A Bill of Costs for £74,075.60 was struck out because it claimed more of the action than the receiving party was entitled to. The redrawn bill came back at £46,755.35, which the High Court called astonishing. And the party who produced it went on to win its application and recover no costs at all.
LM1 Limited v Seacroft Film Investments Limited [2026] EWHC 2212 (Ch), decided by Her Honour Judge Kelly sitting as a Judge of the High Court on 21 August 2026, is a short judgment with two lessons that outlast its facts: the bill has to match the entitlement, and the three-month period in CPR 47.7 is an outside limit rather than a target.
The short point
LM1 was entitled to the costs of its counterclaim. Its bill claimed the costs of the whole action. That was impermissible, and at [41] the judge said so directly.
The bill was struck out. LM1 was allowed to redraw it in accordance with Medway Oil and Storage Co Ltd v Continental Contractors Ltd [1929] AC 88 and recommence detailed assessment under CPR 47 — so the entitlement survived. What did not survive was LM1’s costs of the later application, and the reason was the way it had handled its own costs claim.
How it arose
The underlying claim was proceeding in the County Court at Leeds. A Settlement Agreement of 28 February 2024 provided for Seacroft to pay LM1 a settlement sum of £30,000 and a costs contribution of £20,000, both inclusive of VAT, together with LM1’s costs of the “Proceedings” on the standard basis if not agreed, less the costs contribution.
The drafting point that decided everything afterwards is this: “Proceedings” was defined as the counterclaim, not the action.
LM1 served a bill of £74,075.60. Seacroft disputed it, raising the indemnity principle, fee earner information, counsel’s fee notes and — decisively — the treatment of claim and counterclaim costs under Medway Oil. Those are the recognisable lines of attack on any bill, and the sort catalogued in our note on what Points of Dispute have to do to work.
On 2 December 2025 District Judge Josling held that LM1 was entitled to the additional costs of the counterclaim only, struck the bill out, permitted a redraw, and ordered LM1 to pay Seacroft’s costs of the costs proceedings — summarily assessed at £20,449.56 including VAT, payable by 23 December 2025.
That is the position before the judgment under discussion even begins: a struck-out bill and a £20,000 costs liability arising from it.
The Medway Oil principle
At [11] the judge restated it. A party awarded the costs of a counterclaim is generally allowed, on assessment, only the costs specifically referable to that counterclaim. The remaining costs are costs of the claim. They are not apportioned between the two.
And the party claiming counterclaim costs is at a particular disadvantage where the same issues arise in both.
That is the opposite of the intuition most bills are built on. Where the same disputes, evidence, witnesses and legal work serve claim and counterclaim alike, it does not follow that half of it, or any proportion of it, can be moved across. The question is what additional costs the counterclaim actually caused.
| The intuitive approach | What Medway Oil requires |
|---|---|
| Take the common costs and apportion a share to the counterclaim | Identify only the costs specifically referable to the counterclaim |
| Overlap justifies splitting | Overlap is a disadvantage to the party claiming counterclaim costs |
| Start from total expenditure | Start from the entitlement in the order |
In LM1 that mattered enormously, because the counterclaim was essentially a mirror of the claim with minor differences. The court thought it entirely reasonable for Seacroft to expect the additional counterclaim costs to be relatively limited.
Why the first bill failed
The problem was never that £74,075.60 looked high. It was that the bill claimed a category of work the order did not cover.
A costs draftsman cannot start from what the litigation cost and work back to what seems commercially reasonable. The starting point is the wording of the order, the Tomlin order or settlement agreement, any issue-based direction, any counterclaim order, and any other limitation on the entitlement.
A technically accurate electronic bill can still be fundamentally defective if it claims work outside the order. The arithmetic being right does not make the scope right, and Precedent S will not tell you — the point our guide to drawing a bill and the electronic bill makes about phase and part division applies with more force to entitlement.
Struck out is not the same as extinguished
Worth holding on to, because it is the difference between a fatal problem and an expensive one. LM1’s bill was struck out and LM1 remained entitled to counterclaim costs. The court gave permission to redraw and recommence.
That sits between two decisions already covered here. In Duffy v Birmingham City Council a defect in certification did not make the bill a nullity or prevent detailed assessment commencing at all. In Kapoor v Johal the bill was assessed at nil. LM1 falls between them: not a curable technical defect, not the end of the entitlement, but a bill that had to be rebuilt from the order upwards.
CPR 47.7: a deadline, not a target
LM1 relied on the three-month period, arguing Seacroft had acted prematurely. The judge was not persuaded. At [34] she took the plain import of CPR 47 to be that parties should get on with making claims for costs to be assessed — particularly where a defective bill had already been struck out and a second opportunity given.
Note what this is not. The three-month deadline was not breached. The delay still counted.
That makes LM1 a sharper authority than it first looks, and a genuinely different proposition from HD v North Devon, where assessments were left dormant for three years. LM1 says compliance with the timetable does not buy silence. It applies to files that look perfectly healthy on the diary.
The practical reading: the three-month period is part of a recovery timetable that starts when the entitlement arises, not the date somebody first opens the file. The sequence from order to payment is set out in our costs recovery checklist.
The transparency problem
Delay was only half of it. The other half was that Seacroft could not find out what was happening.
About six weeks after the strike-out, a witness statement said a costs draftsman had been instructed and a bill was expected shortly. It did not say:
- roughly how much LM1 expected to claim;
- what work had been done to redraw the bill;
- when that work had started;
- when the replacement bill would be ready; or
- how the new bill would deal with the Medway Oil problem.
By the hearing on 20 February 2026 there was still no information about timing or the approximate level of counterclaim costs being pursued. The application was adjourned on Seacroft’s undertaking not to present a winding-up petition, and LM1 was ordered to file a witness statement exhibiting the redrawn bill by 4pm on 31 March 2026.
LM1 complied — on 31 March, the last day, without explaining why it had taken until then. The court noted the absence of any explanation at [42], describing compliance as coming at the very last possible moment.
The replacement bill
The redrawn bill claimed £46,755.35. Substantially below the original, and the judge was still highly critical: at [33] she described the figure as “astonishing” and apparently grossly excessive given the overlap between claim and counterclaim.
One limit on the authority is worth preserving when citing it. That was not a detailed assessment of the replacement bill. The court was not deciding which items should ultimately be allowed. LM1 is authority on the conduct surrounding the bill and the costs of the application — not a determination fixing the recoverable counterclaim costs at any figure.
Winning the application and recovering nothing
The statutory demand of 23 January 2026 asserted that £20,000 was owed, being the return of the costs contribution. LM1 applied to restrain a winding-up petition. By the final hearing, Seacroft accepted that the revised bill and evidence showed a substantial dispute about the debt.
LM1 had achieved what it wanted. Under CPR 44.2 the general rule points towards the unsuccessful party paying its costs.
The order at [46] was no order for costs.
The court looked at the history as a whole:
- the original bill wrongly claimed the costs of the whole action;
- it was struck out, and permission to redraw was given;
- little meaningful information followed about the replacement claim;
- there was no appropriate sense of urgency, at [41];
- the ordinary three-month period came and went;
- the redrawn bill appeared only after the court ordered it;
- it was served on the last possible day; and
- even the replacement figure looked remarkably high against the overlap.
Succeeding on the application did not wipe that clean. That is the CPR 44.2 point worth taking away: success is where the costs analysis starts. It is not always where it finishes. Conduct can move the order, and it does not have to be conduct in the underlying litigation — here it was conduct in the costs proceedings themselves.
What to take from it
1. Start from the order, not the file
Establish precisely what is recoverable before drafting. An entitlement to “costs” is not an entitlement to everything that happened. Issue-based orders, counterclaim orders, percentage orders, date-limited orders and settlements with their own definition of the proceedings all change what belongs in the bill.
2. Apply Medway Oil before drafting, not after service
Where the entitlement is limited to a counterclaim, identify the work the counterclaim actually occasioned. Do not take common costs and apply a percentage. Where claim and counterclaim substantially overlap, the recoverable additional costs may be a great deal less than the cost of dealing with both.
3. A redrawn bill needs rebuilding, not editing
Where a bill is struck out because its scope was wrong, changing descriptions and trimming items does not fix it. The replacement has to be built around the order actually made — and the court will look at whether it was.
4. Treat CPR 47.7 as the outside limit
Three months is the backstop, not the plan. Where costs are already in dispute — and especially after a bill has been struck out — the clock is not the only thing being watched.
5. Tell the paying party something useful
“A costs draftsman has been instructed” is not information. A realistic timetable, an approximate value and an explanation of how the problem is being addressed are materially different, and their absence was expressly part of what the court weighed.
6. Ask the right final question before service
Not do the figures add up? but:
Does every category of cost in this bill fall within the order under which we say it is recoverable?
That check is what avoids an expensive preliminary dispute before anyone reaches the substantive items.
Key takeaway
A Bill of Costs is only as good as the entitlement behind it. The order controls the bill, the bill controls the assessment, and how the receiving party progresses that assessment can affect costs decisions well beyond the bill itself.
LM1 kept its right to counterclaim costs. It lost the first bill, drew £20,449.56 of adverse costs getting there, faced an “astonishing” description of its second attempt, and won an application without recovering a penny for it.
We prepare Bills of Costs and electronic bills for claimant solicitor firms, along with Points of Dispute, Replies, negotiation and detailed assessment support. Where an order limits costs by issue, period, counterclaim or any other defined part of the proceedings, it is worth reviewing the entitlement before the bill is drawn rather than defending its scope afterwards — see our costs drafting services, or send us the file and we will confirm the fixed fee before any work begins.
Source: LM1 Limited v Seacroft Film Investments Limited [2026] EWHC 2212 (Ch), Her Honour Judge Kelly sitting as a Judge of the High Court, 21 August 2026, in the Business and Property Courts in Leeds, Insolvency and Companies List, from the approved judgment published by the National Archives — the Medway Oil restatement at [11], the description of the replacement bill at [33], the observation on getting on with claims for costs at [34], the findings on the original bill and urgency at [41], the last-possible-moment point at [42] and the order at [46]. See also Medway Oil and Storage Co Ltd v Continental Contractors Ltd [1929] AC 88, CPR 44.2 and CPR 47.7.