Court of Appeal clarifies costs allocation in Thames Water restructuring appeal

The Court of Appeal (Civil Division) delivered its judgement on 29 July 2025 regarding costs allocation in the Thames Water Utilities Holdings Limited restructuring case, establishing significant precedents for future restructuring appeals. The decision followed the court's earlier dismissal of an appeal against Mr Justice Leech's order sanctioning the restructuring plan.

The central issue concerned whether appellants Kington S.à.R.L. and Thames Water Limited should bear the costs of the Plan Company (Thames Water Utilities Holdings Limited). This raised fundamental questions about the application of the principle that costs follow the event in complex restructuring litigation.

Competing costs claims

The Plan Company, whilst acknowledging partial success by the appellants, sought 80% of its incurred costs totalling approximately £1.81 million, with an upfront payment on account of £724,441.08. This reflected their position as the substantially successful party despite conceding limited grounds to the appellants.

Conversely, Kington and Thames Water Limited contended they were the successful parties on key legal arguments. Kington claimed £1.81 million in costs whilst Thames Water Limited sought £895,839.98, arguing they should not be liable for the Plan Company's costs given their partial success.

Judicial approach to costs allocation

Sir Julian Flaux and Lord Justice Zacaroli recognised the complexities inherent in determining costs in restructuring appeals. The judges acknowledged Mr Justice Leech's earlier observations about the substantial financial burden of the restructuring and associated litigation.

The court sought to balance competing policy considerations: ensuring parties can legitimately contest restructuring plans without facing punitive costs whilst deterring frivolous appeals that generate unnecessary legal expenditure. This balance reflects the court's awareness of the broader implications for restructuring practice.

The court's determination

The judges applied a nuanced approach to costs allocation, recognising that whilst the Plan Company was the overall successful party, it should not recover its entire costs claim. A 20% reduction was deemed appropriate, acknowledging that portions of the costs related to disputes with an unrepresented third appellant.

The court ultimately awarded the Plan Company 60% of its costs against both Kington and Thames Water Limited. Significantly, the judges ordered that both appellants should be severally liable for the total amount, with liability split equally at 50% each. This approach aimed to prevent inequitable financial burden on either appellant.

Both parties were ordered to pay £237,750 on account towards the Plan Company's legal costs, reflecting the court's assessment of reasonable and proportionate fees given the complexities of extended insolvency litigation.

Implications for restructuring practice

This judgement establishes important guidance on costs allocation in restructuring appeals, particularly where multiple parties achieve partial success. The court's approach of reducing costs awards to reflect the merits of individual arguments, whilst maintaining the general principle that costs follow the event, provides a framework for future cases.

The decision demonstrates judicial recognition of the unique challenges in restructuring litigation, where issues of public interest and multiple stakeholder groups can complicate traditional costs principles. The court's emphasis on proportionality and the need to balance legitimate challenge rights against frivolous appeals will likely influence how practitioners approach costs budgeting and risk assessment in future restructuring cases.

The judgement contributes to the evolving jurisprudence around restructuring and insolvency costs, providing clearer expectations for all stakeholders in similar proceedings. As restructuring activity continues to develop, such precedents become increasingly valuable in shaping litigation strategy and settlement negotiations.