Summary: The interaction between costs budgets and indemnity costs can be unclear in practice. Xtellus Capital Partners Inc v DL Invest Group PM SA [2025] Costs LR 1593 clarifies that once indemnity costs are awarded, an approved costs budget no longer limits recovery. The case highlights the practical limits of the budgeting regime and confirms that variation may be unnecessary where indemnity costs apply.

Background to the case

The dispute arose from a financing agreement between Xtellus Capital Partners Inc, a private investment fund, and DL Invest Group PM SA, a Polish property and investment company. Under the agreement, Xtellus was entitled to a success fee upon the completion of certain transactions. When that fee went unpaid, Xtellus brought proceedings in the Commercial Court to recover the contractual sum.

DL Invest defended the claim, disputing the existence of a binding agreement and the authenticity of documents. The defence was ultimately rejected in full, with the court describing some aspects of the evidence as “fanciful” and even “patently false”. Judgment was entered for the Claimant, Xtellus, for approximately €1.79 million, together with pre and post-judgment interest.

Following that decision, the parties returned to court to address consequential issues – including costs, interest on costs, and an application by Xtellus to vary its approved costs budget.

The application to vary the costs budget

Xtellus sought to increase its approved budget by around £105,000 to reflect additional work carried out beyond the approved figures. However, given the defendant’s unreasonable conduct, the claimant also sought – and was granted – indemnity costs.

The central issue for the court was whether there was any need to vary a cost budget once indemnity costs had been ordered.  It is also a crucial element as to the purpose of the budgeting process, which is intended to apply prospective limits to expenditure, whereas in this instance, a somewhat retrospective application was being made at the final hearing in relation to the full costs of litigation having already been incurred.

The court’s decision

HHJ Nigel Bird refused to vary the budget, holding that:

• The budgeting regime under CPR 3.18 only restricts costs recovery on the standard basis, where proportionality is relevant.
• When costs are awarded on the indemnity basis, the assessing costs judge is not bound by the approved budget and may allow any costs reasonably incurred.
• Consequently, there was no practical need to vary the budget – any overspend could be dealt with at detailed assessment.

In essence, the court confirmed that once indemnity costs are in play, the approved budget no longer constrains recovery, and a variation serves no useful purpose.

Other consequential rulings in the case

• The court found that the defendant’s conduct was sufficiently unreasonable to justify indemnity costs across the entire case.
• Xtellus was awarded a payment on account of £700,000, plus interest at Bank of England base rate + 1% for one year.
• The claimant’s argument for a US-dollar interest rate on costs was rejected, as the litigation was properly governed by English law and procedure.

What are the implications of an indemnity costs order to an approved Costs Budget?

The decision in this case confirms a clear principle; Once costs are to be assessed on the indemnity basis, an approved costs budget is no longer binding under CPR 3.18.

Accordingly:

• There is no need to apply to vary a budget after an indemnity order has been made.
• Any overspend or additional work can be addressed at detailed assessment.
• Variation applications may still be appropriate where some phases remain on the standard basis, or where budgets influence security for costs or payments on account.

Xtellus Capital Partners Inc v DL Invest Group PM SA [2025] Costs R 1593 reinforces that costs budgets lose their binding effect when indemnity costs are awarded. Courts are unlikely to entertain variation applications in such circumstances, preferring to leave any adjustments to detailed assessment.

How can ARC Costs assist?

At ARC Costs, we provide specialist support to help parties manage costs effectively and achieve the most favourable outcomes.

We are independent costs experts, and can assist in preparing accurate bills of costs, ensuring that all work is clearly documented and justified. Our team can also review bills before submission to identify areas that may be vulnerable to reduction and advise on strategies to ensure the overall costs remain reasonable and proportionate.

In addition, for Paying Parties, ARC Costs offers guidance on proportionality, helping parties assess whether the costs claimed are reasonable in relation to the value of the matter and the complexity of the work. We can support the preparation of points of dispute or reply, ensuring that arguments are clear and structured.

We also provide strategic advice on any follow-on issues that may arise during the detailed assessment process, assisting parties in resolving disputes efficiently.

If you would like more information on any of our services or wish to speak to a member of our expert costs team about your legal costs, then please do not hesitate to contact us. Please call one of our independent experts at 01204 397302, or email one of our costs experts directly on info@arccosts.co.uk.

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