A1 v P: Medway Oil, Indemnity Costs and Arbitration Fees [2026] EWHC 2030 (Comm)
Detailed Assessment — 2026-07-31
The Commercial Court ordered indemnity costs against A1 on unsuccessful issues despite its successful jurisdiction challenge, rejected a restrictive reading of Medway Oil and reduced the claimants' arbitration legal costs by 40% for excessive rates and time.
William Mackenzie | Mackenzie Costs
Overview
Date: 31 July 2026
Judge: Mr Justice Henshaw
Court: High Court of Justice, Commercial Court
Citation: [2026] EWHC 2030 (Comm)
Nature of Proceedings: Costs following a partly successful challenge to an arbitration award under section 67 of the Arbitration Act 1996, including reallocation of the parties' arbitration legal costs
Key Issues:
- Costs of an unsuccessful issue pursued by a party which succeeded overall
- The limits of reliance on Medway Oil when the court decides the appropriate costs order
- Indemnity costs for misleading evidence and the late abandonment of an argument
- Recovery of the costs of a security application resolved by an undertaking
- Guideline hourly rates, excessive time and the assessment of arbitration legal costs
In A1 & Ors v P [2026] EWHC 2030 (Comm), the High Court examined how costs should follow a divided outcome in an arbitration challenge. Two claimants had overturned the award against them, while it remained in place against the third. Henshaw J made separate orders for different issues and stages, including indemnity costs against A1 despite its overall success. He also rejected an attempt to use Medway Oil to restrict the court's discretion under CPR 44.2 and reduced the claimants' recoverable arbitration legal costs by 40% for excessive rates and time.
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The Facts
P supplied intelligence and analysis for legal proceedings. A US law firm, identified in the judgment as C, engaged it in connection with a dispute involving A1, A2 and A3. The parties disagreed about whether C contracted on its own behalf or as agent for one or more of those companies. An LCIA tribunal held all three companies jointly and severally liable for P's fee, interest and costs.
The companies challenged the tribunal's jurisdiction under section 67. In his substantive judgment, [2025] EWHC 3372 (Comm), Henshaw J held that A1 and A3 were not parties to the arbitration agreement. The award against them was set aside. A2's challenge failed because section 73 barred its new objection. P therefore retained its entitlement to the fee against A2 (at [6]-[9]).
Much of the court proceedings concerned a provision of foreign law described as the Authorisation Article. A1 and A2 had initially argued that it deprived them of capacity to enter the arbitration agreement without the required authorisation. Shortly before the substantive hearing, they abandoned the capacity argument and advanced the point only as one about authority. For A1, that change left the argument without practical value: P had always accepted that C lacked actual authority to bind A1 (at [14]-[21]).
The evidence supporting the point also proved misleading. Witness statements said that the companies' constitutions contained no provision enabling arbitration. A2 had amended its articles in 2014 to give its board that power; A1 had made a comparable amendment in 2015. Neither witness had disclosed the relevant amendment. The court's findings about that evidence became central to the costs decision (at [22]-[27]).
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Key Holdings
1. Overall Success Did Not Protect A1 from the Costs of an Unsuccessful Issue
The claimants argued that P had succeeded against only one company and on only one issue. On that approach, they sought most of their own costs, leaving P with a limited recovery for the section 73 point against A2.
Henshaw J rejected that account of the proceedings. The Authorisation Article and section 73 issues had generated a large part of the expenditure. A2 had never been entitled to pursue its new objection. A1 had abandoned the capacity argument after almost all the relevant costs had been incurred. Both had relied on misleading evidence (at [11] and [24]-[27]).
A1's success on other jurisdiction grounds did not justify making P bear the cost of those issues. The court ordered A1 and A2 to pay P's costs of them and allowed neither company to recover its own costs of those issues from P.
The distinction between the two companies matters. A2 lost its challenge altogether. A1 succeeded in overturning the award, but its conduct and the expense of the abandoned argument justified a costs order against it on particular issues. The judgment does not establish that every unsuccessful argument advanced by a successful party requires a separate adverse costs order.
2. Medway Oil Did Not Restrict the Court to Incremental Costs
The claimants relied on Medway Oil and Storage Co Ltd v Continental Contractors Ltd [1929] AC 88. They argued that P could recover only the extra costs generated by the point on which it succeeded. Because A1 had pursued the Authorisation Article issue and had succeeded overall, they said those costs would have arisen in any event.
At [28], Henshaw J rejected the premise and the proposed legal restriction. His starting point was:
> Medway does not lay down any rule of law.
He explained that Medway Oil concerned the effect of a particular order dismissing a claim and counterclaim with costs. The court's present discretion came from the CPR, particularly CPR 44.2. That discretion was not confined to costs which exceeded expenditure that another party's overlapping issue would have required anyway.
The argument also assumed that A1, litigating alone, would have recovered the costs of the Authorisation Article issue or avoided paying P's costs of it. The findings about A1's conduct defeated that assumption.
For costs submissions, the distinction is between deciding what order should be made and working out the effect of an order already made. This decision addresses the former. It does not make the wording of a costs order irrelevant on assessment, nor does it dispense with the need to identify the work falling within that order.
3. The Court Allocated Costs by Stage and Applied the Indemnity Basis to the Relevant Issues
The evidence allowed the court to divide the section 67 proceedings into three stages. The separate summary determination and security applications were excluded from that exercise (at [29]-[33]).
| Stage | Allocation |
| --- | --- |
| Initial phase of the section 67 challenge | The claimants could recover two thirds of their costs from P. The remaining third was attributed to the Authorisation Article and section 73 issues. |
| Intervening work before the substantive hearing | P could recover 95% of its costs. Its schedules supported that allocation to the Authorisation Article and section 73 issues. |
| Substantive hearing | P could recover 60% of its hearing costs; A1 and A3 could recover 40% of theirs. |
The allocation followed the work. The claimants' own evidence indicated that £548,460 incurred in the intervening period related to the Authorisation Article and section 73 issues. At the two-day hearing, those issues occupied almost all of the first day and a significant part of the second (at [31]-[32]).
The percentages did not fix the sums payable. Henshaw J declined P's invitation to make no order for the hearing merely because the claimants' costs were higher. He would invite further submissions before any summary assessment if the parties could not agree. In particular, he had not determined the proportionality of the costs claimed for the section 67 proceedings (at [33]).
At [34], the judge ordered P's costs of the Authorisation Article and section 73 issues on the indemnity basis against A1 and A2. Their use of misleading evidence, together with the weakness of their cases on those issues, took the conduct sufficiently outside the norm. He described their cases as:
> speculative, weak, opportunistic and/or thin.
The reserved costs of P's summary determination application followed the same approach. Although the claimants had successfully resisted that application before Butcher J, they had done so on misleading evidence. The true position would have presented the application in a very different light. A1 and A2 were therefore ordered to pay P's costs on the indemnity basis (at [35]).
4. An Undertaking Resolved the Security Application but Did Not Remove Its Costs
P sought security in October 2024 because A2's asset position was unclear, A3 had no assets and the claimants had refused to provide information about enforcement. The response, served the following month, gave assurances about A1's resources and offered an undertaking by A1 to pay costs ordered against any of the claimants. P then stopped pursuing security (at [36]-[38]).
The claimants nevertheless had to pay P's application costs. The concerns about A2 and A3 were justified, and the undertaking could have been offered earlier. The judge considered it likely that the application had prompted the offer. An earlier failure to pay a £10,000 tribunal order when due also supported concern about voluntary payment (at [39]).
The result turned on the justification for the application and what it achieved. A party considering whether to pursue security should preserve the correspondence showing what information or assurance was sought, when it was refused and what the application ultimately produced.
5. Arbitration Legal Costs Required a Separate Allocation
The tribunal had awarded P all its arbitration costs without allocating them between issues or parties. The parties agreed that the court should vary the award's costs provisions to take account of the section 67 result. They had already agreed the arbitration costs other than their legal costs, which remained for the court to determine (at [40]-[43]).
P remained entitled to most of the common legal costs against A2, because those costs would have been needed to establish A2's liability. A1 and A3 were entitled to the remainder, including the jurisdiction costs: they alone had contested jurisdiction in the arbitration and had ultimately succeeded on that question.
The common work had increased to some extent because P pursued three possible contracting parties. Henshaw J allowed P 90% of its common costs from A2, while P had to pay A1 and A3 10% of their common costs (at [44]). Those are percentages of different parties' costs, so the figures require separate calculation.
The judge also rejected a suggestion that minimal interference with the award favoured the costs allocation the claimants had proposed in the arbitration. The tribunal had never needed to decide that proposal. There was therefore no decision on it to which the court should defer (at [45]).
P also sought a reduction for the claimants' conduct in the arbitration. The judge found no evidence that failure to pay their share of arbitration costs had caused a real increase in legal expenditure. The disclosure complaints were seriously disputed, and he declined to conduct further litigation about those events before the tribunal (at [46]-[47]).
6. Excessive Rates and Time Justified a Combined 40% Reduction
The court did reduce the claimants' arbitration legal costs for their amount. Most solicitor work had been done by a Grade A partner at £778 an hour and a Grade C associate at £463 an hour, converted to sterling (at [48]).
P proposed a comparison with London 2 guideline hourly rates. Henshaw J considered London 1 the better comparator. He accepted that arbitrators were not bound by guideline rates and that the court should not impose them as mandatory rates when revisiting the arbitration costs. They could still assist in assessing proportionality.
The London 1 figures used in the judgment were £512 for Grade A and £270 for Grade C. Those are the comparators used in this assessment, rather than a statement of the rates current at publication. The associate's rate deserved particular attention because the associate had recorded 772 hours, against the partner's 462 hours. The international elements and multiple parties did not justify a large uplift in a dispute which the judge considered neither particularly complex nor particularly large, involving about US$3.2 million (at [48]-[49]).
Time was the second concern. P claimed about 316 hours, comprising 145 solicitor hours and 171 counsel hours. The claimants' solicitors, trainees and paralegals claimed 1,402 hours excluding counsel. The comparison was not between identical categories of work, but the information available and P's figures supported the judge's conclusion that the claimants' hours were excessive (at [50]).
Taking rates and time together, Henshaw J imposed a single 40% reduction after the other adjustments to the claimants' arbitration legal costs. He did not impose separate cumulative reductions for each concern. This was also distinct from the indemnity costs orders for the court proceedings; the 40% reduction was not an assessment of P's indemnity costs (at [51]).
7. The Remaining Adjustments Followed the Work and the Procedural Outcome
The court divided all statement of case costs equally between common costs and jurisdiction costs. That included the Request for Arbitration and the Response. Separately allocating the Statement of Defence would have distorted the treatment of the pleadings (at [52]).
The claimants' early determination application in the arbitration also attracted a 50/50 split. Their eventual success on jurisdiction did not make the tribunal's earlier dismissal of that application wrong: it had been brought before disclosure. Some of the work had also remained useful later in the arbitration (at [53]).
P could recover £2,400 for witness familiarisation concerning a witness needed only for common issues. Each party had to bear its own transcription and room hire costs for the evidentiary hearing. The parties were invited to agree the amounts resulting from the court's decisions, with any remaining dispute to return to the judge (at [54]-[55]).
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Practical Implications
For Costs Lawyers
1. Prepare schedules which identify the disputed work. Evidence dividing costs by issue and stage allowed the court to make targeted percentage orders. A single total would have offered much less help.
2. Calculate each entitlement before addressing the balance. Where each side recovers a percentage of its own costs, the percentages apply to separate amounts. Assessment may materially affect what is payable overall.
3. Support hourly rate challenges with the right comparator. Explain the relevant work, the fee earner mix and the basis for any uplift. The judgment used London 1 rates as an aid to assessment, while rejecting both the proposed London 2 comparison and a mandatory guideline cap.
4. Keep different costs decisions separate. Identify the order, parties, issues and period before applying any reduction. The 40% arbitration reduction cannot be transferred to the court's indemnity costs awards.
For Litigation Practitioners
1. Reassess expensive arguments before the costs accumulate. Abandonment shortly before a hearing may leave substantial exposure where the argument has driven preparation costs and the party's conduct justifies an adverse order.
2. Test witness instructions against the underlying documents. The companies' constitutional amendments undermined their evidence and affected both the substantive costs order and costs reserved at an earlier application.
3. Address justified security concerns promptly. An assurance or undertaking offered only after an application may resolve security while leaving liability for the application costs.
4. Explain the costs risk of a divided result. A successful jurisdiction challenge may leave the client paying the opponent's costs of particular issues. Advice on the likely outcome should identify the expensive disputed issues as well as the prospects of overturning the award.
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Conclusion
A1 v P provides a useful application of CPR 44.2 where parties share representation, pursue overlapping arguments and achieve different results. A1's successful challenge left it liable for indemnity costs on issues supported by misleading evidence. The court's treatment of Medway Oil explains why an incremental-cost argument cannot by itself prevent the court from making the order the circumstances require.
For Mackenzie Costs, the practical value lies in preparing the costs evidence around the work the court must allocate. The judgment then requires a separate exercise to value that work. Its arbitration assessment demonstrates the importance of scrutinising both rates and hours, while its court costs orders show why the eventual financial result cannot be inferred from overall success alone.
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Citation: A1 & Ors v P [2026] EWHC 2030 (Comm)
Full judgment available at: The National Archives | BAILII
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