Petrofac Limited (Costs), Re

On an application for a payment on account of costs, the court must order a reasonable sum, not automatically the irreducible minimum or a fixed percentage of the costs claimed. The estimate should reflect the likely recovery on detailed assessment, with an appropriate margin for uncertainty. Recoverable costs are limited to costs reasonably incurred, reasonable in amount and, on the standard basis, proportionate to the matters in issue. The relevant measure is objective: the lowest sum the receiving party could reasonably have been expected to spend to conduct and present its case proficiently. Guideline Hourly Rates are a helpful starting point, and materially higher rates require clear and compelling justification. These principles apply to solicitors’, counsel’s and external advisers’ fees. Particularly in restructuring litigation, the court should scrutinise inadequate cost information and keep recoverable costs within reasonable and proportionate bounds.

Following the Court of Appeal’s decision allowing the appellants’ substantive appeal against the sanction of restructuring plans, the parties agreed that the plan companies would pay the appellants’ costs of the Part 26A applications and the appeal, subject to detailed assessment. The substantive appeal was allowed in [2025] EWCA Civ 821.

The parties disagreed about the interim payment on account. Saipem and Samsung initially claimed over £6.2 million and sought approximately £3.75 million. The plan companies challenged the amount and the adequacy of the supporting information, offering £500,000. The Court directed service of schedules containing sufficient detail to determine the payment. The central issue was the reasonable sum that should be paid on account in light of likely recoverability and the uncertainty inherent in estimating detailed assessment.

1. Disposition. An interim payment on account of costs of £2 million was ordered. The court could not make an informed estimate supporting anything close to the 60 per cent sought, but considered that recovery would materially exceed £500,000.
2. CPR 44.2(8) requires a reasonable sum on account where costs are subject to detailed assessment, unless there is good reason not to order one. The test is not the irreducible minimum. The court should estimate likely recovery on assessment and allow an appropriate margin for error, taking account of all relevant circumstances, including uncertainty, recoverability, recovery risk, means, delay, imminence of assessment and possible overpayment.
3. The estimate must apply the standards governing detailed assessment. Costs are recoverable as an indemnity, but under the CPR must not be unreasonably incurred or unreasonable in amount and, on the standard basis, must be proportionate to the matters in issue. The objective question is the lowest sum reasonably necessary for the case to be conducted and presented proficiently. A party’s willingness to spend more, or the paying party’s own high expenditure, is not decisive.
4. Guideline Hourly Rates provide a helpful starting point even for detailed assessment. Rates materially above them require clear and compelling justification directed to the particular case. The same objective reasonableness and proportionality principles apply to counsel’s fees.
5. Fees of financial advisers or forensic accountants may be recoverable where their nature and litigation purpose are identified and the claimant explains why their use and amount were reasonable and proportionate. Specialist financial advice and, where appropriate, expert or forensic analysis may assist creditors in restructuring litigation. Here the invoices were insufficiently particularised, so the estimate had to err on the side of caution. The court stressed the wider concern that excessive costs in Part 26A litigation may undermine the statutory utility of the regime.

• Court of Appeal (Civil Division) — In the present costs judgment, the court ordered an interim payment on account of £2 million.
• Court of Appeal (Civil Division) — The substantive appeal against sanction of the restructuring plans was allowed in [2025] EWCA Civ 821.
• High Court of Justice, Business and Property Courts, Insolvency and Companies List (ChD) — Marcus Smith J sanctioned the restructuring plans in [2025] EWHC 1250 (Ch); the Court of Appeal subsequently allowed the substantive appeal.