Variation Of Costs Orders After Successful Appeal | When Previous Orders Should Stand

Should a costs order be varied when a subsequent appeal reverses the substantive outcome? The Court of Appeal holds that where the fundamental basis of earlier success remains undisturbed by a later appellate decision on different grounds, the original costs order should stand.

POTANINA v POTANIN (No.2) (Costs) [2025] EWCA Civ 1223

In Potanina v Potanin (No.2) (Costs), the Court of Appeal addressed four costs issues following a remitted appeal in protracted Part III proceedings involving a sanctioned Russian oligarch. The central question was whether a 2021 costs order in the wife’s favour should be varied after the husband’s subsequent success in the Supreme Court on different grounds. The court declined to vary the earlier order, holding that where a party’s fundamental basis for success remains undisturbed by a later appellate decision on previously unargued points, the original costs order should stand. Applying Baker v Rowe [2009] EWCA Civ 1162, the court treated the wife as the overall successful party despite the Family Division appeal exclusion under CPR 44.2(3)(a). The court ordered a payment on account of £350,000 (over 70% of costs claimed) under CPR 44.2(8), rejected set-off against a Supreme Court costs order it lacked jurisdiction to vary, and set a 60-day payment period balancing sanctions compliance requirements with prompt payment. The decision provides guidance on managing costs through complex, multi-stage appeals and payment timing in sanctions-affected litigation.

“We are persuaded not to disturb the award of costs from this court in 2021; we accept that the fundamental basis on which she had succeeded in her appeal before this court in 2021 was not materially challenged in, let alone disturbed by, the Supreme Court, which decided the husband’s appeal on previously unargued grounds (see [40] of the Supreme Court’s decision: [2024] UKSC 3). Further, standing back from the history of the various appeals, the wife can properly be described as the successful party, as she has been given leave to pursue her financial application and, although the general rule does not apply to an appeal from the Family Division (CPR 44.2(3)(a)), there is no good reason why this should not be the “decisive factor” in this case: Baker v Rowe [2009] EWCA Civ 1162, at [25].”

Citations

Baker v Rowe [2009] EWCA Civ 1162 Although the general rule that costs follow the event does not automatically apply in the Family Division, a party’s success on appeal may still be the decisive factor in determining costs. Potanina v Potanin [2025] EWCA Civ 1136 Where a respondent unequivocally loses on central issues in an appeal, a costs order in favour of the successful appellant may stand, notwithstanding subsequent appellate proceedings on distinct grounds. Potanin v Potanina [2024] UKSC 3 The Supreme Court may impose a delayed costs payment schedule to account for international sanctions compliance, without altering prior costs orders of lower courts.

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Key Points

Variation of costs orders on appeal will not be granted retrospectively where a party’s earlier success was not materially undermined by a later decision, particularly where the later appeal succeeded on previously unargued grounds.
In appeals from the Family Division, although the general rule that the unsuccessful party pays the costs does not automatically apply (CPR 44.2(3)(a)), the overall success in the litigation may be the decisive factor when determining costs.
The court may order a payment on account of costs where there is no good reason to the contrary, and a reasonable proportion of the total claimed costs will generally be considered appropriate under CPR 44.2(8).
The court does not have jurisdiction to vary or offset costs orders made by a higher court, and any set-off between opposing parties’ costs liabilities across distinct orders cannot be effected in the absence of express authority.
In determining the timeframe for payment of a costs order under sanctions constraints, the court may consider practical impediments faced by the paying party but will balance those against the need for timely compliance, rejecting both unreasonably short and excessive delays.

“In line with CPR rule 44.2(8) we are satisfied that there is no good reason that the wife should not receive a reasonable sum on account of her costs, and the sum claimed (a little over 70% of the total costs claim per her form N260) is in our view appropriate.”

Key Findings In The Case

The Court of Appeal declined to vary its previous costs orders made in May 2021 in favour of the wife, finding that her success in that appeal had not been materially affected by the Supreme Court’s later judgment, which rested on grounds not argued in the earlier case.
The Court accepted the wife’s submission that, seen globally, she was the ultimately successful party in the proceedings, having secured permission to proceed with her substantive claim under Part III, and this justified a costs award in her favour under CPR 44.2(2)(a), notwithstanding the discretion granted under CPR 44.2(3)(a) in family appeals.
The Court ordered the husband to pay £350,000 on account of the wife’s costs of the current appeal, finding no good reason to withhold such payment and determining that the amount (approximately 72% of the total claimed) was reasonable under CPR 44.2(8).
The Court rejected the husband’s request to offset the wife’s costs entitlement against her liability to pay him costs under the Supreme Court’s 2024 order, holding that it lacked jurisdiction to modify or interfere with costs orders issued by a higher court.
While acknowledging the sanctions-related difficulties in effecting payment, the Court fixed a 60-day compliance period for the husband to pay the relevant sums following notice of the wife’s acquisition of the necessary licences, rejecting both the husband’s proposed 90-day period as excessive and the wife’s 14-day proposal as impractical.

"As for the time for payment, we take the view that the husband should have 60 days to comply with the costs' orders following notification that the wife has obtained the relevant licence(s) authorising her to receive funds; 90 days seemed to us to be excessive, but we accept the husband's contention that 14 days imposes an unrealistic time-frame upon him."

The Court of Appeal’s decision in Potanina v Potanin (No.2) (Costs) [2025] EWCA Civ 1223 addresses variation of costs orders on appeal, confirming that costs orders should not be varied where the fundamental basis of the earlier success remains undisturbed by a subsequent appellate decision on different grounds.

Background

The proceedings concerned a costs judgment following a remitted appeal in one of the most protracted and high-value matrimonial disputes in English legal history. The parties, both Russian nationals, divorced in Russia in 2014 after a 30-year marriage. In the Russian proceedings, the wife received what was described as a “tiny fraction” of the parties’ estimated $20 billion wealth, as only assets legally owned by the husband were divided — the vast majority of his wealth held through trusts and corporate structures was excluded. The wife subsequently relocated to London and in October 2018 applied for leave to bring financial remedy proceedings in England under Part III of the Matrimonial and Family Proceedings Act 1984.

The Appeal History

In January 2019, Cohen J granted the wife leave on a without-notice basis. The husband applied to set aside that order, arguing the judge had been materially misled. After hearing both sides, Cohen J set aside his original order and refused leave. The wife appealed to the Court of Appeal. In May 2021, the Court of Appeal allowed her appeal [2021] EWCA Civ 702, finding that Cohen J had not been materially misled and that the proper approach was to adjourn set-aside applications unless the respondent could deliver a “knockout blow.” The court restored the grant of leave and ordered the husband to pay the wife’s costs, with payments on account totalling £491,439.80 [§6].

The husband appealed to the Supreme Court. In March 2024, the Supreme Court allowed his appeal by a majority of 3:2 [2024] UKSC 3. Critically, the Supreme Court succeeded on different grounds from those argued below. It held that the entire “knockout blow” practice was unlawful and contrary to procedural fairness, but did not disturb the Court of Appeal’s findings that Cohen J had not been materially misled. Because it succeeded on new procedural grounds, the Supreme Court remitted two of the wife’s grounds of appeal back to the Court of Appeal for determination under the correct legal principles. The Supreme Court also ordered the wife to pay 50% of the husband’s appeal costs, but deferred payment until final determination of the wife’s substantive Part III claim [§7].

The Present Proceedings

On 4 September 2025, the Court of Appeal handed down judgment on the two remitted grounds [2025] EWCA Civ 1136 [§1]. That substantive judgment allowed the wife’s appeal and granted her leave to make an application under Part III of the Matrimonial and Family Proceedings Act 1984. This subsequent judgment, handed down on 2 October 2025, addressed the costs issues arising from that remitted appeal and the protracted litigation history [§1-2].

The husband was a designated person under the Russia (Sanctions) (EU Exit) Regulations 2019, necessitating a licence for any financial transfers [§3]. The parties agreed that the husband should pay the wife’s costs of the appeal on a standard basis, to be assessed if not agreed, and that a licence would need to be obtained for payment [§3]. However, they disputed four ancillary costs matters [§4].

Costs Issues Before the Court

The court was required to determine four specific costs issues [§4]. First, whether the costs order made by the Court of Appeal in May 2021 should be varied in light of the subsequent decision of the Supreme Court in 2024, an issue remitted by the Supreme Court for the Court of Appeal’s consideration [§4(i)]. Second, whether the husband should make a payment on account of the wife’s costs of the appeal [§4(ii)]. Third, whether the husband could offset his liability for costs against the sum the wife was ordered to pay by the Supreme Court [§4(iii)]. Fourth, the appropriate time frame for the husband to meet any costs award, given the sanctions regime affecting him, with the husband seeking 90 days and the wife proposing 14 days [§4(iv)].

Previous Costs Orders

For context, the Court of Appeal’s May 2021 order included two separate costs awards on the standard basis: £255,301.20 on account for the appeal costs, and £236,138.60 on account for the set aside application costs [§6]. The Supreme Court’s March 2024 order required the wife to pay 50% of the husband’s appeal costs, but deferred payment until 90 days after the later of: obtaining a licence, conclusion of detailed assessment or agreement, or final determination of the wife’s substantive Part III claim [§7].

The Parties’ Positions

The wife contended that the 2021 costs order should remain unaltered, arguing that she had comprehensively succeeded in the earlier appeal by demonstrating that the first instance judge (Cohen J) had not been materially misled, a point not challenged by the husband in the Supreme Court appeal [§8]. She noted that the husband had succeeded in the Supreme Court on an argument which had not previously been raised [§8]. She sought a payment on account of £350,000, representing approximately 72% of her total costs [§10]. She proposed that payment should be made within 14 days of obtaining the required licence [§11]. She opposed any offset of the Supreme Court costs liability, noting that under that order, payment was deferred until the conclusion of the entire proceedings [§12, referencing §7].

The husband argued that the 2021 costs order should be varied to reflect the Supreme Court’s decision. He accepted liability for the wife’s costs of Cohen J’s de novo determination and the Maintenance Regulation case, but disputed liability for costs of the set aside aspect [§9]. As a compromise, he proposed that he pay 50% of the costs of the 2021 appeal and 50% of the costs before Cohen J, on the basis that each party had succeeded in their respective appeals [§9]. He disputed the necessity of any payment on account but, if ordered, did not appear to dispute the figure [§10]. He sought 90 days for payment after the licence was obtained, citing “formidable practical difficulties” in transferring funds through intermediary banks under sanctions compliance requirements, and noted potential delays beyond his control [§11]. He pointed out that the Supreme Court had allowed 90 days in its March 2024 order [§11]. He also requested that his costs liability be offset against the sum the wife owed under the Supreme Court’s costs order [§12].

The Court’s Decision

Variation Of Costs Orders On Appeal | The 2021 Order

The court declined to vary the 2021 costs order, establishing important principles on variation of costs orders on appeal [§13, §17(i)]. It found that the wife’s success in the earlier appeal was based on grounds not materially challenged or disturbed by the Supreme Court, which had decided the husband’s appeal on previously unargued points [§13]. The fundamental basis on which she succeeded in 2021 — that Cohen J had not been materially misled — was not challenged in, let alone disturbed by, the Supreme Court [§13, citing the Supreme Court’s decision at [40]].

The court considered the wife the successful party overall, as she had obtained leave to pursue her financial application [§13]. Applying the principle in Baker v Rowe [2009] EWCA Civ 1162 at [25], and noting that although the general rule does not apply to appeals from the Family Division under CPR 44.2(3)(a), the court found “no good reason why this should not be the ‘decisive factor’ in this case” [§13].

Payment on Account

The court ordered a payment on account of £350,000 [§14, §17(ii)(a)]. In line with CPR rule 44.2(8), the court was satisfied there was no good reason the wife should not receive a reasonable sum on account of her costs [§14]. The sum claimed — a little over 70% of the total costs claim per the wife’s form N260 — was deemed appropriate [§14].

Set-off Against Supreme Court Costs Order

The court rejected the husband’s request for an offset against the Supreme Court costs liability [§15, §17(v)]. It noted that it was not open to the court to vary the costs order made by the Supreme Court [§15]. The wife’s payment obligation under the Supreme Court order was deferred until the conclusion of the entire proceedings (specifically, “the final determination of the wife’s substantive Part III claim”) [§7, paragraph 1(a)(iii)].

Time for Payment

The court set a period of 60 days from the wife’s notification that the required licence had been obtained [§16, §17(ii)]. This balanced the husband’s cited practical difficulties against the wife’s preference for a shorter timeframe [§16]. The court found 90 days excessive but 14 days unrealistic [§16]. The order specified that if payment was not made by the due dates, interest at the applicable judgment rate would begin to accrue immediately [§17(iii)]. The order expressly confirmed that the Supreme Court’s costs order stood unaltered [§17(v)].

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