CA-2025-001239 - [2025] EWCA Civ 1106

The power to make an order for a payment on account of costs is contained in 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.”

In Excalibur Ventures LLC v Texas Keystone Inc. [2015] EWHC 566 (Comm), Christopher Clarke LJ reviewed the earlier authorities and stated, at §§22-24,

“22.

… It is clear that the question, at any rate now, is what is a “reasonable sum on account of costs”. It may be that in any given case the only amount that it is reasonable to award is the irreducible minimum. I do not, however, accept that that means that “irreducible minimum” is the test. That would be to introduce a criterion (a) for which the rules do not provide’ (b) which is not the same as the criterion for which they do provide; and (c) which has potential drawbacks of its own, not least because it begs the question whether it means those costs which could not realistically be challenged as to item or amount or some more generous test. On one approach it admits of every objection to costs, which cannot be treated as fanciful.

23.

What is a reasonable amount will depend on the circumstances, the chief of which is that there will, by definition, have been no detailed assessment and thus an element of uncertainty, the extent of which may differ widely from case to case as to what will be allowed on detailed assessment. Any sum will have to be an estimate. A reasonable sum would often be one that was an estimate of the likely level of recovery subject, as the costs claimants accept, to an appropriate margin to allow for error in the estimation. This can be done by taking the lowest figure in a likely range or making a deduction from a single estimated figure or perhaps from the lowest figure in the range if the range itself is not very broad.

24.

In determining whether to order any payment and its amount, account needs to be taken of all relevant factors including the likelihood (if it can be assessed) of the claimants being awarded the costs that they seek or a lesser and if so what proportion of them; the difficulty, if any, that may be faced in recovering those costs; the likelihood of a successful appeal; the means of the parties; the imminence of any assessment; any relevant delay and whether the paying party will have any difficulty in recovery in the case of any overpayment.”

It follows that in making any estimate of the likely level of recovery of costs on a detailed assessment, the court will have to consider the tests to be applied on that assessment. The long-standing principle is that costs between litigating parties are given by the law as an indemnity to the receiving party: Harold v Smith [1860] 5 Hurl & N 381. The old rule was that the costs recoverable were limited to the costs which were necessary to enable the receiving party to conduct the litigation and no more: Smith v Buller [1874-1875] LR 19 Eq. 473. Under the CPR, the same basic approach applies, but the test of necessity has been replaced by a requirement that the costs must not have been unreasonably incurred or be unreasonable in amount (CPR 44.3(1)); and (on assessment on a standard basis) that the costs must be proportionate to the matters in issue (CPR 44.3(2)).

The recoverable costs of litigation will normally include the fees, charges and disbursements of a party’s solicitors and barristers, together with any experts who give evidence pursuant to orders made by the court under CPR 35. It will be for the party claiming to recover the fees or charges of any other external adviser or person to demonstrate that they meet the tests set out above: see e.g. the role of the forensic accountants whose fees were in issue in R (Factortame) v Secretary of State [2003] QB 381.

On the application of the reasonableness and proportionality tests to the quantum of any costs sought to be recovered, in Kington SARL v Thames Water Utilities Holdings Limited [2025] EWCA Civ 1003 at §27, the Court of Appeal referred with approval to the observations of Leggatt J (as he then was) in Kazakhstan Kagazyp plc v Baglan Abdullayevich Zhunus [2015] EWHC 404 (Comm) at §13. Leggatt J emphasised that what a party might subjectively consider reasonableto pay to advance its own interests in litigation is not the relevant test. The relevant test when assessing recoverable costs between the parties is an objective one, and is the lowest sum that the receiving party could reasonably have been expected to spend in order to have its case conducted and presented proficiently,

“In a case such as this where very large amounts of money are at stake, it may be entirely reasonable from the point of view of a party incurring costs to spare no expense that might possibly help to influence the result of the proceedings. It does not follow, however, that such expense should be regarded as reasonably or proportionately incurred or reasonable and proportionate in amount when it comes to determining what costs are recoverable from the other party. What is reasonable and proportionate in that context must be judged objectively. The touchstone is not the amount of costs which it was in a party’s best interests to incur but the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances. Expenditure over and above this level should be for a party’s own account and not recoverable from the other party. This approach is first of all fair. It is fair to distinguish between, on the one hand, costs which are reasonably attributable to the other party's conduct in bringing or contesting the proceeding or otherwise causing costs to be incurred and, on the other hand, costs which are attributable to a party’s own choice about how best to advance its interests. There are also good policy reasons for drawing this distinction, which include discouraging waste and seeking to deter the escalation of costs for the overall benefit for litigants.”

Some guidance as regards the recoverable level of solicitors’ fees can be obtained from the Guideline Hourly Rates included in Appendix 2 to the Guide. Those figures have most recently been up-dated with effect from 1 January 2025. For “very heavy commercial and corporate work” by centrally based London firms (London band 1) the guideline hourly rates range from £566 for Grade A fee earners (solicitors with over 8 years’ experience) to £205 for Grade D fee earners (trainee solicitors and paralegals).

The Guide makes clear, at §27, that the Guideline Hourly Rates are “broad approximations only”, and that in substantial and complex litigation, other factors may justify a significantly higher rate. However, as Males LJ observed in Samsung Electronics Co Limited v LG Display Co Ltd [2022] EWCA Civ 466 at §§4-6, it is not sufficient simply to assert that such factors are present: a clear and compelling justification must be provided,

“4.

[The Guide] recognises [at §29] that in substantial and complex litigation an hourly rate in excess of the guideline figures may sometimes be appropriate, giving as examples “the value of the litigation, the level of the complexity, the urgency or importance of the matter, as well as any international element”. However, it is important to have in mind that the guideline rates for London 1 already assume that the litigation in question qualifies as “very heavy commercial work”.

5.

LG has not attempted to justify its solicitors charging at rates substantially in excess of the guideline rates. It observes merely “that its hourly rates are above the guideline rates, but that is almost always the case in competition litigation”.

6.

I regard that as no justification at all. If a rate in excess of the guideline rate is to be charged to the paying party, a clear and compelling justification must be provided. It is not enough to say that the case is a commercial case, or a competition case, or that it has an international element, unless there is something about these factors in the case in question which justifies exceeding the guideline rate.”

Although, by its terms, the Guide relates to a summary assessment of costs, it is nevertheless clear that that the Guideline Hourly Rates also represent a “helpful starting point” for a detailed assessment: see §28 of the Guide. As such, if a payment on account of a detailed assessment is sought by reference to materially higher rates than in the Guide, a clear and compelling justification should be provided: see Thames Water at §28.

The same principles as explained by Leggatt J in Kazakhstan Kagazyp are applicable to counsel’s fees, whether charged on the traditional basis of a brief fee and refreshers, or by reference to an hourly rate. Whatever a party may have been willing to pay to secure the services of counsel to advance its own interests, it is only able to recover the lowest amount which it could reasonably have been expected to spend in order to have its case conducted and presented proficiently, having regard to all the relevant circumstances.

So, in Athena Capital Fund SICAV-FIS SCA v Secretariat of State for the Holy See [2022] EWCA Civ 1061, after referring to Samsung v LG, Males LJ stated, at §7,

“Counsel’s fees are not subject to guideline rates in the same way that solicitors’ fees are, but it is nevertheless important to stress that, whatever clients may be prepared to pay their own counsel, only a reasonable and proportionate fee may be recovered from the other side.”

In Athena Capital Fund, Males LJ also made the point at §8, echoing the policy comments made by Leggatt J in Kazakhstan Kagazyp, that the fact that lawyers on both sides of a case are being paid disproportionately high amounts by their own clients does not absolve the court from its obligation to keep the recoverable costs of litigation within reasonable and proportionate bounds,

“It is a striking feature of the present situation, that although almost every possible point has been taken on both sides in the course of this appeal, there has been no challenge either to the appellants’ solicitors’ hourly rates or to the brief fees and other fees charged by their counsel. However, the costs payable by the losing party on the standard basis are limited to those which are reasonable and proportionate. Where the costs of the paying party are also disproportionately high, that can make no difference. In any event the court will scrutinise cost schedules in order to keep levels of recovery within reasonable bounds.”

To similar effect is the comment in the Guide at §11,

“The costs which the paying party has incurred for its own representation may be relevant when considering the reasonableness and proportionality of the receiving party’s costs. However, they are only a factor and are not decisive. Both parties may have incurred costs which are unreasonable and disproportionate, but only reasonable (and, on the standard basis, proportionate) costs may be allowed.”

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.