Indemnity Costs CPR 3.18 | Xtellus v DL Invest Dishonest Defence

Costs Consequences | Indemnity Costs Awarded for "Outrageous" Evidence and Dishonest Defence

XTELLUS CAPITAL PARTNERS INC V DL INVEST GROUP PM S.A. [2025] EWHC 2168 (Comm)

In Xtellus Capital Partners Inc v DL Invest Group PM S.A. the court determined consequential matters following a substantive judgment entered for the claimant. On the basis of assessment, the court held the defendant’s conduct, characterised by a dishonest defence and evidence found to be “patently false” and “bordering on the outrageous”, was well outside the norm and justified a full order for costs to be assessed on the indemnity basis. Consequently, the court declined to rule on the claimant’s application to vary its costs budget upwards, finding CPR 3.18 did not apply on an indemnity assessment, rendering the variation application unnecessary. The court awarded a payment on account of costs of £700,000. Regarding interest, pre-judgment interest on the principal sum was awarded at a compensatory rate of 4.24% (a weighted average Euribor plus 1%) from the respective due dates for each success fee. Post-judgment interest was set at a forward-looking compensatory rate of 3.05%. For interest on costs, the court awarded the Bank of England base rate plus 1%, rejecting the claimant’s claim for a US Dollar-based rate, finding the claimant, by choosing an English jurisdiction clause, must be taken to have accepted costs would be incurred in sterling. A further £36,750 was ordered for interest on the payment on account.

I am satisfied that the conduct of the Defendant in this claim was well outside of the ordinary and reasonable conduct of proceedings and so outside the norm. The points I have set out and the points raised by Miss Campbell are in my judgment ample justification for that conclusion. I am also satisfied that the relevant conduct justifies an order that the Claimant’s costs be assessed on the indemnity basis. I have considered if it would be appropriate to limit such assessment to only parts of the costs. I have come to the view that there is no basis for such an approach. The conduct cuts to the heart of the claim and is widespread. It justifies (and easily so) an order for indemnity costs.

Citations

Fiona Trust v Privalov and others [2011] EWHC 664 (Comm) When determining a pre-judgment interest rate, the court is entitled to use a broad-brush approach to reflect the compensatory principle rather than undertaking a precise calculation of actual losses. Henderson v Salica [2025] EWHC 838 (Comm) The court is not required to examine a claimant’s actual loss when deciding the appropriate interest rate, as the loss is assessed based on a hypothetical cost of borrowing in the relevant currency. Carrasco v Johnson [2018] EWCA Civ 87 When awarding interest, courts should apply a broad and pragmatic approach rather than calculating the claimant’s actual financial loss. Challinor v Bellis [2013] EWHC 620 (Ch) In determining interest, the court typically assumes the claimant borrowed an equivalent sum and awards interest accordingly, without investigating what the claimant did with the withheld money. Kazakhstan v Zhunus [2018] EWHC 369 (Comm) The post-judgment interest rate should apply the compensatory principle, focusing on the notional cost to the claimant of borrowing judgment sums in the appropriate currency. Britned v ABB [2018] EWHC 2913 (Ch) In foreign money judgments, the court may award post-judgment interest at a rate comparable to statutory interest on Sterling judgments to ensure equivalent compensation. Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 An order for indemnity costs requires conduct or circumstances outside the norm of reasonable litigation behaviour, not necessarily amounting to moral blame. Esure Services Ltd v Quarcoo [2000] EWCA Civ 595 Indemnity costs are justified where a party’s conduct falls outside the scope of ordinary and reasonable litigation conduct. Three Rivers District Council v Bank of England (No. 6) [2006] EWHC 816 (Comm) Conduct justifying indemnity costs includes pursuing an unjustified or far-fetched case, presenting conflicting evidence, or shifting factual defences leading to a complete litigation loss.

Key Points

An order for indemnity costs requires conduct or circumstances that take a case out of the norm, defined as conduct falling outside the ordinary and reasonable conduct of litigation. [21]
Where costs are assessed on the indemnity basis, the court is not constrained by CPR 3.18 and may depart from the approved costs budget without needing to establish a “good reason”. [31–32]
When awarding interest on costs, the appropriate rate is generally 1% above the Bank of England base rate, particularly where litigation has taken place in England and costs are being assessed in sterling. A party’s internal business currency is not sufficient reason to depart from this norm. [35–37]
In determining a payment on account of costs, the court may apply its wide discretion to award a round figure based on budgeted amounts and allow reasonable interest without requiring precise itemisation of when costs were incurred. [40–41]
The assessment of post-judgment interest on a foreign currency judgment should reflect the cost of borrowing that currency by a person in the claimant’s position, disregarding the claimant’s actual borrowing practices or preferences. [15–18]

"I have come to the view that simply because budgets remain relevant, that does not mean that I should deal with the application for a variation. In my view it is prudent not to do so... the assessing court can easily depart from the budgets so there is no prejudice to the Claimant if I decline to deal with the application. Secondly, the exercise of variation would require me to consider if any variation falls within the range of 'reasonable and proportionate costs'. That is the standard basis test (or at least akin to it). It is not the indemnity test."

Key Findings In The Case

The Defendant’s conduct during proceedings—including advancing a “fanciful” case regarding the identity of the contractual counterparty, presenting false and misleading evidence from senior officers, and shifting position during trial—was found to be conduct outside the norm and sufficient to justify indemnity costs [23–27].
The court held that because indemnity costs were ordered, it was not bound by CPR 3.18, and therefore not required to follow the approved costs budget or demonstrate a “good reason” to depart from it when assessing costs [31–32].
The judge declined to determine the Claimant’s application to vary its approved costs budget, finding that where costs are assessed on the indemnity basis, the assessing court is not constrained by the budget and may adjust costs accordingly at that stage [33–34].
The appropriate interest rate on costs was found to be 1% above the Bank of England base rate, rejecting the Claimant’s argument for a rate linked to the US Prime Rate on the grounds that litigation was governed by English law and situated in England, making Sterling the operative currency for costs [35–37].
A payment on account of costs in the amount of £700,000 plus £36,750 interest was awarded, applying a broad discretion based on the budgeted and estimated total costs (£793,958.52) and allowing 1 year’s interest at 5.25% without requiring exact allocation to each litigation phase [38–41].

"However, the true and operative reason for that lies in the contract. The Mandate provided that 'the courts of London' would have non-exclusive jurisdiction over the dispute and that the laws of England and Wales would apply. As the Claimant was responsible for drafting the Mandate (and even if it had not drafted it), it must be taken to have made a deliberate and conscious choice to effectively require litigation take place in England (where they chose to issue) with the almost certain consequence that legal costs would be paid in pounds."

The case concerned a claim by Xtellus Capital Partners Inc against DL Invest Group PM S.A. for a success fee payable under a mandate agreement. The Claimant had provided services to the Defendant in relation to the arrangement of two financing facilities. The first facility was dated 20 September 2022, and the second was an amendment and restatement agreement dated 23 May 2023. The success fee was calculated at 1.25% of the total amount of financing, amounting to €1,542,500 for the first facility and €249,743.93 for the second. The claim was issued on 13 February 2023. Following a trial, judgment was entered in favour of the Claimant on 28 July 2025 for the full sum of €1,792,247.93, to be paid by 11 August 2025. This judgment deals with the consequential matters of interest and costs.

Costs Issues Before the Court

The court was required to determine several consequential issues arising from the substantive judgment. These included: the applicable dates from which pre-judgment interest should run; the correct rate of pre-judgment interest; whether currency fluctuations affected the interest calculation; the appropriate rate of post-judgment interest; the basis on which the Claimant’s costs should be assessed (standard or indemnity); whether the Claimant’s costs budget should be varied; the rate of interest to be applied to costs; and the amount of a payment on account of costs.

The Parties’ Positions

On the issue of when the judgment sum fell due, the Claimant submitted that the full sum was due on 20 September 2022, pursuant to clause 4 of the mandate. The Defendant argued that the sums fell due in tranches based on drawdown dates, or alternatively, that the first sum fell due on 3 October 2022 (the date of an invoice) and the second on 23 May 2023.

Regarding the pre-judgment interest rate, both parties agreed that the Euro Interbank Offered Rate (Euribor) plus 1% should apply, as the judgment was in Euros. The Defendant submitted that the forward-looking 12-month rate of 2.05% (plus 1%) at the judgment date should be used. The Claimant argued for a weighted average of the 12-month Euribor rates between September 2022 and July 2025, which equated to 3.24% (plus 1%). The Defendant also submitted that no pre-judgment interest should be awarded due to a currency fluctuation windfall enjoyed by the Claimant.

For post-judgment interest, the Claimant, citing Britned v ABB, sought a rate of 8%, akin to the Judgments Act rate for sterling. The Defendant contended for a rate based on the forward-looking Euribor.

On the basis of assessment, the Claimant sought an order for indemnity costs. It argued the Defendant’s conduct took the case out of the norm, citing a dishonest defence supported by dishonest evidence, including findings that its evidence was “fanciful”, “patently false”, and “bordered on the outrageous”. The Defendant contended that the case was merely hard-fought commercial litigation with no procedural failings, and an indemnity basis order was not justified.

The Claimant also applied to vary its costs budget upwards by £104,876.54. The Defendant opposed this application.

On interest on costs, the Claimant sought a rate of US Prime plus 1%, reflecting its US Dollar operations. The Defendant’s position on this point was not detailed in the judgment.

Finally, for the payment on account, the Claimant sought 90% of its total budgeted and variation costs (£714,562.70), plus interest. The Defendant’s position was not explicitly stated.

The Court’s Decision

The court held that the success fee for the first facility fell due on 3 October 2022 (the invoice date) and the fee for the second facility fell due on 23 May 2023. This represented a waiver of the Claimant’s strict contractual rights concerning the first payment.

On pre-judgment interest, the court applied the compensatory principle and adopted a broad-brush approach. It awarded interest at a rate of 4.24% (a weighted average Euribor of 3.24% plus 1%) from the respective due dates. The court rejected the Defendant’s argument on currency fluctuation, finding it impermissible to investigate what the Claimant would have done with the money. The court upheld the standard approach of compensating a claimant for being kept out of the judgment currency.

For post-judgment interest, the court again applied the compensatory principle. It found the Claimant’s proposed 8% rate would overcompensate them, as it was based on a US Dollar borrowing cost, not the Euro judgment currency. The court awarded a forward-looking rate of 3.05% (a Euribor rate of 2.05% plus 1%).

The court found this was a clear case for ordering costs to be assessed on the indemnity basis. It concluded the Defendant’s conduct was well outside the ordinary and reasonable conduct of proceedings, taking the case out of the norm. This was based on findings that its defence was “thin”, “far-fetched”, and “fanciful”, and that its evidence was “patently false” and “bordered on the outrageous”. The court held that this widespread conduct justified a full indemnity costs order, not one limited to specific phases.

The court declined to rule on the Claimant’s application to vary its costs budget. It reasoned that as costs were to be assessed on the indemnity basis, CPR 3.18 (which requires a “good reason” to depart from a budget) did not apply. The assessing court could therefore depart from the budget more freely, making a variation order unnecessary and potentially hollow.

On interest on costs, the court awarded interest at the Bank of England base rate plus 1 percentage point, not the US Prime rate sought by the Claimant. It held that by choosing an English jurisdiction clause, the Claimant must be taken to have accepted that costs would be incurred in sterling.

Finally, the court ordered a payment on account of costs of £700,000, plus £36,750 in interest (representing 5.25% per annum for one year). This was a round figure based on the Claimant’s budgeted costs and the court’s wide discretion.

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