Stein v Jaffe: Standard Basis Costs With 10% Reduction for Unpleaded Arguments and Interest at 1% Over Base Rate

Detailed Assessment — 2026-03-13

Master Brightwell applies 10% costs reduction for unpleaded Trustee Act arguments, sets 70%/90% payment on account split for costs-managed case, and awards interest at 1% over base rate.

Overview

Date: 13 March 2026

Judge: Master Brightwell, Chancery Division

Citation: [2026] EWHC 559 (Ch)

Nature of Proceedings: Costs judgment following dismissal of breach of trust claim

Key Issues:

Whether unpleaded arguments raised at trial justify a reduction in the successful party's costs
The appropriate payment on account in a costs-managed case (70% pre-CCMC, 90% post-CCMC)
Interest on costs: whether ECB-based rates are appropriate for an overseas litigant billed in sterling
Treatment of reserved costs from pre-trial applications

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The Facts

The Claimant (Kirill Ace Stein) brought a claim for compensation for breach of trust against the Defendant (Eugene Jaffe). By a judgment handed down on 19 September 2025 ([2025] EWHC 3400 (Ch)), Master Brightwell dismissed the claim, having found that no trust had been declared over the disputed payment.

The costs hearing took place on 24 February 2026. The Claimant was represented by Laurence Page (instructed by Eversheds Sutherland (International) LLP) and the Defendant by Lisa Lacob (instructed by Peters & Peters Solicitors LLP).

The Defendant sought his costs on the standard basis. The Claimant argued for a 50% reduction, pointing to the Defendant's conduct both before and during the proceedings.

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The Standard Basis Order

Master Brightwell applied the general rule under CPR r 44.2(2) — the unsuccessful party pays the costs of the successful party — and ordered the Claimant to pay the Defendant's costs on the standard basis, subject to a 10% reduction (discussed below).

The court systematically rejected each of the Claimant's arguments for a more substantial reduction:

Pre-action conduct: The proceedings were issued without any pre-action correspondence. The Claimant's explanation was that he was concerned the Defendant had left the jurisdiction, but nearly 18 months had passed since the related Revoker Proceedings. Master Brightwell found nothing in the Defendant's pre-action conduct to justify departing from the usual order.

The Defendant's misconceived strike-out application: The Defendant had initially responded to the claim by issuing a strike-out application which was withdrawn at the hearing on 8 February 2024 without determination. The costs of that application had already followed the event (i.e. the Claimant had his costs of that application). The court acknowledged the resulting delay in filing the defence but found it had not been shown to cause the Claimant particular additional costs.

Disclosure conduct: Both parties had disclosed documents after the deadline. Master Brightwell did not consider this unusual in a case of this kind and found no basis for a reduction.

Conduct in the Revoker Proceedings: The Claimant sought to rely on the Defendant's evidence in earlier related proceedings. The court firmly rejected this, holding that the question of costs should be determined by reference to the decision in the substantive judgment, not by rearguing points from the trial evidence.

The court cited Fox v Foundation Piling Ltd [2011] EWCA Civ 790 and the White Book commentary at 44.2.10, noting the "growing and unwelcome tendency" of judges to depart from the general rule too readily, particularly through issue-based approaches.

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The 10% Reduction for Unpleaded Arguments

The one factor that did justify a departure was the Defendant's reliance on unpleaded arguments concerning the effect of the Trustee Act 2000 on the constitution of the claimed trust. These points were raised for the first time shortly before trial.

Master Brightwell found that:

1. The points were significant and had entailed significant preparation (and thus cost) on the part of the Defendant's legal team

2. The points failed — the court agreed with the Claimant's submissions on them

3. The Claimant could not have protected himself on costs because he was unaware of them until shortly before trial

4. While pre-trial costs were unlikely to have been increased by these issues, trial preparation and trial costs were directly affected

Rather than making a cumbersome issues-based order, the court imposed a 10% reduction to the recoverable costs of the trial preparation and trial stages (i.e. the costs incurred during those phases as budgeted in the Defendant's approved costs budget).

This is a useful illustration of the court's pragmatic approach: rather than attempting to identify and allocate costs on an issue-by-issue basis, a percentage reduction targeted at the relevant phases achieves a just result without disproportionate assessment complexity.

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Reserved Costs of Pre-Trial Applications

Two pre-trial applications had costs reserved:

The amendment application (28 March 2025): The Claimant applied to amend the particulars of claim to include equitable compensation for loss of use of the disputed funds. The contested amendment was refused at the PTR ([2025] EWHC 1337 (Ch)). The Defendant was not unreasonable in opposing it. No separate costs order was made — the costs fell within the general order for costs of the claim.

The Defendant's second witness statement application (30 April 2025): This statement was served just before the Easter weekend, with the PTR the first working day after. The Claimant reasonably required a formal application and proper opportunity to consider the contents before consenting. The court ordered the Defendant to pay the Claimant's costs of this application — recognising that the lateness of the statement put the Claimant to trouble while preparing for trial.

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Payment on Account: 70% Pre-CCMC, 90% Post-CCMC

This was a costs-managed case, and the court's approach to the payment on account reflects the distinction in certainty between incurred costs and budgeted costs:

70% of costs already incurred at the date of the CCMC (and of the Defendant's costs of the amendment application)
90% of the budgeted costs thereafter (with the 10% reduction applied first to trial preparation and trial phases)

The higher percentage for budgeted costs reflects the greater predictability that costs budgeting provides. Where costs have been approved or agreed in a budget, the court can be more confident that the eventual assessment will broadly reflect those figures — justifying a higher interim payment.

The court did not adjust the payment on account to reflect the Defendant's witness statement application (where costs were awarded to the Claimant), noting that those costs related only to the application itself and should not be substantial.

Payment was due within 14 days of hand-down.

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Interest on Costs: 1% Over Base Rate

The question of interest on costs provided a useful discussion of the applicable principles, particularly for overseas litigants.

The Claimant's Position

The Claimant argued for a rate based on the European Central Bank rate, relying on Phones 4U Ltd (In Administration) v EE Ltd [2023] EWHC 3378 (Ch), where Roth J awarded interest at 1.5% over the ECB main refinancing operations rate.

The Defendant's Position

The Defendant sought 2% over Bank of England base rate, submitting that the Defendant had in fact borrowed at higher rates (though no evidence was adduced of this).

The Court's Ruling

Master Brightwell rejected the ECB-based approach for three reasons:

1. The Defendant was billed in sterling — even though he was based overseas, he was not billed in euros

2. It was not self-evident the Defendant should have borrowed in euros — he was defending a claim formulated in US dollars

3. No details about ECB lending rates were provided — the court noted that Roth J in Phones 4U had received detailed submissions on different ECB rates, and no such material had been put before this court

Applying the general principles from Secretary of State for Energy and Climate Change v Jones [2014] EWCA Civ 363 — that the court conducts a general appraisal of what is reasonable for both the paying and receiving parties — Master Brightwell awarded interest at 1% over Bank of England base rate.

The court noted that the lower margin (1% rather than the 2% sought by the Defendant) was justified in part by the Defendant's own delay in responding to the claim. The Defendant, through different solicitors and counsel, had sought extensions of time for filing a defence and issued a strike-out application abandoned at the last moment. This will have had some financial consequence for the Claimant.

Interest ran from 13 March 2024 (when the defence was filed) to the date of judgment (from when the costs order became a judgment debt).

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Key Takeaways

For Costs Lawyers

1. Unpleaded arguments carry a costs risk — A party that raises significant arguments without proper notice may face a reduction in recoverable costs, even where they succeed overall. The 10% reduction here was specifically targeted at the trial preparation and trial phases where the unpleaded points had their greatest impact.

2. Percentage reductions are preferred over issues-based orders — Master Brightwell's approach confirms the pragmatic preference for a percentage adjustment over a granular issues-based order, which the court described as "cumbersome to assess."

3. Payment on account reflects costs management certainty — The 70%/90% split between pre-CCMC incurred costs and post-CCMC budgeted costs is a useful benchmark. The higher figure for budgeted costs reflects the reliability that costs management provides.

4. ECB rates require proper evidence — Practitioners seeking interest on costs based on foreign borrowing rates must put detailed evidence before the court. Simply citing Phones 4U without the underlying rate data will not suffice.

For Litigation Practitioners

1. Don't reargue the trial at the costs hearing — Master Brightwell was firm that the costs question should be determined by reference to the decision in the judgment, not by relitigating evidential disputes from trial.

2. Pre-action protocol compliance matters — The absence of pre-action correspondence was noted, even where the Claimant had justification. Defendants should not assume that a lack of pre-action correspondence will count against the Claimant on costs.

3. Late service of evidence carries a price — The Defendant was ordered to pay the costs of the second witness statement application because of the lateness of service, even though the application itself succeeded.

4. The general rule remains robust — Citing Fox v Foundation Piling, the court emphasised that the mere fact a successful party does not win on every point is not sufficient to justify a departure from costs following the event.

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Conclusion

Stein v Jaffe provides a well-reasoned costs judgment that will be of particular interest to practitioners dealing with unpleaded arguments and their costs consequences. The 10% reduction — precisely targeted at the trial preparation and trial phases — demonstrates the court's willingness to adjust costs orders where a party introduces significant points without adequate notice, while avoiding the disproportionate exercise of an issues-based assessment.

The payment on account percentages (70% pre-CCMC, 90% post-CCMC) offer a useful reference point for costs-managed claims, and the interest discussion provides a clear reminder that ECB-based rates will not be applied without proper evidential foundation, even where the paying party is based overseas.

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Citation: Stein v Jaffe [2026] EWHC 559 (Ch)

Full judgment available at: BAILII

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