Costs against a sanctioned party: success as the decisive factor; licence‑triggered payment deadlines; and no set‑off against a deferred Supreme Court costs order

Costs against a sanctioned party: success as the decisive factor; licence‑triggered payment deadlines; and no set‑off against a deferred Supreme Court costs order

Introduction

This commentary examines the England and Wales Court of Appeal (Civil Division) decision in Potanina v Potanin (No. 2) (Costs) [2025] EWCA Civ 1223 (2 October 2025). The judgment addresses discrete but significant issues concerning costs arising from a successful appeal by the wife in proceedings under Part III of the Matrimonial and Family Proceedings Act 1984 (MFPA 1984), as recorded in the related substantive appellate decision [2025] EWCA Civ 1136 (4 September 2025).

The parties—referred to as the “wife” (appellant) and the “husband” (respondent)—have been engaged in prolonged litigation regarding the wife’s application for leave to pursue financial relief in England following a foreign divorce. Overlaying the usual appellate costs questions is an exceptional feature: the husband is a “designated person” under the Russia (Sanctions) (EU Exit) Regulations 2019, necessitating licensing for the payment of any sums pursuant to court orders.

The Court of Appeal’s costs judgment resolves four contested matters:

  • Whether the Court of Appeal’s earlier costs orders made in May 2021 (in the wife’s favour) should now be varied in light of the Supreme Court’s later decision in 2024 (an issue remitted by the Supreme Court);
  • Whether the husband should be ordered to make a payment on account of the wife’s costs of the most recent appeal;
  • Whether the husband can offset against his liability the sum the wife was ordered to pay by the Supreme Court on the husband’s appeal; and
  • What time the husband should have to comply with costs orders given sanctions licensing and cross-border banking constraints.

The husband accepted (i) liability for the wife’s costs of the present appeal on the standard basis, and (ii) the need for a licence to effect payment due to sanctions. However, the parties disagreed on the four items above, each with wider implications for costs in family appeals, especially where sanctions apply.

Summary of the Judgment

  • Prior Court of Appeal costs (May 2021) stand unvaried. The Court declined to alter its 2021 costs orders. The wife’s success in that earlier appeal rested on grounds unaffected by the Supreme Court’s later decision, which proceeded on previously unargued grounds ([2024] UKSC 3, [40]).
  • Wife is the successful party; “success” is the decisive factor. Even though the general rule does not apply to appeals from the Family Division (citing CPR 44.2(3)(a)), the Court treated overall success as the “decisive factor”, invoking Baker v Rowe [2009] EWCA Civ 1162 at [25].
  • Payment on account ordered under CPR 44.2(8). The Court ordered a payment on account of £350,000 (approximately 72% of the N260 figure), finding no good reason to refuse a reasonable interim payment.
  • No set‑off against the Supreme Court costs order. The Court refused the husband’s request to offset amounts payable to him under the Supreme Court’s March 2024 order, holding that it was not open to vary or disturb that order.
  • Time for payment tailored to sanctions; 60 days from licence notification. The Court fixed a 60‑day period (not 90; not 14) to pay both the on‑account sum and the final balance, in each case running from the wife’s written notice that she has obtained the requisite licence(s). Judgment interest accrues if payment is late.

Detailed Analysis

1) Precedents and Framework Cited

CPR 44.2 and payments on account (CPR 44.2(8)). The Civil Procedure Rules govern the court’s discretion in costs. The Court reiterated:

  • The general rule in civil litigation is that the unsuccessful party pays the successful party’s costs (CPR 44.2(2)(a)), subject to the court’s broad discretion and all the circumstances (CPR 44.2(4)–(5)).
  • For appeals arising from the Family Division, the court acknowledged that “the general rule does not apply” (CPR 44.2(3)(a) as cited). That does not preclude an award to the successful party; it simply means the court’s discretion is not anchored to a default rule.
  • Where the court orders costs subject to detailed assessment, it should order a reasonable payment on account unless there is good reason not to (CPR 44.2(8)).

Baker v Rowe [2009] EWCA Civ 1162 at [25]. The Court of Appeal relied on Baker v Rowe to underscore that in appellate proceedings “success” can be the decisive factor on costs, even in family contexts where no default rule applies. Baker v Rowe has become a touchstone for a principled yet flexible approach: while family law often resists a rigid loser‑pays formula, an appellate court may nonetheless treat overall success as determinative unless there is good reason to depart.

Potanina v Potanin [2024] UKSC 3. The Supreme Court allowed the husband’s appeal on previously unargued grounds ([40]), remitting certain matters, including the impact on the earlier Court of Appeal costs orders. In March 2024 it ordered the wife to pay 50% of the husband’s Supreme Court costs, but crucially deferred the accrual of liability and interest until specific triggers—including the final determination of the wife’s substantive Part III claim—occurred. This staged structure is central to the Court of Appeal’s refusal to permit set‑off: the Supreme Court’s costs order is both temporally contingent and at a higher level in the appellate hierarchy.

Russia (Sanctions) (EU Exit) Regulations 2019. Because the husband is a designated person, payments to the wife require an OFSI licence. The Court of Appeal calibrated compliance periods and interest accrual to begin only once the wife has notified that she holds the requisite licences permitting her to receive funds. This ensures the order is effective without breaching sanctions law.

2) The Court’s Legal Reasoning

a) Whether to vary the 2021 Court of Appeal costs orders

The husband argued that the 2021 costs orders (including a payment on account) ought to be revisited in light of the Supreme Court’s 2024 decision. He sought to reallocate costs around the set‑aside aspect and proposed a 50/50 apportionment as a compromise.

The Court rejected this and left the 2021 orders intact for two reasons:

  • The foundation of the wife’s 2021 success was not disturbed. The Court accepted that the wife had “comprehensively succeeded” in showing that Cohen J had not been materially misled at the without notice hearing in January 2019, and the husband did not challenge that conclusion in the Supreme Court. The later Supreme Court success was on different, previously unargued grounds. The wife’s appellate success in 2021 therefore stood on its own footing.
  • Success as the decisive factor. Standing back, the wife is properly described as the successful party: she obtained leave to pursue her Part III application. Referring to Baker v Rowe, the Court held that even though the general rule does not apply to such appeals, overall success should be the decisive factor in this instance.

This approach underscores a strong concern for finality and coherence in costs: subsequent shifts at higher levels do not retroactively unpick earlier costs where the basis of the earlier success remains materially intact.

b) Payment on account

Applying CPR 44.2(8), the Court ordered an interim payment on account of £350,000 (about 72% of the N260 total). Two points are notable:

  • “Reasonable sum” threshold met. There was no “good reason” to refuse a payment on account, and the percentage sought was within the ordinary range for substantial interim payments where entitlement to costs is clear.
  • Sanctions‑compliant timing. The obligation to pay is conditioned by the licensing regime; thus, the Court aligned the due date to run from written notice that the wife has obtained the requisite licence(s), avoiding any order that would compel a sanctions breach.

c) No set‑off against the Supreme Court’s costs order

The husband sought to offset his liability for the wife’s costs against the sums the wife was ordered to pay him by the Supreme Court in March 2024. The Court of Appeal refused. The rationale is twofold:

  • Hierarchical restraint. It is not open to the Court of Appeal to vary a Supreme Court order. Set‑off here would operate, in substance, as a variation or circumvention of the Supreme Court’s carefully staged regime—including its deferment of payment and interest until specific triggers (such as final determination of the Part III claim).
  • Temporal misalignment. The Supreme Court order expressly defers the wife’s liability and interest accrual; permitting set‑off now would dissolve those conditions and thereby contradict the Supreme Court’s order.

The Court’s stance reaffirms that while courts have jurisdiction to permit set‑off of costs orders in appropriate cases, that jurisdiction cannot be used to displace or undermine the express terms of a higher court’s order.

d) Time for payment under sanctions constraints

The Court balanced the husband’s request for 90 days against the wife’s proposal of 14 days. Recognising cross‑border compliance, intermediary banks, and sanctions checks, it fixed 60 clear days from the wife’s written notice of licence(s) for:

  • Payment of the £350,000 on account; and
  • Payment of the balance following agreement or detailed assessment (again contingent upon notice of licensing).

Interest at the judgment rate accrues immediately after the applicable due date if payment is late. This framework:

  • respects sanctions by tying obligations to licence availability;
  • is realistic about cross‑border banking frictions; and
  • maintains commercial discipline with a defined window and default interest.

3) Impact and Significance

Family appeals and the role of “success”. The judgment consolidates the position that, notwithstanding the absence of a general rule in some family appellate contexts, the overall winner can be treated as the default recipient of costs. Baker v Rowe remains central. This enhances predictability for costs outcomes in family appeals with discrete legal issues.

Sanctions‑aware costs orders. The Court provides a viable template for structuring costs orders involving sanctioned parties:

  • Triggering payment deadlines by written notice of licence(s) to receive funds;
  • Building in a realistic compliance period (60 days here) to account for banking diligence across jurisdictions; and
  • Preserving ordinary enforcement incentives via judgment interest after the deadline.

Inter‑court comity and set‑off. The refusal to permit set‑off against a Supreme Court costs order with deferred payment conditions reaffirms hierarchical discipline: a lower court will not cut across a higher court’s bespoke costs timetable. Parties should not expect to “net off” liabilities where doing so would disturb the structure of a superior court’s order.

Finality of earlier costs orders despite later appellate developments. The Court’s unwillingness to revisit its 2021 costs recognises that later appellate success on different grounds does not necessarily undermine the earlier costs allocation, especially where the kernel of the earlier success remains unchallenged. This supports finality and reduces satellite costs litigation.

Practical guidance for litigants. Parties dealing with sanctioned counterparties should:

  • Apply promptly for OFSI licences (both payer and payee may need them);
  • Build realistic timelines for multi‑jurisdictional banking compliance; and
  • Document readiness to receive funds (to start the payment clock) with clear written notice.

Complex Concepts Simplified

  • Part III MFPA 1984: Allows an applicant to seek financial relief in England after a divorce overseas, but leave (permission) is required at the outset.
  • Leave to apply: A preliminary judicial filter: the applicant must show sufficient connection and a substantive basis to justify a substantive claim in England.
  • Set‑aside application (without notice): An attempt to overturn an order made without notifying the other side, often on grounds of nondisclosure or misleading the court.
  • Standard basis assessment: On detailed assessment, only costs reasonably and proportionately incurred are allowed; any doubt is resolved in favour of the paying party.
  • Indemnity basis (contrast): A stricter standard for the payer; doubts are resolved in favour of the receiving party. Not ordered here.
  • Detailed assessment: A post‑order, line‑by‑line scrutiny of costs by a costs judge if the parties cannot agree quantum.
  • Payment on account (CPR 44.2(8)): An interim payment ordered once liability for costs is established, pending detailed assessment.
  • Form N260: A prescribed statement of costs used in the assessment process that informs interim payment decisions.
  • “Clear days”: When a period is expressed in clear days, the day of the triggering event and the day of the deadline are excluded.
  • Designated person; sanctions licence: A person subject to asset freezes under UK sanctions cannot make or receive payments without an OFSI licence. Courts align payment deadlines to the grant of such licences.
  • Set‑off/offset of costs: A mechanism to net one party’s liability against the other’s. It is discretionary and cannot be used to contradict a higher court’s express order or its timing conditions.
  • Maintenance Regulation: EU Regulation (EC) No 4/2009 on maintenance obligations; referenced as part of the underlying litigation background, but not determinative of the costs issues resolved here.

Conclusion

Potanina v Potanin (No. 2) (Costs) [2025] EWCA Civ 1223 delivers clear and pragmatic guidance on appellate costs where sanctions complexities intersect with family litigation. The Court:

  • Affirms that, in family appeals, overall success may be treated as the decisive factor on costs (Baker v Rowe), even where the default civil rule does not directly apply;
  • Maintains the finality of earlier costs orders when their foundational success remains unaltered by later appellate developments on different grounds;
  • Applies CPR 44.2(8) robustly to order a substantial payment on account absent good reason to refuse;
  • Declines to permit set‑off that would undermine the Supreme Court’s deferred costs regime, respecting appellate hierarchy; and
  • Shapes payment deadlines around the sanctions licensing process, striking a practical balance with a 60‑day window and interest for late payment.

The case sets a useful model for sanctions‑aware costs orders, reinforces hierarchical comity in the treatment of higher court costs orders, and provides litigants with realistic expectations about payments on account, time for payment, and the determinative weight of success in appellate family costs decisions.

Key Orders (for quick reference)

  • 2021 Court of Appeal costs orders stand unvaried.
  • Husband to pay wife’s costs of this appeal (standard basis), subject to detailed assessment if not agreed.
  • Payment on account: £350,000 within 60 clear days of written notice that the wife has obtained the requisite licence(s) authorising receipt.
  • Balance: within 60 clear days of agreement on quantum or conclusion of detailed assessment (again, only after notice of licence(s)); judgment interest thereafter if unpaid.
  • No set‑off against the Supreme Court’s March 2024 costs order; that order stands untouched.

Case Details

Year: 2025
Court: England and Wales Court of Appeal (Civil Division)

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