£44m bill “Eye-watering even by Commercial Court standards”: Court of Appeal tackles proportionality in P&ID costs dispute and approach to case management
In The Federal Republic of Nigeria v VR Global Partners LP & Ors [2026] EWCA Civ 25, the Court of Appeal dismissed Nigeria’s appeal against a case management decision by Mr Justice Robin Knowles to stay its application for a third party costs order until after the detailed assessment of costs had been completed. The judgment provides important guidance on the sequencing of costs applications in complex high-value litigation and the court’s approach to proportionality in costs proceedings. It also confirms that issues of case management are subject to a wide ambit of judicial discretion and the bar for appellate intervention is high. In particular, there is no presumption that third party-costs applications should be heard immediately or in parallel with a detailed assessment, and the court will consider the impact on judicial resources and what is most efficient.
Background
The appeal arose from high-profile litigation in which the high court had previously set aside arbitration awards totalling approximately USD 11 bn made in favour of Process & Industrial Developments Limited (“P&ID”) against Nigeria. As we reported in October 2023, Mr Justice Knowles found that P&ID had obtained the awards through fraud and by “practising the most severe abuses of the arbitral process”.
P&ID is a special purpose company incorporated in the British Virgin Islands with no assets other than the claim against Nigeria. It is now indirectly owned in part by VR Capital, a large US-based investment fund which invested in P&ID in 2017 and provided the funding for P&ID to pursue enforcement of the awards and resist Nigeria’s setting aside application.
Following the setting aside of the awards, the judge ordered P&ID to pay Nigeria’s costs on the standard basis, with an interim payment on account of £20m (which was paid). However, P&ID’s directors admitted that “no arrangement was in place for P&ID to be put into sufficient funds to meet any adverse costs order”. Consequently, Nigeria issued an application for a third-party costs order against VR Global Partners LP, VR Advisory Services Ltd, and their founder, Mr Richard Deitz.
The Sequencing Issue
A key procedural question arose: in what order should the detailed assessment of costs and the third-party costs application proceed? Three possibilities were considered:
- The third-party costs order application determined first, enabling Nigeria to know whether there was a solvent party from whom costs could be recovered before committing resources to the detailed assessment.
- The detailed assessment completed first, enabling the parties and court to know how much money was at stake, and whether it was in excess of the £20m interim payment made, before embarking on the third-party application.
- Both matters proceeding in tandem.
Mr Justice Knowles decided on the second option, staying Nigeria’s application for a third-party costs order until after the detailed assessment.
Nigeria appealed the decision, contending that the judge did not give adequate reasons for his decision and, in any event, his decision was perverse or plainly wrong.
The scale of the parties’ costs
Nigeria’s bill of costs ran to more than 3,000 pages and claimed approximately £44.2m(over £50m including interest), containing over 95,000 individual items. P&ID’s Points of Dispute ran to over 1,200 pages, and Nigeria’s Points of Response exceeded 2,000 pages. It was estimated that the assessment would require at least 50 days of hearings (in contrast to the trial of the substantive dispute, which lasted 29 days) and is unlikely to conclude for at least another year to 18 months.
The respondents contended that the costs claimed were “vastly in excess of what could ever be reasonable and proportionate” and that it was unlikely P&ID would be required to pay more than the approximately £23.7m (inclusive of interest) already paid on account.
The Court of Appeal’s Decision
Lord Justice Males (with whom Lady Justice Andrews and Lord Justice Lewis agreed) dismissed Nigeria’s appeal, holding that the judge was entitled to make the case management order.
The court rejected Nigeria’s submission that there was a general principle requiring a powerful reason to stay an application for a third-party costs order. Lord Justice Males held that the decision must simply be made in accordance with the interests of justice, applying the overriding objective in the particular circumstances of the case.
Although it was accepted that the lower court judge’s ruling had been ‘brief’, the Court of Appeal found it was sufficient in the circumstances and that it would be contrary to the efficiency of the Commercial Court if the kind of time the Court of Appeal had taken was habitually taken to decide applications of this type. Males LJ noted that judgments given in application lists “need not be... a polished product like a reserved judgment”. Further, in reaching his decision, the lower court judge had a legitimate concern not to waste court time and the impact that might have on other court users, in accordance with the overriding objective.
Critically, Males LJ did not accept Nigeria’s premise that it was “overwhelmingly likely” that substantial further sums would be due following assessment. He observed that there appeared to be significant scope for dispute regarding the amount of costs, which meant the final amount to be ordered was by no means certain.
In a notable postscript, Lord Justice Males expressed dismay at the prospect that the assessment would require at least 50 days of court time “potentially lasting in total almost twice as long as the trial of the substantive challenge to the award”. He made it clear that such disproportionate use of the court’s resources, and the prejudice to other court users, should be avoided.
In order to address the challenge of the costs proceedings, Lord Justice Males suggested that a sampling approach should be adopted, whereby each party could select a number of items from the bill and any reduction applied to those items could be applied to the bill as a whole. Lady Justice Andrews expressly associated herself with these views, describing the level of costs claimed as “eye-watering even by Commercial Court standards”.
Comment
This judgment serves as a timely reminder that case management decisions on the sequencing of applications remain firmly within the judge’s discretion, particularly where the judge has extensive familiarity with the litigation. It also reinforces that proportionality - both in terms of the costs claimed and the court’s resources devoted to assessing them - remains a fundamental consideration.
The Court of Appeal’s strong guidance on limiting the detailed assessment process to proportionate bounds reflects growing judicial concern about satellite costs litigation consuming disproportionate resources. The suggested sampling approach may prove increasingly attractive in future weighty assessments and as a pragmatic solution to control the length and cost of that process. In any event, for parties and funders of litigation, the judgment sends a clear message that ancillary satellite disputes regarding costs at the expense of efficiency are to be avoided. Further, the ultimate paying party of any costs order would be well served to consider a strategy that minimizes that risk at the earliest opportunity, and particularly when the sums and interest at stake are considerable.
