Petrofac Limited (Costs), Re

On 1 July 2025 we handed down our judgment allowing an appeal by the Appellants against the order of Marcus Smith J sanctioning restructuring plans in relation to the Respondents: [2025] EWCA Civ 821. We use the same abbreviations in this judgment as in that main judgment. This judgment deals with the issue of an interim payment on account of the costs of the proceedings.

After the handdown of the main judgment, consequential matters were largely agreed between the parties. In particular, it was agreed that the Plan Companies should pay the costs of Saipem and Samsung of the Plan Companies’ applications under Part 26A at first instance, and of the appeal, to be assessed on the standard basis if not agreed.

However, the parties were unable to agree the amount of an interim payment on account of those costs, which are very significant. The total amount claimed by Saipem and Samsung was initially £6,231,195, of which an interim payment of about 60% was sought, amounting to £3.75 million.

At first, the breakdown provided by Saipem and Samsung to support this claim simply listed the total amounts billed by their solicitors, Mayer Brown; by counsel (Andrew Thornton KC, Tom Smith KC and Jon Colclough); and by their financial advisers, Alvarez & Marsal.

The Plan Companies objected that this was not a proper explanation or particularisation of the fees claimed. They contended that Saipem and Samsung should provide a detailed schedule of costs in accordance with Form N260, which is the form for use in relation to summary assessment of costs in fast track trials and hearings lasting no more than one day as required by CPR PD44 paragraph 9.5. Saipem and Samsung responded that they could not provide a schedule in Form N260 in the time available and that the same level of detail required for summary assessment was not necessary for the Court to be able to determine an amount to be paid on account of costs.

It is true that the CPR does not prescribe any particular information or form for determination of an interim payment on account of costs. Accordingly, by an order dated 8 July 2025, we directed that Saipem and Samsung, “serve and file a schedule of costs, providing sufficient detail for the Court to determine the amount of a payment on account”. We also set a timetable for the sequential filing of short written submissions.

The following day, Saipem and Samsung’s solicitors, Mayer Brown, served two tables summarising a number of invoices rendered by them and by Alvarez & Marsal to Saipem and Samsung, together with zip files containing copies of those invoices.

The entries in the table relating to Mayer Brown’s invoices each broke down the total amount into Mayer Brown’s own “profit costs” and disbursements. No further detail was given in the table in relation to the breakdown of Mayer Brown’s profit costs. The majority of the invoices provided did not contain any additional information, but simply referred to the provision of “Professional services” in connection with “Project Oil” during a specified period and set out the amounts payable. However, a few of the invoices provided did have attached a narrative description of tasks performed by individual fee-earners, together with the time for each item and a “Timekeeper summary” which set out the charging rates for each named individual and the resultant charges. The hourly charging rates varied between the individuals and between invoices, some invoices being in sterling and some in US dollars. The highest sterling rate shown was £1,096 per hour and the highest dollar rate was $1,372.75 per hour.

The majority of Mayer Brown’s disbursements were fees paid to counsel. The Mayer Brown invoices to Saipem and Samsung identified the counsel instructed, and the amounts paid to them in the relevant period. For all but one of the invoices there was no description of the services provided, no fee notes were attached to support the amounts claimed and there was no indication of the hourly rates charged by counsel for advice.

The only exception was the invoice rendered to Samsung for the period 29 April 2025 to 28 May 2025. This annexed some of counsel’s fee notes – albeit heavily redacted to exclude any reference to the fees for advice. The amounts disclosed related to some of the fees for the sanction hearing and for the appeal. Mr Thornton KC charged a total of £92,400 for preparing and attending the sanction hearing (including refreshers) and charged a further £1,800 for “work on judgment”. There was no indication of Mr Colclough’s brief fee for the sanction hearing, but he charged daily refreshers of £7,200 and reviewed the judgment and drafted email advice with Mr Smith KC (who was not instructed at the hearing and who charged £7,400 separately for doing so). Mr Thornton KC’s brief fee for the appeal was shown as £125,000 and Mr Colclough’s was £80,000. In total, the amount for which fee notes were provided was £241,080 – which was less than 25% of the total claimed.

The table in relation to Alvarez & Marsal’s invoices broke down the amounts invoiced into three columns - time costs, “outlays” and expenses. The “workstream” for six of the eight invoices rendered to each of Saipem and Samsung was given as “Financial Advisory”. The “workstream” for the remaining two invoices rendered to each of Saipem and Samsung was given as “Expert Evidence”.

The invoices in the attached file provided little further detail. The invoices for the “Financial Advisory” workstream referred to the provision of “Consulting and advisory services” between specified dates pursuant to an “Engagement Letter” dated 7 November 2024. The invoices for the “Expert Evidence” workstream referred to the provision of “Special Services Rendered” between specified dates pursuant to an “Engagement Letter” dated 24 March [2025]. Neither Engagement Letter was provided.

In total, the amounts claimed in respect of solicitors, counsel and financial advisers were as follows,

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.

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.

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.

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”.

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.

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.

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 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.

Applying these principles to the instant case, we first reject the argument that the costs claimed by Saipem and Samsung in opposing the Plans are necessarily reasonable and proportionate when compared with the enormous professional costs said to have been incurred by the Plan Companies in devising the Plans. The two tasks were obviously different, and as explained above, the possibility that a paying party may have paid its own lawyers and advisers disproportionately high fees does not make the fees claimed by a receiving party reasonable and proportionate.

Secondly, we accept the argument made by the Plan Companies that the information that Saipem and Samsung have chosen to provide is inadequate to enable us to conclude, with any degree of confidence, that they are likely to recover anything approaching £6.4 million on a detailed assessment.

As regards the charges by Mayer Brown, it is clear that detailed narratives were provided by Mayer Brown to its clients to accompany each of their bills, but no effort was made to distil those into a non-privileged summary identifying the types of work done. Moreover, Mayer Brown chose not to provide a complete set of the non-privileged logs from its timekeeping system which would at least have shown the hours worked on such matters by its various fee-earners, or to provide any clear information as to the seniority of such fee earners, or their individual charging rates from time to time.

From what was provided, it is clear that the rates charged by the partners who can be identified are approaching twice the Guideline Hourly Rates for Grade A fee earners for very heavy commercial and corporate work by centrally based London firms. Whilst some uplift on the Guideline Rates might be justifiable, we have not been provided with any justification focussing, for example, on the specific complexity or novelty of the issues raised by the Plans, any necessity for matters to be dealt with in a particularly expedited timescale, or identifying any particularly difficult international complications encountered by the solicitors that were not routine for a plan of this type. The only justification offered was a bare assertion that this was restructuring litigation “on a very significant scale”, supported by the reference to the excessive size of the court bundles, the unattributed (and questionable) comparison to Thames Water and a repeated reference to the size of the Plan Companies’ own costs. That is plainly inadequate.

The position is little better in relation to the fees of counsel. We have not been provided with any indication of the work done by counsel in advising in relation to the Plans, or the times that they spent, or the charging rates that they applied. The only significant detail provided related to the fees paid to Mr Thornton KC in preparing for the sanction hearing and the brief fees for him and Mr Colclough for the appeal. There was therefore very little for the Plan Companies to challenge, and, as explained by Males LJ in Athena Capital Fund, the fact that, for whatever reason, they did not do so expressly in their written submissions does not absolve the Court from scrutinising the amounts that should be recoverable between the parties.

The recoverability of the fees of Alvarez & Marsal is equally uncertain. We readily accept that in the nature of a restructuring plan, it may well be appropriate for creditors, in addition to seeking specialist legal advice, to seek specialist financial advice on how the proposed plan will affect their rights and financial interests in their capacity as creditors. Creditors may well need, for example, to have specialist financial advice on the opinions expressed by the advisers to the plan companies as to the likely financial outcome for creditors in the relevant alternative, as compared with the likely financial outcome for them and others under the plan. It may also be necessary, and indeed desirable, for opposing creditors who contest such opinions to seek an order from the court under CPR 35 that they should be at liberty to adduce their own expert evidence on such matters. We also accept that, in certain cases, it may be entirely appropriate for the efficient conduct of the litigation for forensic accountants, rather than lawyers, to analyse and present complex financial information in an accessible manner for the court.

As we have said, in each case it will be for the creditor seeking to recover a payment on account of such costs to identify the nature of such advice and any expert opinion or forensic evidence obtained, and to explain why it was reasonable and proportionate for it to incur such costs in relation to the proceedings.

In the instant case, there is nothing apart from a bare strapline on the invoices from Alvarez & Marsal to identify the nature of the “Financial Advisory” work that it performed for Saipem and Samsung, or to explain how the charges for that work were calculated. We accept that it is likely that at least some of the financial advice related to the effect of the Plans on the position of Saipem and Samsung as creditors of the Plan Companies (including in relation to the claims of Thai Oil), but the lack of information means that we must err on the side of caution in estimating what might be recoverable.

Alvarez & Marsal’s work product corresponding to the “Expert Evidence” invoices is apparent from the reports produced. Even though none of the reports was produced pursuant to an order for expert evidence, and the Plan Companies specifically contest the recoverability of the charges for the reports relating to the effect of the Plans on the competitive position of Samsung and Saipem, we think that it is likely that at least some of the charges under the heading of “Expert Evidence” will be recoverable. As they made clear on appeal, Saipem and Samsung relied upon the Plan Companies’ own evidence of the post-restructuring value of the equity of the Group to demonstrate the very significant benefits created by the restructuring in order to shift the evidential burden to the Plan Companies to explain why the allocation of a large proportion of those benefits to the providers of the New Money was fair. In that regard, the report from Mr. Johnston of Alvarez & Marsal was a useful forensic analysis for the Court of the Plan Companies’ own evidence. But there is a total lack of any information as to how the charges for any of the “Expert Evidence” were calculated. Accordingly, as with the “Financial Advisory” invoices, we must err on the side of caution in estimating the amount that might be recoverable.

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.

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.