is still an asset which is available to be enforced against,” though the precise ownership structure and enforcement mechanisms were not examined. [§68, §91]
  - Loan repayment: The £215,000 repayment to Yorkshire Metal Recycling (LP’s brother’s company) was explained by evidence that Yorkshire Metal Recycling had earlier advanced £285,000 to fund LP’s case by making direct payments to TM. This arrangement was secured by an undertaking drafted by TM themselves, requiring that TM’s fees take priority over repayment to Yorkshire Metal Recycling from proceeds of the sale of Edlington Wood. The court accepted that the net effect of the repayment “must be that more of the proceeds of the sale of Edlington Wood may be redirected to paying off any further costs orders achieved in TM’s favour.” The court concluded “it cannot reasonably be described as a dissipation of funds.” [§76-81]
  - Car purchase: The net expenditure of approximately £17,000 to replace one depreciating asset (a car sold for £15,500) with another (purchased for £31,995) was “not a dissipation of funds but conversion to an asset that may be sold if necessary to meet any later order for costs.” [§71-72]
  - Gold and jewellery sales: The court found that LP’s evidence showed “a trail of payments coming her way as a consequence of her selling ‘investment gold and jewellery,'” and TM had not explained “how the sale of those assets make it difficult for TM to enforce an order for costs against LP.” [§74-75]

The court noted that LP retained substantial assets, including multiple properties (Westholme Farm, Hopewell House, The Barn, a 50% interest in Edlington Wood, a 50% interest in Pondfield House, and the bed and breakfast property). Based on TM’s own analysis of the figures, substantial liquid funds remained available to LP, which the court observed “may be in excess of £1m even after the various payments out,” though no precise quantum was determined. None of these assets had been put beyond TM’s reach. [§82-83, §90-91]

Evidential Burden

The court held that the evidential burden under CPR 25.26(2) rested squarely on TM as the applicant. LP was not claiming impecuniosity and therefore bore no obligation to prove her ability to pay. The court stated: “LP has never claimed impecuniosity and as such is under no obligation to make the type of financial disclosures TM appears to be expecting.” [§45-47, §58-62]

The court noted that TM had not used procedural mechanisms such as Part 18 requests or specific disclosure applications that were available to obtain further financial information from LP. [§59, §85]

The court held that Keary was not relevant to the application because that case concerned a claimant claiming insufficient funds to provide security, whereas LP had made no such claim. The court stated: “I reject that the burden is on LP. That burden only arises where she is claiming ‘insufficient funds to provide the security.'” [§62]

Alternative Grounds

The court also rejected TM’s reliance on alternative CPR provisions:

CPR 3.1(3): Whilst the court has power to attach conditions and sanctions to orders, the court declined to attach an automatic sanction. The court stated it “would not be minded to attach an automatic sanction” and instead preferred to grant liberty to apply for an unless order in case of future non-compliance. [§17]

CPR 3.1(5): No order was made as TM had not identified any specific rule, practice direction, or pre-action protocol that LP had breached. The court found TM “do not make clear which rule, practice direction or relevant pre-action protocol they say LP has not complied with.” [§19-22]

CPR 25.21(2): This provision, which permits multiple interim payment applications, was irrelevant as the application was for security for costs, not an interim payment. The court stated “I do not consider that an application for an interim payment order is before me.” [§23-24]

The Justice Requirement Under CPR 25.27(a)

Separately and in any event, the court held it would not be just to order security for costs under CPR 25.27(a), considering all circumstances of the case. [§95-99]

The court noted:

- - LP had already made substantial payments on account. With the final instalment, TM would have received “just over 57% of the fees they seek from LP.” [§11-13, §96]
  - She had complied with the previous unless order and was not in default of the instalment schedule at the time of the hearing. [§10, §96]
  - The detailed assessment hearing was “very nearly upon us.” [§97]
  - TM’s estimated costs of assessment of £400,000 “strike me as highly excessive and likely to be substantially reduced (if indeed TM are the party who secures an order for costs in their favour).” [§97]
  - TM had alternative procedural options available, including “steps TM could otherwise have taken, whether in the form of an application for a further payment on account or to obtain evidence that might have better supported a subsequent application for security.” [§98]

The court observed that TM “may have been better served by making an application for a further payment on account rather than pursuing the more onerous route of seeking an order for security for costs.” However, the court stated it would “only deal with the application before me,” which left “no realistic scope for compromise of the application itself.” [§92-93]

Costs of the Application

TM was ordered to pay LP’s costs of the application, to be summarily assessed at the start of the preliminary issues hearing if not agreed. In the alternative, the court offered to arrange a short 15-minute remote hearing purely to conduct the necessary summary assessment exercise. [§100]

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

New Costs Blog

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

Background

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

Costs Issues Before the Court

The court was required to determine three principal costs issues:

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

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

The Parties’ Positions

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

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

The Court’s Decision

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

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

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

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

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

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Successful Defendant’s Costs In Judicial Review Claim Reduced by 15% for Partial Failure On Discreet Issue

New Costs Blog

In R (on the application of Prestige Social Care Services Ltd) v Secretary of State for the Home Department [2025] EWHC 2860 (Admin), the court dismissed a sponsor licence revocation challenge but reduced the defendant’s costs to reflect its failure on the Annex C1 ground.

Background

The claim for judicial review was brought by Prestige Social Care Services Ltd challenging the Secretary of State’s decision to revoke its sponsor licence under the Workers and Temporary Workers: Guidance for Sponsors. The claim raised three substantive grounds, including whether the revocation based on “non-genuine vacancies” under Annex C1 Ground (z) of the Sponsor Guidance was irrational. The Defendant argued revocation was justified under both Annex C1 Ground (z) and, alternatively, under Annex C2 Grounds (a) and (b) (breach of sponsor duties), citing high staff turnover, a failed visa application, and recruitment of a worker unable to drive for a driving-required role.

Following a one-day hearing on 23rd September 2025, His Honour Judge Tindal (sitting as a Judge of the High Court in the Administrative Court, Birmingham) dismissed the claim. Whilst the court found the Defendant’s reasoning under Annex C1 irrational, it held the decision to revoke was nevertheless lawfully sustainable under Annex C2 Grounds (a) and (b) (breach of sponsor duties) pursuant to section 31(2A) Senior Courts Act 1981. The court then directed written submissions on costs and permission to appeal.

Costs Issues Before the Court

The court was required to determine three costs questions following dismissal of the claim: first, whether the Defendant as successful party was entitled to its costs; second, whether any reduction should apply given the Defendant’s failure on the Annex C1 issue despite succeeding overall; and third, whether the Defendant’s late service of its costs schedule warranted any penalty. The court also needed to fix the quantum and payment terms.

The Parties’ Positions

The Defendant sought its costs as the successful party, submitting a schedule totalling £21,712.70. It relied on the general rule under CPR 44.2(2)(a) that the unsuccessful party pays the successful party’s costs.

The Claimant did not dispute that the Defendant was the successful party but contended a costs reduction was warranted on two bases.

- - First, the Defendant had not succeeded on all issues – specifically, the court found the Annex C1 reasoning irrational. The Claimant relied on CPR 44.2(4)(b) which permits the court to consider whether a party succeeded on part of its case even if not wholly successful.
  - Second, the Claimant pointed to the Defendant’s delay in filing and serving the costs statement, submitting this should be taken into account under CPR PD 44 paragraph 9.6 and Simpson v MGN [2015] EWHC 126 (QB). Notably, the Claimant did not propose a specific percentage reduction.

The Court’s Decision

His Honour Judge Tindal accepted the Defendant was the successful party as the claim had been dismissed, triggering the general rule under CPR 44.2(2)(a). However, applying CPR 44.2(4) and (5), the court considered the Defendant had not succeeded on all issues.

Impact of Late Costs Schedule

On the late costs schedule, the court acknowledged that under CPR PD 44 para 9.6 and Simpson v MGN, late service may be taken into account and costs reduced. However, the court found the Defendant’s delay was “technical and had no impact at all” as judgment had been reserved. Nevertheless, the court stated it would “take it into account” under para 9.6, though this appeared to be absorbed into the overall assessment rather than driving any specific reduction.

The Proportionate Costs Reduction

The court then turned to the more significant issue: whether the Defendant’s partial failure on issues warranted a costs reduction. The court cited Multiplex v Cleveland Bridge [2009] 1 Costs LR 155, where Jackson J (as he then was) held at paragraph 71(viii):

“In assessing a proportionate costs order, the judge should consider what costs are referable to each issue and what costs are common to several issues. It will often be reasonable for the overall winner to recover not only the costs specific to the issues which he has won but also the common costs.”

Applying this principle, the court noted the Defendant’s schedule was modest at £21,712.70 (less than a quarter of the Claimant’s schedule) and, whilst not broken down by issue, “most of the costs expended are likely to have been common costs.” Nevertheless, the court held “there should be some deduction by a proportion to reflect that the Defendant did not succeed on all issues.“

The court observed that neither party had suggested a specific percentage reduction. Taking a “broad-brush” approach, the court reasoned that although the Defendant succeeded overall, it did not prevail on the Annex C1 non-genuine-vacancy issue (Ground (z)), even though it succeeded on alternative grounds under Annex C2 and on the case overall. The court therefore held “the appropriate reduction should be modest” and applied a 15% deduction to reflect this partial failure.

Further “Rounding Down” Adjustment

The court then made an additional observation, noting that “six hours preparing for a one-day hearing is on the high-side for a Defendant.” Following the 15% deduction to reflect partial success, the court rounded the resulting figure down to £18,000 inclusive of VAT as a proportionate final sum, rather than mechanically calculating 85% of £21,712.70 (which would have been £18,455.80).

Payment Terms and Procedural Matters

The court ordered the Claimant to pay £18,000 within three months, reflecting that the Claimant was a small business whilst the Defendant was a Government department. The court allowed the Claimant seven days to apply to vary either the costs order or the payment timetable, failing which the order would stand. The court also extended the time for any appeal application accordingly.

Permission to appeal was refused, as the grounds raised were either fact-specific or not directed at the determinative issues in the case.

Implications for Practice

This decision provides practical guidance on several costs principles in judicial review proceedings:

- - Proportionate costs orders under CPR 44.2 and section 31(2A): Even where a claim is dismissed and the defendant is clearly the successful party – indeed, even where relief is refused under section 31(2A) Senior Courts Act 1981 because the outcome would have been substantially the same without the error – the court will examine whether that party failed on discrete issues. Where such failure is established, a modest percentage reduction may be appropriate to reflect the resources expended on an issue the successful party lost.
  - The common costs principle: Courts recognise that in multi-ground judicial review claims, most costs are “common costs” that would have been incurred regardless of which ground ultimately succeeded. This militates against substantial reductions where the successful party’s overall case prevailed. Here, a 15% reduction was deemed “modest” and appropriate where common costs predominated and the successful party would have won on alternative grounds in any event.
  - Late costs schedules: Technical procedural failures in serving costs schedules will be noted under CPR PD 44 para 9.6 but may have limited practical impact where they caused no delay to the court’s decision-making process. Courts retain discretion to “take into account” such failures without imposing punitive reductions, particularly where judgment has been reserved.
  - Broad-brush discretion: Courts will exercise broad-brush discretion based on their assessment of the relative success on different issues, the nature of the failure, and whether the successful party would have prevailed in any event. The court is not bound to apply precise mathematical formulae but may round to an appropriate figure reflecting overall proportionality.

For practitioners, the case reinforces that winning overall does not guarantee full costs recovery. Where multiple grounds are advanced and one fails – even if that failure does not affect the ultimate outcome under section 31(2A) – defendants should expect modest reductions to reflect the wasted costs on that issue.

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CPR 44.11 | 75% Costs Reduction For Egregiously Defective Bill | Solicitors Remain Vicariously Liable For Costs Draftsman Failures

New Costs Blog

The Senior Courts Costs Office’s decision in Hyder v Aidat-Sarran [2024] EWHC 3686 (SCCO) establishes that solicitors bear full vicarious responsibility for costs draftsmen’s failures and cannot avoid severe sanctions by blaming their agents when bills contain egregious, persistent, and unrectified defects.

Background

The matter concerned detailed assessment proceedings in the Senior Courts Costs Office before Deputy Costs Judge Roy KC. The substantive litigation between the parties had concluded, and the claimant, Rashid Hyder, was seeking to recover his costs. The procedural history was marked by difficulties with the service of a compliant bill of costs by the claimant. An unless order was made requiring service of the bill by a specified date. The claimant served a bill one day after the deadline, and this bill was found to contain multiple and significant defects. The defendants, Robert Aidat-Sarran and Humwattie Aidat-Sarran, raised these defects in points of dispute served in response to the bill. The claimant then served a second, electronic bill, which not only failed to rectify the serious problems with the paper bill but added further defects. This led to the defendants making an application to strike out the claim for costs pursuant to CPR 44.11. The claimant, in turn, made an application for relief from sanctions for the late service of the initial bill.

Costs Issues Before the Court

The court was required to determine two distinct but related applications. The first was the claimant’s application for relief from sanction under CPR 3.9 for the late service of his bill of costs. The second was the defendants’ application under CPR 44.11 for the court to disallow all or part of the costs, seeking the draconian sanction of striking out the bill entirely due to the claimant’s multiple and serious failures in the preparation and service of both the original and the subsequent bill.

The Parties’ Positions

The claimant sought relief from sanction, arguing that the breach—serving the bill one day late—was neither serious nor significant when considered in isolation. It was submitted that the service of the bill, albeit defective, constituted belated compliance with the unless order. On the defendants’ application, the claimant accepted there were defects but argued that strikeout was a disproportionately severe sanction. The claimant’s counsel offered an apology for the failures at the hearing, although this came only at around midday on the day of the hearing itself.

The defendants opposed relief from sanction, contending that the bill was so seriously defective that its service could not be considered compliance with the order at all. On their own application, the defendants argued that the multiple, egregious, and persistent defects in both bills, coupled with a complete failure to address or rectify them even after they were highlighted in the points of dispute, amounted to unreasonable or improper conduct warranting the bill being struck out in its entirety. They submitted that the court could have no confidence in any future bill served by the claimant. The defendants’ witness statement of 22 August 2024 had clearly set out all these failings.

The Court’s Decision

The court granted the claimant’s application for relief from sanction. Applying the first stage of the Denton test, Deputy Costs Judge Roy KC found that the breach of the unless order was the one-day delay in service. The service of a defective bill was held to constitute belated compliance with the order, which only required “service of a bill.” The judge distinguished the situation from cases where a served document is “gibberish” or blank, citing CNM Estates (Tolworth Tower) Limited v Carvill-Biggs [2023] EWCA Civ 480. Consequently, the one-day delay was not serious or significant, and relief was granted.

On the defendants’ application under CPR 44.11, the court found that the claimant’s conduct met the threshold for the rule to be engaged. The judge made seven key findings at paragraphs 10-20 of the judgment:

- - First, the original bill contained multiple significant failures which the judge described as “egregious” when viewed in the round.
  - Second, none of these defects were rectified in the second bill, the electronic bill, which the judge found “absolutely astonishing.”
  - Third, the second bill not only failed to rectify the serious problems with the paper bill but added further defects, which was “even more astonishing” given that the need to ensure a defect-free bill had been clearly flagged in the points of dispute.
  - Fourth, all these failings were clearly set out in the defendants’ witness statement of 22 August 2024. Fifth, the claimant’s solicitors displayed a “serious and troubling lack of insight and contrition” by failing to address the defects, serve any evidence, or even acknowledge these failings before the hearing, with an apology only coming via counsel at around midday on the hearing day itself.
  - Sixth, the judge found it was not open to the claimant’s solicitor to blame the costs draftsman. As a matter of law under Gempride v Bamrah [2018] EWCA Civ 1367, the costs draftsman is the solicitor’s agent and the solicitor is vicariously responsible for all the costs draftsman’s failings as if the solicitor had performed the work themselves. In any event, there had been serious direct failings on the solicitor’s part: solicitors must apply superintendence and oversight to what a costs draftsman does, and the defects here were so obvious that the solicitor should have identified them; the solicitor should have been proactive to ensure compliance in time and properly; some failings, such as failures to certify, were purely those of the solicitor and were very basic; and by 22 August 2024 at the latest, in light of the defendants’ statement, the solicitors could not have had any basis to place reliance upon the costs draftsman, yet the compounding failures continued.
  - Seventh, the judge was satisfied that both limbs of CPR 44.11(a) and (b) were met: there had been non-compliance with the rules, and there had been unreasonable conduct, meaning conduct which does not admit a reasonable explanation. In summary, the judge found there had been “multiple compound breaches” that were “serious”, “persistent”, “unexplained”, and “inexcusable.”

While not making a positive finding of improper conduct without “the full picture,” the judge noted at paragraph 19 that serving an unchecked bill without caveat came “very close” to improper conduct and was at least arguably reckless as to the possibility of the court or defendant being misled.

Despite the seriousness of the conduct, the court declined to strike out the bill. The judge held that strikeout was the most draconian sanction and that a judge should always give “very anxious consideration” to whether any lesser sanction could properly meet the justice of the case. On a “very narrow balance,” the court was persuaded that lesser sanctions were appropriate. The court noted that in Gempride itself, despite serious misconduct, there was a substantial reduction but the bill was not struck out entirely, and this precedent tended to point against strikeout being appropriate in this case. The court also considered that the concerns about proportionality and confidence in any redrawn bill could be addressed by the orders it proposed to make.

Instead, the court imposed a severe costs sanction, disallowing 75% of the claimant’s assessed costs under CPR 44.11. This meant that whatever sum the bill was ultimately assessed at on detailed assessment, the claimant would recover only 25% of that total assessed sum. The judge described this as a “stern sanction by CPR 44.11 standards” but remained of the view that it was appropriate, noting that the claimant and his solicitors could “consider themselves quite fortunate that the bill is not struck out entirely.”

The court also disallowed interest on the claimant’s costs from 30 July until whatever date it was agreed the redrawn bill should be served by. The judge’s initial inclination had been to disallow all interest, but this was rejected as it would amount to double jeopardy in circumstances where 75% of the costs had already been disallowed.

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Failed Fraud Allegations Justify Indemnity Costs Order Despite Proper Conduct

New Costs Blog

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

Background

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

Costs Issues Before the Court

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

The Parties’ Positions

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

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

The Legal Framework

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

The Court’s Decision

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

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

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

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

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

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

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

Implications for Practice

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

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

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

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Are Courts Bound By Summary Assessment Principles When Ordering Pro Bono Costs Under Section 194?

New Costs Blog

The High Court’s decision in EJW Builders Ltd v Marshall [2025] EWHC 2898 (Ch) illustrates the court’s cautious and discretionary approach to assessing pro bono costs under section 194 of the Legal Services Act 2007 — emphasising proportionality, adherence to guideline rates as a benchmark, and the need for clear justification where claimed figures exceed them.

Background

The claim was commenced by claim form on 27 June 2023 by EJW Builders Limited and Eammon Joseph Wynne against Audrey Elizabeth Marshall, Edward Joseph Marshall, and their joint trustees in bankruptcy. Though the trustees were named as defendants, they played no part in the trial [§1]. The claimants alleged the existence of a partnership or joint venture agreement with the first and second defendants concerning the redevelopment of a former hotel in Trowbridge, Wiltshire, into four townhouses. They sought a one-third share of the profits, which they valued at up to £3.2 million. The properties ultimately sold for a total of £2,540,000, with £438,000 transferred to the defendants, though the defendants contended these funds were used to pay other debts and that no profits existed.

The matter proceeded to trial before HHJ Paul Matthews on 30 September and 1 October 2025. In an earlier ex tempore judgment ([2025] EWHC 2765 (Ch)), the court dismissed the claim, finding no partnership or joint venture agreement. The court determined in that trial judgment that the claimants’ only entitlement was to £825,000 under a JCT contract. Consequently, an order was made for the claimants to pay costs in respect of the first and second defendants’ pro bono representation to the Access to Justice Foundation, pursuant to section 194 of the Legal Services Act 2007. These costs were to be summarily assessed on the standard basis if not agreed. As the parties failed to agree, this subsequent judgment ([2025] EWHC 2898 (Ch)) concerns the costs assessment. The costs judgment was handed down at 10:30 am on 3 November 2025. The court conducted a paper assessment applying a broad brush approach rather than a detailed or summary assessment [§1, §24].

Costs Issues Before the Court

The primary issue for determination was the assessment of the sum payable to the Access to Justice Foundation under the pro bono costs order. This involved applying CPR rule 46.7, which requires the court to assess a sum equivalent to the costs that would have been payable had the representation not been provided free of charge. Under CPR 46.7(3)(b), the court applies Parts 44-47 with modifications to reflect that the costs are notional [§4, §7]. The judge stressed this was not a line-by-line scrutiny but a broad brush assessment [§24]. The assessment necessitated consideration of the reasonableness of the notional costs, including the solicitors’ hourly rates, the time claimed for various categories of work, and counsel’s fees. Specific challenges were raised by the claimants regarding the application of London guideline hourly rates, the exceedance of those guidelines, alleged excessive attendances, and disproportionate time claimed for document work.

The Parties’ Positions

The defendants, through their solicitors, submitted a costs schedule claiming notional profit costs of £334,829 and counsel’s fees of £58,500, totalling £393,329 (no VAT being payable) [§12]. The solicitors’ fees were based on hourly rates of £1,205 and £860 for grade A fee-earners, £860 for a grade B fee-earner, and £350 for a grade D fee-earner. All claimed rates exceeded the applicable London band 2 guideline hourly rates [§19]. The work included 89.3 hours for attendances on the defendants, 31.9 hours for attendances on opponents, and 263 hours for work on documents.

The claimants challenged the schedule on several grounds. They argued that London guideline hourly rates should not apply, as the case had no connection to London and could have been handled by a provincial firm, relying on Truscott v Truscott [1998] 1 WLR 132. They contended that the claimed rates exceeded the applicable guideline rates for London band 2 without justification, citing Samsung Electronics Co Ltd v LG Display Co Ltd [2022] EWCA Civ 466. The claimants also submitted that the attendances on the defendants and opponents were excessive and that the time claimed for document work, including reviewing core documents and preparing witness statements, was disproportionately high given the case’s straightforward nature.

The Court’s Decision

The court, applying a broad brush approach as endorsed in Manolete Partners plc v White (No 2) [2025] 1 WLR 1094, exercised its discretion under section 194, assessing £117,000 as the appropriate payment to the Access to Justice Foundation. In doing so, the court considered the discretionary nature of pro bono costs orders under section 194 of the Legal Services Act 2007 and the dual legislative purposes: levelling the litigation playing field by exposing both parties to costs risks, and providing funding to support organisations offering free legal help to those in need (citing Manolete at §20) [§9, §17, §20]. Applying Manolete, the court emphasised it should “err on the side of caution” when determining the amount payable [§9, §25-26].

On the issue of guideline hourly rates, the court treated a Truscott reasonableness test as artificial in this case because representation was allocated by the legal charities Advocate and Law Works [§10, §17]. The court found it reasonable for the defendants to accept pro bono representation given the potential costs liability evidenced by the claimants’ budget of £182,848.65 [§18]. The court applied London band 2 rates but reduced the solicitors’ notional profit costs to reflect the guideline rates for London band 2, as no justification was provided for the exceedance. The allowed rates were the 2025 London band 2 guideline hourly rates: £413 for grade A, £319 for grade B, and £153 for grade D fee-earners [§19].

The court found the claimed attendances excessive and reduced them to 60 hours for attendances on the defendants, 20 hours for attendances on opponents, and 17 hours for attendance at the hearing [§20, §24]. It also significantly reduced the time for work on documents from 263 hours to 117 hours, criticising the lack of delegation to junior fee-earners, noting that both partners did all the document work with none by the two junior associates [§21-22], and the disproportionate time spent on tasks such as reviewing core documents and preparing witness statements.

Counsel’s fees of £58,500 were allowed in full, as the court accepted that this sum covered advisory work, interlocutory hearings, and trial preparation, and no specific challenge was made to the trial fee [§23].

Ultimately, the court assessed the notional costs at £58,500 for solicitors’ work and £58,500 for counsel’s fees, resulting in a total of £117,000 [§24]. Emphasising the discretionary nature of pro bono costs orders and the need to err on the side of caution, the court concluded this sum was appropriate for the payment to the Access to Justice Foundation [§25-26].

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Security For Costs Under CPR 3.1(5) Ordered As Alternative Sanction To Debarring For Non-Compliance

New Costs Blog

The Commercial Court’s decision in Serious Fraud Office v Smith (Thomas debarring application) [2025] EWHC 2876 (Comm) illustrates how, where a party’s non-compliance with procedural requirements is serious but does not justify the draconian step of debarring, the court may exercise its discretion under CPR 3.1(5) to order security for costs as a proportionate sanction.

Background

The matter concerned long-running proceedings under the Criminal Justice Act 1988 to enforce a confiscation order made against Gerald Martin Smith. A key element of the litigation was the resolution of competing proprietary claims to assets alleged to be Dr Smith’s realisable property. This included claims by Harbour Fund II LP, which had funded underlying litigation (“the Orb Litigation”) pursuant to a Harbour Investment Agreement. A substantial trial took place before Foxton J in 2021 (“the Directed Trial”), which determined the beneficial interests in the assets, including the establishment of the “Harbour Trust” under which Harbour had priority and Mr Nicholas Thomas was a residual beneficiary. Mr Thomas had fully participated in the Directed Trial, adopting Harbour’s arguments. Following the trial, Mr Thomas engaged in a series of applications and actions which Foxton J found formed part of a co-ordinated attempt to frustrate the outcome of the Directed Trial. In response to this conduct, Foxton J made the Debarring Directions Order (“DDO”) on 31 March 2023. The DDO provided that if Mr Thomas brought a “Relevant Claim”, the claim would be automatically stayed until a “Debarring/Stay Application” was determined. Before that application could be heard, Mr Thomas was required to file evidence addressing the involvement of Dr Smith or his associates in the claim and identifying his source of funding. Following the Supreme Court’s decision in PACCAR, Mr Thomas indicated an intention to challenge the enforceability of the Harbour Investment Agreement. Harbour subsequently issued the Harbour Enforceability Application on 31 October 2024, seeking to confirm the finality of the Directed Trial orders. Mr Thomas issued a cross-application on 28 November 2024, seeking declarations that the Harbour Investment Agreement was unenforceable. Mr Thomas accepted that his cross-application was a “Relevant Claim” under the DDO, triggering the requirement to file evidence and the automatic stay of his application pending the determination of Harbour’s Debarring/Stay Application. Harbour contended that Mr Thomas had failed to comply adequately with the DDO’s conditions and sought orders debarring him from participating in the forthcoming Enforceability Hearing, or, in the alternative, an order for security for costs.

Costs Issues Before the Court

The court was required to determine Harbour’s Debarring/Stay Application, which sought to debar Mr Thomas from bringing further claims or applications connected to the subject matter of the Directed Trial. The specific costs-related issues arising were: (1) whether Mr Thomas’s failure to provide satisfactory evidence concerning the involvement of Dr Smith and his associates, as required by the DDO, warranted debarring him from participating in the Enforceability Hearing; (2) whether Mr Thomas’s history of non-payment of outstanding costs orders justified debarring him; and (3) whether, in any event, Mr Thomas should be required to provide security for the costs of his cross-application as a condition of being permitted to participate further. Harbour’s fallback application, filed on 1 August 2025, sought security for costs in the sum of £290,700.

The Parties’ Positions

Harbour’s position was that Mr Thomas should be debarred from participating in the Enforceability Hearing. It argued that his evidence filed pursuant to the DDO was vague, incomplete and unsatisfactory, particularly regarding the involvement of Dr Smith. Harbour pointed to metadata in Mr Thomas’s witness statements identifying Dr Smith as the “author” and the failure to produce a document Dr Smith had allegedly provided. Harbour also cited a history of unpaid costs orders against Mr Thomas, arguing that a litigant should not be able to continue claims without satisfying existing costs orders. Harbour submitted that an immediate debarring order was appropriate given Mr Thomas’s multiple opportunities to comply and the serious adverse findings already made against him. In the alternative, Harbour sought an order that Mr Thomas could only participate if he provided full further evidence, satisfied all outstanding costs orders, and provided security for costs. Harbour quantified its security for costs application at £290,700, representing a proportion of its costs incurred to date and estimated future costs attributable to Mr Thomas’s cross-application.

Mr Thomas’s position was that he should not be debarred. He contended that his evidence had complied with the DDO, confirming that Dr Smith’s involvement was limited to providing ad hoc, voluntary assistance and background information. He explained the metadata issue by stating his solicitors had used a document from Dr Smith as a “template” but had overwritten all its content. He argued that his cross-application was not an abuse of process but a legitimate attempt to rely on the Supreme Court’s decision in PACCAR. He noted that he had, albeit belatedly, discharged the outstanding costs orders owed to Harbour. He opposed the security for costs application, arguing there had been delay in bringing it and that his funder, LitFin, was under no obligation to submit to the jurisdiction or offer security. He indicated he was in the process of arranging After The Event insurance to address costs concerns.

The Court’s Decision

The judgment was delivered by Henshaw J in the Commercial Court on 5 November 2025. The court refused to debar Mr Thomas from participating in the Enforceability Hearing but granted Harbour’s application for security for costs in a reduced sum.

On the issue of debarring, the court held that while Mr Thomas’s explanation for Dr Smith’s involvement was “unsatisfactory and incomplete” [§69], his misconduct did not make it just to debar him from defending Harbour’s application and pursuing his cross-application. The court observed that Mr Thomas’s previous conduct in the proceedings had been persistent and collusive, aimed at avoiding the consequences of the Directed Trial judgment [§93]. Nonetheless, the discrete PACCAR issue was not itself an abuse of process – it was a distinct legal point arising from a subsequent Supreme Court decision and distinguishable from an obvious abuse involving recycled arguments [§97].

While Mr Thomas had belatedly paid the outstanding costs orders owed to Harbour and most others, the court noted that compliance had been slow and some residual uncertainty remained over a small sum [§85-86]. The court found that the outstanding costs orders, while relevant, did not have a sufficient nexus with the Enforceability Hearing to justify debarment [§99]. The court emphasised that a debarring order is “draconian in its effect” [§59] and, as stated in Byers v Samba, “must be a sanction of last resort” [§60].

On the application for security for costs, the court held it had jurisdiction under CPR r.3.1(5) due to Mr Thomas’s failure to comply with court orders, including the DDO and costs orders [§107]. Henshaw J rejected the argument that Harbour’s application for security had been delayed, finding that the issue had been raised consistently since early 2025 [§108]. However, the court reduced the amount of security sought from £290,700 to £200,000, finding this to be the just amount attributable to Mr Thomas’s cross-application [§110]. The court ordered that security be provided promptly by payment into court or a first-class UK bank guarantee, with the possibility of it being replaced by acceptable ATE insurance if agreed by the parties or directed by the court [§111] and, noting that Mr Thomas had been adjudged bankrupt on 23 September 2025, indicated it would hear further submissions on whether that development affected the form of order [§112].

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

New Costs Blog

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

Background

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

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

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

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

Costs Issues Before the Court

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

The Parties’ Positions

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

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

The Court’s Decision

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

Rejection of the Second Probate Exception

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

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

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

Indemnity Costs for Conduct “Out of the Norm”

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

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

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

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

Payment on Account of Costs

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

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

Interest on Costs

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

Indemnity from the Estate

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

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

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Director Ordered To Pay Creditor’s Costs Personally Despite Rule 3.4 In Failed Administration Application

New Costs Blog

This costs judgment in Settle v Sandstone Legal Limited [2025] EWHC 2771 (Ch) provides a modern example of a director being held personally liable for an opposing creditor’s costs in an administration application, following findings that he knowingly misled the court with false witness evidence.

Background

On 31 January 2025, Mr Andrew Settle (sole director of Sandstone Legal Limited) applied for an administration order seeking appointment of his chosen nominees to facilitate a pre-pack sale to his new company, Precision. At the first hearing on 7 February 2025, ICC Judge Barber rejected the pre-pack as the consideration was so low it failed even the third limb of paragraph 11(b) of Schedule B1 to the Insolvency Act 1986. The court adjourned the application and appointed Phillippa Smith and Jessica Thomas as interim managers.

At the resumed hearing on 21 February 2025, the court granted an administration order but appointed Ms Smith and Ms Thomas as administrators—rejecting Mr Settle’s original nominees. In a judgment reported at [2025] EWHC 742 (Ch), ICC Judge Barber found Mr Settle had knowingly included “material, self-serving untruths likely to mislead the Court” in his first and second witness statements. All employees had been made redundant and lease break clauses exercised by 31 January 2025—yet Mr Settle’s evidence portrayed the company as a going concern requiring urgent pre-pack administration.

Costs were reserved to a hearing on 18 June 2025, with judgment handed down on 30 October 2025.

Costs Issues

The court determined four key costs issues:

- - Petitioning creditor’s costs: Whether Medical-Legal Appointments Limited’s costs of its winding-up petition should be payable as an administration expense
  - Administrators’ pre-administration costs: Whether the interim managers’ costs qualified as pre-administration expenses under rule 3.52 IR 2016
  - Applicant’s costs: Whether Mr Settle’s costs were automatically payable as an expense under rule 3.12(2) IR 2016
  - Personal costs order: Whether Seven Stars Legal Limited could recover costs directly from Mr Settle despite rule 3.4 IR 2016 (which treats a director’s application as made by the company)

Decision

1. Petitioning Creditor’s Costs

The court ordered that the petitioning creditor’s costs of both the winding-up petition and administration application be paid as an administration expense. Applying Irish Reel Productions Ltd v Capitol Films Ltd [2010] EWHC 180 (Ch), the court held that rule 3.12(2)’s phrase “any person whose costs are allowed by the court” encompasses costs of a winding-up petition dismissed at the same time as an administration order is made. No party opposed this order.

2. Administrators’ Pre-Administration Costs

The court declared the interim managers’ costs were pre-administration expenses under rule 3.52 IR 2016. ICC Judge Barber held that “so long as a sufficiently direct and appropriate connection can be demonstrated between the work carried out by an insolvency practitioner pre-administration and the achievement of the ultimate administration itself,” such costs qualify as pre-administration expenses. The interim managers were found to have been “highly effective in their work, in extremely challenging conditions” and their work “was all directed to the enablement of the administration that followed.”

However, the court refused the application to re-prioritise these expenses under rule 3.51(3) without a properly evidenced formal application on notice to affected parties.

3. Applicant’s Costs | No Automatic Right Under Rule 3.12(2)

Mr Settle argued that rule 3.12(2) IR 2016—which states “the costs of the applicant… are payable as an expense of the administration“—gave the court no discretion to deny his costs. The court emphatically rejected this submission.

ICC Judge Barber held that rule 3.12(2) “must be read subject to section 51 of the Senior Courts Act and paragraph 13(1)(f) of Schedule B1.” By operation of rule 12.41 IR 2016, CPR r.44.2 was “plainly engaged.” The court was “fortified in that conclusion” by Ardawa v Uppall [2019] EWHC 1663 (Ch).

Applying the “costs follow the event” principle under CPR 44.2, the court found Mr Settle was not the successful party. His pre-pack application had been “roundly rejected” and different administrators appointed. The court held Seven Stars was “in substance the successful party” as it had successfully opposed the pre-pack and secured appointment of its chosen nominees.

Mr Settle’s recoverable costs were capped at the issue fee only. The court acknowledged his application achieved a “short reprieve” for the company, but held “the fact that the Company was not ultimately wound up… was not down to Mr Settle… but rather to the hard work of Seven Stars, supported by the Petitioner, the interim managers and the solicitor manager.“

4. Personal Costs Order | When Rule 3.4 Doesn’t Protect Directors

Seven Stars sought a personal costs order against Mr Settle under section 51 of the Senior Courts Act 1981. Mr Settle resisted, arguing rule 3.4 IR 2016 precluded this—rule 3.4 provides that once filed, a director’s administration application “is to be treated for all purposes as an application by the company.”

The court rejected this defence, holding that “rule 3.4 must be read subject to section 51 of the Senior Courts Act and paragraph 13(1)(f) of Schedule B1.”

Even if rule 3.4 made Mr Settle a “non-party” for costs purposes, the court held it was just to make a personal costs order because “Mr Settle was plainly the ‘real party’ over that period, seeking to benefit personally from his proposed pre-pack administration and conducting the litigation on self-serving evidence which he knew to be materially false, without proper regard for the interests of the Company or the creditors as a whole.”

The court found the circumstances exceptional. Mr Settle’s knowingly false evidence “tainted and distorted the whole of the first hearing, which ran late into the evening.” He had acted without transparency, failed to respond to creditors’ information requests, and “put arrangements in place to set up Precision and to line up a short, covert, purported marketing process” using insolvency practitioners he had previously used for another pre-pack. “Had Mr Settle engaged constructively and transparently with the Company’s creditors and put in place a proper marketing process… the administration application could easily have been dealt with in one hearing.”

Mr Settle was ordered to pay Seven Stars’ costs up to and including the 7 February 2025 hearing personally, without recourse to the insolvent estate, subject to detailed assessment if not agreed.

The court declined to make a personal order for costs after 7 February 2025, recognising Mr Settle’s neutral stance at the resumed hearing and that he corrected the false evidence in his third witness statement (albeit without apology or adequate explanation). Those later costs were ordered as an administration expense.

The court distinguished Med-Gourmet Restaurants Ltd v Ostuni Investments Ltd [2013] BCC 47 (where both sides’ costs were allowed as expenses despite misleading information), noting “there appears to have been little or no debate on costs” in that case and emphasising that “judicial rulings on costs are highly fact-specific.“

Key Takeaways for Practitioners

1. Directors’ personal exposure persists: Rule 3.4 IR 2016 does not shield directors from personal costs orders under section 51 SCA 1981 where they are the “real party” pursuing the litigation for personal benefit with dishonest evidence. This applies even though the application is formally treated as made by the company.

2. Rule 3.12(2) is not automatic: Courts retain discretion to deny or cap applicant’s costs as administration expenses. Rule 3.12(2) must be read subject to section 51 SCA and CPR 44.2 applies via rule 12.41. Applicants who fail to achieve their sought relief (particularly failed pre-packs) risk recovering only nominal costs.

3. Conduct matters significantly: Knowingly false witness evidence justifies exceptional costs sanctions including personal liability, even where the substantive application is initially well-founded. Lack of transparency, covert pre-pack arrangements, and failure to engage constructively with creditors will compound costs exposure.

4. Pre-administration costs require direct connection: Interim managers’ costs qualify as pre-administration expenses under rule 3.52 where “sufficiently direct and appropriate connection” exists to the eventual administration. However, re-prioritising such expenses under rule 3.51(3) requires formal application with proper evidence—creditors’ approval alone is insufficient.

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