Kington SARL & Ors v Thames Water Utilities Holdings Limited & Anor

On 15 April 2025 we handed down our judgment dismissing the appeal against the order of Leech J sanctioning the restructuring plan (the “Plan”) in respect of Thames Water Utilities Holdings Limited (the “Plan Company”). We now have to determine the costs of that appeal.

No costs order is sought by or against the third appellant (“Mr Maynard”) or the second respondent (the “Class A AHG”).

The Plan Company contends that it was the successful party on the appeal; that costs should follow the event; and that it is entitled to be paid its costs of the appeal. In recognition, however, of the fact that no costs order is sought against Mr Maynard, and of the fact that the appeal was successful in part (in that we ordered a variation to that part of the Plan releasing claims against the Plan Company’s officers and advisers) the Plan Company seeks recovery of only 80% of its costs. This is sought against the first appellant (“Kington”) and the second appellant (“TWL”) on a joint and several basis. The total costs which the Plan Company incurred on the appeal are approximately £2.26 million. 80% of that figure is approximately £1.81 million, and it seeks an order that 40% of that sum is paid on account (£724,441.08).

Kington contends that it was the successful parties on appeal, and both Kington and TWL seek payment of their costs by the Plan Company. Kington’s costs of the appeal are approximately £1.81 million. It seeks a payment on account of 40% of that sum (£650,966.08). TWL’s costs of the appeal are £895,839.98. It also seeks a payment on account of 40% of that sum (£339,333.45).

Leech J described the amount of the costs of finance and advisers’ fees in connection with the restructuring of Thames Water as “eye-watering”. The same can be said – certainly so far as the Plan Company and Kington are concerned (the Class A AHG’s costs have not been revealed) – of the legal costs of this appeal, which lasted three days and was heard only three weeks after judgment was handed down below. We are not asked to assess any party’s costs, so this point is relevant, so far as the issues before us are concerned, only to the extent that we are asked to order a payment on account of costs.

Costs are in the discretion of the Court: CPR 44.2(1). The general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, but the Court may make a different order: CPR 44.2(2). In deciding what order to make, the Court is to have regard to all the circumstances: CPR 44.2(4), including whether a party has been successful on part of its case, even if that party has not been wholly successful.

The Plan Company’s position is simple: the appeals have been dismissed; as respondent to the appeals it is therefore the successful party and should be entitled to at least most of its costs.

Kington and TWL put their case in two ways. First, the general rule ought not to apply in the case of an appeal from a decision whether to sanction a scheme of arrangement or restructuring plan. Second, if the general rule does apply, then they should be regarded as the successful parties because – although the appeals were dismissed – the Court in substance agreed with their submissions on the legal principles to be applied.

Kington and TWL contend that the general rule on costs does not apply to schemes of arrangement or restructuring plans. They contend that at first instance in such cases, as a general rule, costs orders are not made against objecting creditors. The Court has a discretion but will generally either order the company to pay the objector’s costs or make no order as to costs. They contend that the principles which underlie the approach adopted at first instance should also apply on appeal.

Numerous cases were cited to us which demonstrate the approach taken at first instance, but it is unnecessary to do more than quote Snowden J (as he then was) in a judgment delivered at a hearing to convene meetings of creditors in Re Virgin Active Holdings Limited[2021] EWHC 911 (Ch). He summarised the principles he there applied, at §29, as follows:

“i)

In all cases the issue of costs is in the discretion of the court.

ii)

The general rule in relation to costs under CPR 44.2 will ordinarily have no application to an application under Part 8 seeking an order convening scheme meetings or sanctioning a scheme, because the company seeks the approval of the court, not a remedy or relief against another party.

iii)

That is not necessarily the case (and hence the general rule under the CPR may apply) in respect of individual applications made within scheme proceedings.

iv)

In determining the appropriate order to make in relation to costs in scheme proceedings, relevant considerations may include,

a)

that members or creditors should not be deterred from raising genuine issues relating to a scheme in a timely and appropriate manner by concerns over exposure to adverse costs orders;

b)

that ordering the company to pay the reasonable costs of members or creditors who appear may enable matters of proper concern to be fully ventilated before the court, thereby assisting the court in its scrutiny of the proposals; and

c)

that the court should not encourage members or creditors to object in the belief that the costs of objecting will be defrayed by someone else.

v)

The court does not generally make adverse costs orders against objecting members or creditors when their objections (though unsuccessful) are not frivolous and have been of assistance to the court in its scrutiny of the scheme. But the court may make such an adverse costs order if the circumstances justify that order.

vi)

There is no principle or presumption that the court will order the scheme company to pay the costs of an opposing member or creditor whose objections to a scheme have been unsuccessful. It may do so if the objections have not been frivolous and have assisted the court; or it may make no order as to costs. The decision in each case will depend on all the circumstances.”

Ms Peters for TWL shouldered the burden in respect of this part of the appellants’ case. She submitted that the rationale for the different approach in relation to schemes and plans is as follows. Absent the sanction of a scheme, the Court has no power to vary the contractual rights of creditors. Evidence and submissions from opposing creditors assist the Court in its scrutiny of a scheme, i.e. in testing the proposals through adversarial argument. She submitted that the same rationale applies a fortiori in relation to a restructuring plan under Part 26A, because the Court is being asked to exercise an even more intrusive power over dissenting creditors, namely the cross-class cram-down power.

As David Richards J said in Royal & Sun Alliance v British Engine & ors[2006] EWHC 2947 (Ch) at §23, the reason opposing creditors are permitted to appear on an application such as the sanction of a scheme is because it enables matters of proper concern to be fully ventilated before the Court and, even if the court is satisfied that sanction should be given, the evidence and submissions of opposing creditors or members may well assist the Court in its scrutiny of the proposal.

Ms Peters submitted that the same approach should apply equally on appeal, because the policy and rationale on appeal is the same.

Mr Smith KC, for the Plan Company, did not accept that the approach summarised in Virgin Active should be followed even at first instance. In the unusual circumstance that we are asked to make an order as to the costs of the appeal before the judge has made any order as to the costs incurred before him, Mr Smith did not, however, develop his argument as to the proper approach to be adopted at first instance.

Nothing we say should influence the decision yet to be made by Leech J as to the costs incurred before him. We therefore say nothing about the correctness of the approach summarised in Virgin Active as it relates to applications to sanction a scheme or plan at first instance. We simply assume, for the purposes of addressing Kington’s and TWL’s arguments before us, that it does apply at first instance.

Mr Smith submitted that, irrespective of whether it was the correct approach at first instance, it does not apply on appeal. For the reasons shortly stated below, we agree.

At first instance, the plan company needs to persuade the Court to exercise its discretion to sanction the plan. It needs to do that whether or not there is opposition. Evidence and submissions from opposing creditors can be of assistance to the Court in its scrutiny of the plan, even if that opposition is not successful.

Once the Court has exercised its discretion to sanction the plan, however, the position is different. The plan company needs nothing more from the Court in order to implement the plan. An appeal by opposing creditors reflects their dissatisfaction with one or other aspect of the judge’s decision. We consider that at this stage in the ordinary case – and without ruling out the possibility that in a particular case the Court’s discretion should be exercised in another way – the question of costs should be approached in the same way as most appeals, namely that the successful party is generally entitled to a costs award in their favour. If the opposing creditors’ dissatisfaction with the judgment is justified, then they could expect (subject to other factors which affect the exercise of discretion) to receive a costs order in their favour. If not, then they could expect (on the same basis) to have to pay the plan company’s costs.

We would be concerned, as Mr Smith submitted, that adopting a blanket rule or assumption that – unless they act unreasonably in appealing – opposing creditors can expect to receive their costs of the appeal from the plan company irrespective of whether they win or lose, could encourage unmeritorious (even if not unreasonable) appeals.

Mr Phillips KC submitted that Kington and TWL were in substance the successful parties, and so should have their costs paid by the plan company. That was primarily because, it is said, in addition to succeeding in obtaining a variation to the release provisions in the Plan, they were successful on the underlying legal issues. Specifically, they were successful on the questions of whether the judge was correct to conclude that the interests of creditors who would be out of the money in the relevant alternative ought not to be taken into account, and whether he was correct to conclude that there was no restructuring surplus in this case.

We do not accept this view of the result. The appeal was dismissed, and the sanction of the Plan was upheld. Although we disagreed with the judge as to the underlying legal principles, that had no impact on our decision, because the bases on which the appellants challenged the sanction of the Plan were rejected on the facts.

We have no doubt that the correct analysis in these circumstances is that the Plan Company was, overall, the successful party and is entitled to a costs order in its favour.

That is not to say that the Plan Company is entitled to all of its costs. As we have already noted, Mr Smith accepted that a discount of 20% should be applied, to cater for the facts that (1) part of its costs were incurred in addressing the arguments of Mr Maynard, against whom no costs order is sought, and (2) it partially lost on the release point.

Kington and TWL say that there should be a further reduction – a reduction to nil in fact – to take account of their success on the legal issues. We agree in principle that a further reduction in the Plan Company’s entitlement to costs is justified on this basis, but not a reduction to nil.

A further reduction is justified for two reasons in particular. First, because, whatever may have been the position adopted by the Plan Company on this point before the judge, they undoubtedly sought to uphold the judge’s conclusion that the opposing creditors were out of the money on appeal. The arguments on that point occupied a substantial part of the hearing. Second, although so far as this specific appeal is concerned, the victory on the legal issues could be described as pyrrhic, because the appellants lost on the facts anyway, this appeal ought to be seen in the context of the wider, and far more substantial, restructuring of which this Plan is intended to be only a part. While recognising that there is no certainty that any further restructuring plan will in fact be proposed, Mr Phillips was correct, in our view, to say that our conclusions on the legal issues are of potential benefit in that respect, if only in providing guidance as to the process to be adopted in relation to any such restructuring.

Taking into account the reductions to reflect the fact that no costs order is sought against Mr Maynard, the release point, and the appellants’ success on the legal issues, we consider that the Plan Company is entitled to recover 60% of its costs from TWL and Kington. We accept Ms Peters’ submission that it would be unfair to burden each of them with the costs caused by the presence of the other. We therefore order that they are severally liable for the Plan Company’s costs. In the absence of any better information as to the appropriate allocation, we order that they are each liable for 50% of the costs ordered in favour of the Plan Company (i.e. they are each liable for 30% of the Plan Company’s costs).

In considering an appropriate amount to order on account of costs, particularly where the costs claimed are as high as they are in this case, the following comment from Leggatt J (as he then was) in Kazakhstan Kagazy PLC v Baglan Abdullayevich Zhunus[2015] EWHC 404 (Comm) is apposite:

“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.”

We note that (i) approximately £1.4 million was incurred by the Plan Company’s solicitors and (ii) Counsels’ fees (across the three Counsel at the hearing) were in excess of £800,000. The hourly rates for the Plan Company’s solicitors (e.g. £1,232 to £1,400 for a partner) are far in excess of the guideline rates, with no real justification offered, other than that this was a complex case. As this Court pointed out in Samsung Electronics Co Ltd v LG Display Co ltd[2022] EWCA Civ 466, per Males LJ at §6, in order to justify departure from the guideline rates “a clear and compelling justification must be provided.” Although there are no guideline rates for Counsel’s fees, it is important to stress that only a reasonable and proportionate fee may be recovered from the other side: Athena Capital Fund SICAV-FIS SCA v Secretariat of State for the Holy See[2022] EWCA Civ 1061, per Males LJ at §7.

In circumstances where the Plan Company instructed more than eight professionals (three Counsel and solicitors across five levels of seniority), where the appeal was mostly confined to issues of law (albeit that Kington’s appeal involved a review of the judge’s findings on valuation), and where the parties had argued the same issues before the judge only a matter of weeks earlier, we consider that there is a greater than usual risk of overlap between the work done by the various professionals.

Mr Smith sought a payment on account of 40% of the claimed costs. That was a conservative estimate, he submitted, of what would be allowed on assessment, taking into account the issues we have identified above. We consider it is not conservative enough, and will order a payment on account of 35%: that would result in the total costs claimed being reduced to a still very generous amount, in all the circumstances, of £791,000. When applied to 60% of the costs incurred, the resulting payment on account, rounded up, is £475,500.

Each of Kington and TWL will accordingly be ordered to pay £237,750 on account of the Plan Company’s costs.