The Court of Appeal has delivered an important reminder in Re Petrofac Ltd (Costs) [2025] EWCA Civ 1106 that, even in high value disputes, payments on account of costs will only reflect what the court considers reasonable, and that claims must be substantiated.

Following a successful appeal, the parties had reached agreement on liability to pay costs but had not been able to agree the amount of the payment on account to be made. The receiving parties put their costs at around £6.4 million and sought 60% of this. They argued their costs were justified as this was “restructuring litigation on a very significant scale”, while the paying parties argued these costs were excessive and disproportionate and that any payment should be limited to £500,000.

The Court of Appeal restated the power in CPR 44.2(8) to order payment of a reasonable sum on account of costs and referenced the principles of reasonableness and proportionality in CPR 44.3 which apply to assessment on the standard basis. Having concluded that the information provided was “inadequate to enable us to conclude, with any degree of confidence, that [the receiving party is] likely to recover anything approaching £6.4 million on a detailed assessment” the court ordered a payment on account of costs in the sum of £2 million.

In analysing the competing positions, the Court of Appeal stressed the three requirements of reasonableness, proportionality and substantiation.

• What a party might subjectively be prepared to pay to advance its own interests in litigation was not the relevant test, and equally if a paying party had paid its own lawyers disproportionately high fees this did not make the fees claimed by a receiving party reasonable and proportionate. Inter partes the test was objective and was “the lowest sum that the receiving party could reasonably have been expected to spend in order to have its case conducted and presented proficiently”.

• The information provided by the receiving party was inadequate to support their claim that they were likely to recover £6.4 million at detailed assessment. The court was particularly critical of the lack of breakdown of the fees claimed for solicitors, counsel and financial advisers, for example the type or hours of work by solicitors or counsel, or details about the financial advisory work and how it was charged. As regards to the solicitors, the rates charged by partners were close to twice the Guideline Hourly Rates and, while the Court felt that some uplift might be justifiable, no justification was provided beyond generic assertions of scale.

The judgment is a reminder of the need to adhere to principles of reasonableness and proportionality and to substantiate sums claimed when seeking payment on account of costs. The court was critical of bare claims and assertions and, in the absence of supporting detail, felt it needed to “err on the side of caution” in estimating the amount that might be recoverable.

Helen Appleby is an Associate in Clarion’s Costs and Litigation Funding Team and can be contacted at helen.appleby@clarionsolicitors.com or on 07774 045105.