Costs In Part 25A Proceedings | Interim Payment Limited To 31% (£2m) Due To "inadequate" Costs Information Whilst Court Expresses "very considerable concern" About The "extraordinarily high level of costs" In Recent Part 26A Cases

SAIPEM S.P.A. & ORS V PETROFAC LIMITED & PETROFAC INTERNATIONAL (UAE) LLC [2025] EWCA Civ 1106

In Saipem S.p.A. & Ors v Petrofac Limited & Anr [2025] EWCA Civ, the Court of Appeal addressed an application for an interim payment on account of costs following the successful appeal against the sanctioning of restructuring plans under Part 26A of the Companies Act 2006. The parties agreed that the Plan Companies should pay the appellants’ costs of the first-instance and appeal proceedings, subject to assessment, but disputed the quantum of the interim payment. The appellants sought £3.75 million (60% of £6.4 million claimed), while the Plan Companies contended the costs were excessive and proposed £500,000. The court examined the adequacy of the costs schedule, the reasonableness of solicitors’ hourly rates (exceeding Guideline Hourly Rates without sufficient justification), counsel’s fees (including £125,000 for KC brief fees), and financial advisers’ charges (£1.38 million for advisory work and £840,158 for expert evidence). Applying CPR 44.2(8) and principles from Excalibur Ventures LLC v Texas Keystone Inc., the court found the appellants’ documentation insufficient to justify the claimed sums, noting partner rates were nearly double guideline rates and narratives were lacking. While accepting some financial advisory and expert costs were recoverable, the court emphasised proportionality under CPR 44.3(2) and the objective test in Kazakhstan Kagazyp plc v Zhunus. Despite uncertainty, the court ordered an interim payment of £2 million, reflecting likely recovery while acknowledging the “extraordinarily high” costs in Part 26A cases. The judgment underscored the need for detailed, non-privileged cost breakdowns and proportionality in restructuring litigation.

“The principles that we have set out above are of particular relevance when assessing the recoverable costs of restructuring litigation. The extraordinarily high level of costs that has been seen in recent Part 26A cases is a matter of very considerable concern, especially given that, by definition, the proceedings relate to the affairs of a plan company that is in financial difficulty. If Part 26A is to have the utility that Parliament plainly intended it to have when it was introduced in 2020, the Court should do what it can to keep costs within reasonable and proportionate bounds.”

Citations

Excalibur Ventures LLC v Texas Keystone Inc [2015] EWHC 566 (Comm) A court determining an interim payment on account of costs must order a reasonable sum, estimating the likely recovery after detailed assessment and applying a suitable margin to account for inherent uncertainty. Harold v Smith [1860] 5 Hurl & N 381 The principle governing recoverable inter partes costs is that costs are given as an indemnity to the receiving party, covering only those reasonably required to conduct the litigation. Smith v Buller [1875] LR 19 Eq 473 The recoverable costs between parties are limited to those necessary to enable the receiving party to conduct the litigation, subject to the current reasonableness and proportionality tests. R (Factortame Ltd) v Secretary of State for Transport, Local Government and the Regions [2003] QB 381 To recover costs of external advisers, it must be demonstrated that such costs meet the tests of reasonableness and proportionality applicable to litigation expenses. Kington SARL v Thames Water Utilities Holdings Limited [2025] EWCA Civ 1003 The recoverable costs are the lowest amount the receiving party could reasonably have been expected to incur for competent litigation conduct, irrespective of litigation value or the client’s willingness to pay more. Kazakhstan Kagazy plc v Zhunus [2015] EWHC 404 (Comm) The relevant measure of recoverable costs is the minimum expenditure required for proficient litigation, distinguishing such costs from strategic or excessive outlays made at the party’s discretion. Samsung Electronics Co Limited v LG Display Co Ltd [2022] EWCA Civ 466 Claims for solicitors’ rates exceeding the guideline hourly rates must be supported by a clear and fact-specific justification demonstrating why the higher rates are warranted. Athena Capital Fund SICAV-FIS SCA v Secretariat of State for the Holy See [2022] EWCA Civ 1061 Counsel’s fees are recoverable only to the extent that they are reasonable and proportionate; the court must exercise scrutiny regardless of whether the other side raises express objections.

Track allocation housing disrepair CPR 46.13 settlement sum costs restriction SCCO

MRO fee markup cap 25% detailed assessment personal injury Senior Courts Costs Office

Security for costs refused CPR 25.27 very high probability success excessive estimate King's Bench

IPEC scale costs transfer Patents Court PD 30 para 9.2 costs caps Court of Appeal

Costs budget variation CPR 3.15A promptness significant development unfair prejudice Chancery Division

Costs budgeting inter partes proportionality high hourly rates AI disclosure Patents Court CPR 3E

Beneficiary personal liability section 71(3) Solicitors Act 1974 indemnity costs VAT self-supply SCCO

Summary assessment indemnity costs unless order payment on account disclosure default Chancery Division

Provisional assessment set aside CPR 3.1(7) points of dispute filing duty PD 47 para 14.3 SCCO

Fixed recoverable costs police claims CPR 26.9(10)(e) intentional tort exemption

Key Points

When determining a reasonable sum for an interim payment on account of costs under CPR 44.2(8), the court may estimate the likely level of recovery subject to a margin for error, based on the information available and all relevant factors. [23–24]
A party seeking an interim payment on account of costs must provide sufficient detail to enable the court to assess the reasonableness and proportionality of the sums claimed; failure to do so may result in a substantially reduced award. [6, 35]
Costs claimed inter partes are assessed objectively: only the lowest amount that could reasonably have been expected to be spent to present the case proficiently, having regard to all relevant circumstances, is recoverable. [25]
Where solicitors’ hourly rates exceed the guideline rates, a clear and compelling justification tailored to the specific features of the litigation must be provided; general assertions or comparisons to the paying party’s costs are insufficient. [27–28]
The recoverability of fees for external advisers not ordered under CPR 35, including financial and forensic experts, depends on the party demonstrating that those costs were reasonably and proportionately incurred in conducting the litigation. [24, 40]

“As regards the charges by Mayer Brown, it is clear that detailed narratives were provided by Mayer Brown to its clients to accompany each of their bills, but no effort was made to distil those into a non-privileged summary identifying the types of work done. Moreover, Mayer Brown chose not to provide a complete set of the non-privileged logs from its timekeeping system which would at least have shown the hours worked on such matters by its various fee-earners, or to provide any clear information as to the seniority of such fee earners, or their individual charging rates from time to time.”

Key Findings In The Case

The Appellants (Saipem and Samsung) failed to provide sufficient detail to substantiate their claimed costs of £6.4 million, with minimal narrative descriptions for solicitors’ fees, partial and redacted fee notes for counsel, and virtually no explanation or documentation for financial advisory charges, rendering a full assessment of reasonableness impossible at this stage [5–13, 35–36, 38–41].
Mayer Brown’s partners charged hourly rates approaching twice the applicable Guideline Hourly Rates, but no clear or compelling justifications were provided by the Appellants to explain why such elevated rates were reasonable or proportionate in the specific circumstances of the case [8, 15, 18, 27, 37].
Counsel’s fees were largely unexplained, with only limited fee notes provided; the absence of evidence as to time spent, charging structures, or reasoning behind specific brief fees impeded any robust assessment of their proportionality or recoverability inter partes [9–10, 38].
Alvarez & Marsal’s “Financial Advisory” fees totalling over £1.3 million were essentially unitemised, and the court found the Appellants had failed to demonstrate how these services were necessary to advance the litigation, or whether they qualified as recoverable litigation costs rather than general consultancy [11–12, 16, 41].
The court concluded that, given the significant lack of adequate cost information and the absence of justification for high charges, it would be unsafe to permit an interim payment of 60% of the claimed amount; instead, an interim award of £2 million was appropriate as a cautious estimate above the £500,000 offered by the Respondents [35, 43–44].

“From what was provided, it is clear that the rates charged by the partners who can be identified are approaching twice the Guideline Hourly Rates for Grade A fee earners for very heavy commercial and corporate work by centrally based London firms. Whilst some uplift on the Guideline Rates might be justifiable, we have not been provided with any justification focussing, for example, on the specific complexity or novelty of the issues raised by the Plans, any necessity for matters to be dealt with in a particularly expedited timescale, or identifying any particularly difficult international complications encountered by the solicitors that were not routine for a plan of this type. The only justification offered was a bare assertion that this was restructuring litigation "on a very significant scale", supported by the reference to the excessive size of the court bundles, the unattributed (and questionable) comparison to Thames Water and a repeated reference to the size of the Plan Companies' own costs. That is plainly inadequate.”

Background

This judgment concerned an application for an interim payment on account of costs following the Court of Appeal’s decision to allow an appeal against the sanctioning of restructuring plans. On 1 July 2025, the Court of Appeal handed down judgment allowing the appellants’ (Saipem S.p.A., Saipem Singapore Pte Ltd, Samsung E&A Co., Ltd, and Samsung E&A (Thailand) Co., Ltd) appeal against Marcus Smith J’s order sanctioning restructuring plans for Petrofac Limited and Petrofac International (UAE) LLC under Part 26A of the Companies Act 2006.

Following the successful appeal, the parties reached agreement on most consequential matters. Specifically, it was agreed that the Plan Companies should pay Saipem and Samsung’s costs of the Plan Companies’ applications under Part 26A at first instance and of the appeal, with such costs to be assessed on the standard basis if not agreed. However, the parties were unable to agree the quantum of an interim payment on account of those costs.

Saipem and Samsung initially claimed total costs of £6,231,195, seeking an interim payment of approximately 60%, amounting to £3.75 million. The breakdown initially provided consisted only of total amounts billed by their solicitors (Mayer Brown), counsel (Andrew Thornton KC, Tom Smith KC and Jon Colclough), and financial advisers (Alvarez & Marsal). The Plan Companies objected to this limited information and contended that a detailed schedule of costs in accordance with Form N260 should be provided.

On 8 July 2025, the Court of Appeal directed Saipem and Samsung to “serve and file a schedule of costs, providing sufficient detail for the Court to determine the amount of a payment on account” and set a timetable for sequential filing of short written submissions. The following day, Mayer Brown served two tables summarising invoices rendered by them and by Alvarez & Marsal, together with zip files containing copies of those invoices.

Costs Issues Before the Court

The primary issue before the Court was determining an appropriate interim payment on account of costs under CPR 44.2(8), which provides that where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so.

The Court was required to consider several specific sub-issues arising from the information provided by Saipem and Samsung. First, whether the level of detail provided was sufficient to enable the Court to make a proper determination of an interim payment. The information provided included invoices from Mayer Brown showing “profit costs” and disbursements, with most invoices simply referring to “Professional services” without further breakdown. Only a few invoices contained narrative descriptions of tasks performed by individual fee-earners with timekeeper summaries showing charging rates ranging up to £1,096 per hour in sterling and $1,372.75 per hour in US dollars.

Second, the Court needed to assess the reasonableness and proportionality of the total costs claimed (ultimately £6,405,924) in the context of litigation involving eight days in court (five days at first instance and three on appeal). This assessment required consideration of whether hourly rates significantly exceeding the Guideline Hourly Rates for solicitors could be justified, whether counsel’s fees (including brief fees of £125,000 for Mr Thornton KC and £80,000 for Mr Colclough for the appeal) were reasonable, and whether the fees charged by Alvarez & Marsal for both “Financial Advisory” work (£1,383,494) and “Expert Evidence” work (£840,158) were recoverable as costs of the litigation.

Third, the Court had to determine what constituted a “reasonable sum” for an interim payment in circumstances where there was substantial uncertainty about what would ultimately be allowed on detailed assessment, given the inadequacy of the information provided.

The Parties’ Positions

The Plan Companies contended that the total costs of over £6.4 million were excessive and wholly disproportionate for litigation involving only eight days in court. They emphasised that Saipem and Samsung had not adduced any substantial evidence of fact and had not produced expert evidence to challenge the Plan Companies’ evidence on post-restructuring value or returns to creditors in the relevant alternative. They argued that the information provided was wholly inadequate to enable proper determination of an appropriate payment on account and submitted that any interim payment should be limited to £500,000.

Regarding Mayer Brown’s fees, the Plan Companies objected to the provision of incomplete narratives showing work done and to hourly rates exceeding by some margin the Guideline Hourly Rates in Appendix 2 to the Guide to the Summary Assessment of Costs. They noted that based on the limited narratives provided, a disproportionately large amount of charges (approaching 50%) appeared to have been incurred at partner level rather than being delegated to more junior fee-earners. The Plan Companies argued that significant reliance appeared to have been placed on counsel, suggesting potential duplication.

For Alvarez & Marsal’s charges, the Plan Companies contended that fees for “Financial Advisory” work were entirely unparticularised and could not be assumed to be recoverable litigation costs. They further argued that “Expert Evidence” costs were excessive given that Saipem and Samsung had not actually challenged the Plan Companies’ expert valuation evidence, and their evidence regarding competitive position effects had been found irrelevant.

Saipem and Samsung asserted that their costs were entirely reasonable and proportionate given the size of their claims that the Plans sought to extinguish (US$1 billion) and when compared to the US$111 million in professional fees the Plan Companies had spent on formulating the Plans by January 2025. They characterised the case as “restructuring litigation on a very significant scale”, supporting this by reference to bundle sizes, a comparison to the Plan Companies’ costs, and a media quotation describing the Plans as “bigger and more complicated than Thames Water”.

Regarding Mayer Brown’s fees, Saipem and Samsung claimed that detailed narratives on some invoices were inadvertently disclosed and privileged. They sought to justify the hourly rates by citing paragraph 29 of the Guide, which indicates significantly higher rates might be appropriate where substantial and complex litigation involved factors such as high value, complexity, urgency, importance, or an international element. However, they did not explain how these factors specifically applied to Mayer Brown’s work.

Saipem and Samsung contended that the Plans’ complexity made using Alvarez & Marsal as financial advisers appropriate and recoverable. They submitted that charges for a separate Alvarez & Marsal team producing expert evidence were appropriate and that Alvarez & Marsal’s “enrichment assessment” report showing returns on New Money was essential to the case’s central issue outcome. They noted that the Plan Companies did not expressly object to counsel’s fees and therefore contended that 50-60% of those costs should be paid on account in any event.

The Court’s Decision

The Court began by setting out the applicable legal principles for determining interim payments on account of costs. Citing Excalibur Ventures LLC v Texas Keystone Inc., the Court emphasised that the question is what constitutes a “reasonable sum on account of costs”, which depends on circumstances including the inherent uncertainty before detailed assessment. A reasonable sum would often be an estimate of likely recovery subject to an appropriate margin for error in estimation.

The Court referred to the fundamental principle that costs between litigating parties are given as an indemnity to the receiving party, with recoverable costs limited to those not unreasonably incurred or unreasonable in amount (CPR 44.3(1)) and, on standard basis assessment, proportionate to the matters in issue (CPR 44.3(2)). Citing Kazakhstan Kagazyp plc v Baglan Abdullayevich Zhunus, the Court emphasised that the relevant test is objective: the lowest sum the receiving party could reasonably have been expected to spend to have its case conducted and presented proficiently.

Regarding solicitors’ fees, the Court noted that whilst the Guideline Hourly Rates provide helpful guidance, rates exceeding them require clear and compelling justification. Referencing Samsung Electronics Co Limited v LG Display Co Ltd, the Court stressed that merely asserting factors such as complexity or international elements is insufficient without specific justification relating to the particular case.

The Court rejected Saipem and Samsung’s argument that their costs were necessarily reasonable when compared with the Plan Companies’ professional costs. The Court stated that different tasks were involved and that a paying party having paid its own lawyers disproportionately high fees does not make the receiving party’s fees reasonable and proportionate.

The Court found the information provided by Saipem and Samsung inadequate to conclude with any confidence that they would likely recover anything approaching £6.4 million on detailed assessment. Regarding Mayer Brown’s charges, the Court noted that whilst detailed narratives were provided to clients, no effort was made to distil these into non-privileged summaries identifying work types. The Court observed that partner rates were approaching twice the Guideline Hourly Rates for Grade A fee earners, and the only justification offered – bare assertions about scale supported by references to bundle sizes and questionable comparisons – was “plainly inadequate”.

For counsel’s fees, the Court found the position “little better”, noting absence of information about work done, time spent, or charging rates applied, except for limited details about Mr Thornton KC’s sanction hearing fees and appeal brief fees. The Court emphasised that the Plan Companies’ lack of express challenge did not absolve the Court from scrutinising recoverable amounts between parties.

Regarding Alvarez & Marsal’s fees, the Court accepted that seeking specialist financial advice on how restructuring plans affect creditors’ rights and interests may be appropriate and recoverable. However, the Court found nothing beyond bare invoice straplines identifying the nature of “Financial Advisory” work or explaining charge calculations. Whilst accepting some charges would likely be recoverable, particularly the “Expert Evidence” work that produced useful forensic analysis for the Court, the total lack of information about charge calculations required the Court to “err on the side of caution”.

The Court concluded that given its inability to estimate likely recovery on detailed assessment with real confidence, it could not order payment on account of anything like the 60% of £6.4 million claimed. However, notwithstanding the manifest deficiencies in information provided, the Court considered that Saipem and Samsung would likely recover materially more than the £500,000 offered by the Plan Companies. The Court determined that £2 million was the appropriate sum to order as payment on account, reflecting the substantial level of uncertainty identified.

The Court’s decision included observations about the “extraordinarily high level of costs” in recent Part 26A cases, expressing “very considerable concern” given that such proceedings by definition relate to companies in financial difficulty. The Court stated that if Part 26A is to have the utility Parliament intended when introduced in 2020, the Court should do what it can to keep costs within reasonable and proportionate bounds.

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