Costs judgment in Thames Water restructuring plan appeal

Following the dismissal of the appeal against the Thames Water Utilities Holdings Limited (TWUH) restructuring plan, judgment has been given on the costs of the appeal.

The plan company, TWUH, claimed that it was the successful party as the appeal had been dismissed. However it accepted that part of the appeal had been successful, as the court had ordered a variation to the part of the restructuring plan which had released claims against the company’s officers and advisers. TWUH therefore claimed 80% of its costs, amounting to approximately £1.81m.

Conversely, the appellants Kington SARL (Kington) and Thames Water Limited (TWL) primarily argued that the general rule on costs (ie, that the unsuccessful party pays the costs of the successful party) does not apply to schemes of arrangement or restructuring plans, citing Re Virgin Active Holdings Limited [2021] EWHC 911 (Ch) and others.

Secondly, they argued that if it does apply, they should be regarded as the successful parties because although the appeals were dismissed, the court in substance agreed with their submissions and the legal principles to be applied. They each sought their costs from TWUH; Kington claimed approximately £1.81m and TWL claimed approximately £896k. 

The judge described the parties’ costs in the appeal as “eye-watering”, particularly as the appeal hearing lasted only three days and was heard three weeks after judgment was handed down at first instance. However, the court was not being asked to assess costs, so the level of costs was only relevant to the extent that a payment on account of costs was sought.

The court held that the principle summarised in Re Virgin Active (ie, that the general rule on costs does not apply to schemes of arrangement or restructuring plans) does not apply to appeals against the court’s sanctioning of that scheme or plan.

Once the court has exercised its discretion to sanction a plan, an appeal by opposing creditors reflects their dissatisfaction with the judge’s decision, and at that stage the question of costs should be approached in the same way as most appeals. Adopting the alternative approach contended for by the appellants would encourage unmeritorious appeals.

In applying the general rule on costs, the court held that as the appeal was dismissed, TWUH was the successful party. However it decided that a further reduction to TWUH’s costs was justified to take into account the appellant’s success on the legal issues. The court ordered the appellants to pay 60% of TWUH’s costs in the appeal.

As for a payment on account of those costs, the court took into account that TWUH had instructed solicitors at hourly rates of £1,232 to £1,400 for a partner, and had used more than eight lawyers (three counsel and solicitors across five levels of seniority) in an appeal confined mostly to issues of law. The court reduced the amount of the payment on account sought by TWUH, to 35% of the costs ordered.