What is a reasonable interim payment on costs where it isn't agreed?

The Court of Appeal was asked to consider what an appropriate interim payment on account of costs would be where the parties were unable to agree the amount and the case was not subject to Costs Budgeting. The Appellants sought a payment on account of £3.75m (60% of the total amount claimed) whereas the Respondents offered £500,000. The Court of Appeal ultimately awarded an interim payment of £2m on the basis it could have any real confidence as to what would be recovered at detailed assessment.  

The case highlights the need to provide sufficient information to the court and the need to both explain and justify the level of costs sought in order to give the court confidence in awarding a higher level of payment on account. The approach here differs to a case which is subject to Costs Budgeting / Costs Management where the court will award an interim payment by reference to the approved Costs Budget (generally up to 90% of budgeted costs). 

In Petrofac Ltd (Costs), Re [2025] EWCA Civ 1106 (14 August 2025) the Court of Appeal noted that "the CPR does not prescribe any particular information or form for determination of an interim payment on account of costs" and they therefore directed that the Appellants should "serve and file a schedule of costs, providing sufficient detail for the Court to determine the amount of a payment on account".  

Speed Read 

The Court of Appeal's judgment is a useful read as to the law, authorities and approach to quantifying a payment on account of costs where the sum is disputed between the parties. In summary: 

1. CPR 44.2(8) provides that the court, when making an order for costs, must order a payment on account of costs unless there is good reason not to do so.  

2. A reasonable payment on account of costs will depend on the circumstances of the case: "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."  

3. The court must consider all factors including what costs the receiving party is likely to recover, the means of the parties, the imminence of any assessment, any relevant delay and whether the paying party will have difficulty in recovering any overpayment. In short, the factors to be considered are the same as those on detailed assessment. 

4. It is for the Receiving Party to provide adequate information to allow the court to consider what is likely to be recoverable at assessment, to include as to whether costs and disbursements are reasonable and proportionate. Where there is a lack of information "the court must err on the side of caution in estimating what might be recoverable at detailed assessment". 

5. If hourly rates exceeding Guideline Hourly Rates are claimed then the receiving party must provide "clear and compelling justification".  

6. Counsel fees must be reasonable and proportionate. Where there is a lack of detail as to the work undertaken by Counsel including time spent and/or hourly rate charged then the court will err on the side of caution.  

7. The fact that both parties have incurred substantial costs does not automatically mean that costs are reasonable and proportionate. All sides can spend disproportionately. The court's role is in discerning what is both reasonable and proportionate. 

8. Similarly a lack of information/detail as to expert fees will lead the court to err on the side of caution when estimating what might be recoverable. Here the Appellants did not have permission for expert evidence, even so the Court of Appeal provided that at least some of the charges were likely to be recoverable. 

9. The obtaining of financial advice may be appropriate for the efficient conduct of specific cases "to analyse and present complex financial information in an accessible manner for the court". It is for the receiving party to explain why it was reasonable and proportionate to incur such costs in relation to the proceedings.  

10. The Court of Appeal took into account the decision Kazakhstan Kagazyp plc chiefly that "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" and that this was also applicable to Counsel's fees. 

The Details Provided 

The Appellants served two tables summarising a number of invoices which had been raised, together with copies of the invoices. The rates were variable but the highest rate shown was £1,069 in sterling and $1,372.75 per hour in dollars. The majority of disbursements related to Counsel. There was no fee notes provided and no indication as to what hourly rate Counsel had charged. The costs in totality equated to £6,405,924 consisting of solicitor fees, counsel fees, expert fees and financial advice.  

The Arguments 

The judgment summed up the respective positions of the opposing parties: 

"14. The Plan Companies contend that the total costs of over £6.4 million now claimed by Saipem and Samsung are excessive and wholly disproportionate for litigation that involved only eight days in court (a total of five for the convening hearing and the sanction hearing at first instance, and a further three on appeal). They point out that Saipem and Samsung did not adduce any substantial evidence of fact and did not adduce any expert evidence to challenge the Plan Companies' evidence of the post-restructuring value of the Petrofac Group or of the return to creditors in the relevant alternative. The Plan Companies contend that the information provided by Saipem and Samsung is wholly inadequate to enable the court to make a determination of an appropriate payment on account, and that if the Court is minded to make an order for an interim payment on account at all, it should be limited to £500,000. 

15. As regards Mayer Brown, the Plan Companies object, in particular, to the provision of incomplete narratives showing the work done and to the fact that the hourly rates charged exceed by some margin the Guideline Hourly Rates for solicitors in Appendix 2 to the Guide to the Summary Assessment of Costs (the "Guide"). They contend that it would seem that a significant amount of reliance was placed upon counsel, and that on the basis of the narratives that have been provided, a disproportionately large amount of the charges (approaching 50%) seems to have been done at partner level rather than being delegated to more junior fee-earners. 

16. As regards the charges by Alvarez & Marsal, the Plan Companies contend that the fees for "Financial Advisory" work are entirely unparticularised and cannot be assumed to be recoverable costs of litigation. They further contend that the costs of "Expert Evidence" are excessive given that Saipem and Samsung did not actually challenge the expert evidence of the Plan Companies as regards valuation, and their evidence as to the effect of the Plans on their competitive position was found to be irrelevant. 

17. In response, Saipem and Samsung assert that the costs that they claim are entirely reasonable and proportionate given the size of their claims that the Plans sought to extinguish (US$1 billion) and in comparison to the extraordinary US$111 million on professional fees that the Plan Companies had already spent on formulating the Plans by January 2025. Saipem and Samsung contend that the instant case is "restructuring litigation on a very significant scale", and support this contention by a footnoted reference to the size of the bundles used at the court hearings, a comparison to the Plan Companies' costs, and a media quotation of an unnamed adviser to the Plan Companies saying that the Plans were "bigger and more complicated than Thames Water". 

18. As regards the fees of Mayer Brown, Saipem and Samsung claim that the detailed narratives on some of the invoices were inadvertently disclosed and are privileged. They seek to justify the hourly rates charged by the fee-earners at Mayer Brown by quoting §29 of the Guide which indicates that significantly higher rates might be appropriate where substantial and complex litigation involved factors such as high value, complexity, urgency, importance, or an international element. But they do not go on to explain how those factors applied to Mayer Brown's work. 

19. Saipem and Samsung further contend that the complexity of the Plans meant that the use of Alvarez & Marsal as financial advisers to assist them in the plan process was appropriate and should be recoverable. They also submit that the charges of a separate team at Alvarez & Marsal to produce expert evidence were appropriate; and that Alvarez & Marsal's "enrichment assessment" report showing the returns on the New Money was essential to the outcome on the central issue in the case. 

20. Finally, Saipem and Samsung point out that the Plan Companies do not expressly object to the fees charged by their counsel, and therefore contend that 50-60% of those costs should be paid on account in any event." 

The Law 

The Court next considered the law around interim payments on account of costs. The Court of Appeal noted that CPR 44.2(8) provided 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 judgment then proceeded to consider the relevant authorities: 

"22. 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." 

23. 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)). 

24. 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. 

25. 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 reasonable to 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." 

26. 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). 

27. 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." 

28. 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. 

29. 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. 

30. 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." 

31. 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." 

32. 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." 

33. 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. 

Analysis and Application 

The Court of Appeal considered the application of the law and authorities to the present case and it was held that: 

1. The Appellant's contention that the costs were reasonable and proportionate was rejected.  

2. That the information provided by the Appellant's was "inadequate to enable [the court] to include, with any degree of confidence that they [were] likely to recover anything approaching £6.4m on a detailed assessment". 

3. The descriptions/narrative of work done by the solicitor didn't identify the work done, the hours worked, seniority of fee earners or their individual charging rates. 

4. From what was provided, the rates claimed were significantly uplifted from the Guideline Hourly Rates and the justifications provided by the Appellants were inadequate.  

5. There were no Counsel fee notes and no detail of the time spent or rate applied. There was lack of information for the Respondents to challenge and the fact the Respondents may have high Counsel fees is not relevant to what is recoverable between the parties.  

6. The position as to the recoverability of the financial advisor fees were uncertain. Whilst it was accepted that in certain cases it may be appropriate "for the efficient conduct of the litigation for forensic accountants, rather than lawyers, to analyse and present complex information in an accessible manner for the court", that could not yet be determined. Moreover, the Appellants could have sought an order for Part 35 evidence and had not done so here. The receiving party would have to "identify the nature of [any] advice and any expert opinion or forensic evidence obtained, and to explain why it was reasonable and proportionate to incur such costs in relation to the proceedings". Here the Appellants had failed to provide sufficient detail as to the work which had been undertaken and consequently the court had to err on the side of caution in estimating what might be recoverable.  

7. With expert evidence, the Appellants did not have permission to adduce expert evidence, even so the Court of Appeal considered that some of the charges would likely be recoverable as the report was a useful forensic analysis for the Court. However, there was again a total lack of information as to how the expert charges had been calculated and as such the court again had to err on the side of caution in estimating what might be recoverable.  

The Court of Appeal concluded that:  

"43. Pulling these various factors together, as we are unable to estimate the amount that Saipem and Samsung are likely to recover on a detailed assessment with any real confidence, we do not consider that we can make an order for a payment on account of anything like 60% of the £6.4 million that they claim. That said, and notwithstanding the manifest deficiencies in the information provided, we think that it is likely that Saipem and Samsung will recover materially more than the £500,000 offered by the Plan Companies. 

44. In our judgment we consider that the appropriate sum to order as a payment on account, which reflects the substantial level of uncertainty we have identified, is £2 million." 

The clear lesson here is that without sufficient information the court will err on the side of caution resulting in a lower interim payment award. A high interim payment can be important in narrowing costs issues early, improving cash flow and speeding up recovery generally.  

Wherever an order for costs is made, receiving parties should utilise the power of CPR 44.2(8) to obtain agreement to a payment on account of costs. For paying parties an early interim will guard and mitigate interest accrual.