Background
Musst Holdings Limited sued Astra Asset Management UK Limited and Astra Asset Management LLP for breaches of the Octave Contract relating to management and performance fees on several investment funds. The defendants made negligent misrepresentations to Musst, which prevented Musst from pursuing all of its claims simultaneously. Consequently, Musst was forced to litigate in two separate proceedings instead of one, incurring substantial additional costs: £1.7 million in funding, £3.4 million in fees, £10,000 in additional issue fees, and £557,760 in deferred insurance premiums if successful.
In its Second Trial Judgment (20 February 2026), the court found Astra liable for negligent misrepresentation and established that Musst discovered the falsity of Astra’s representations only when it obtained disclosure of a critical email dated 3 February 2016. The court reserved judgment on whether Musst could recover these additional litigation costs as damages. This second judgment addresses that issue.
The Court’s Holding
Justice Leech held that, in principle, Musst is entitled to recover additional litigation costs as damages for negligent misrepresentation. The court recognized that while the general “costs principle” prohibits recovery of litigation costs as substantive damages against the same party in the same or subsequent proceedings, there is an established exception when: (1) the claimant relies on a separate and independent cause of action (here, negligent misrepresentation), and (2) costs could not have been awarded in the earlier proceedings. The court applied the “compensatory principle” articulated in CCC v Sheffield Teaching Hospitals NHS Foundation Trust [2026] UKSC 6, holding that a claimant is entitled to be placed in the position it would have occupied but for the tortious wrong.
The court rejected the defendants’ reliance on Hirachand v Hirachand [2024] UKSC 43, distinguishing that case (which involved success fees under a conditional fee agreement within the family provision context) from the present case involving damages for negligent misrepresentation. The judgment clarifies that statutory prohibitions on recovery of success fees and ATE premiums as costs do not prevent recovery of actual additional expenditure as damages where a separate cause of action exists.
Justice Leech did not quantify the damages in this judgment, instead directing that the issue be determined at a Third Consequentials Hearing scheduled for 30 June 2026. The court noted that if accurate evidence is presented, the amount at stake could be “very substantial.”
Key Takeaways
- The “costs principle” (prohibition on recovering litigation costs as damages between parties to the same litigation) admits an exception when the claimant has a separate, independent cause of action and costs were not recoverable in the earlier proceedings.
- The “compensatory principle” requires courts to place a wronged party in the position it would have occupied but for the tortious conduct, even where quantification is difficult.
- A claimant injured by negligent misrepresentation may recover additional costs incurred in separate litigation if those costs would not have been incurred absent the misrepresentation.
- Statutory prohibitions on recovery of success fees (section 58A(6)) and ATE insurance premiums (section 58C(1)) as costs do not extend to prevent recovery of actual additional expenditure as substantive damages under a separate cause of action.
- The existence of litigation funding agreements does not automatically preclude recovery of funded costs as damages, though the scope of recovery remains to be determined.
Why It Matters
This judgment clarifies the boundary between the “costs principle” (which protects the integrity of the civil costs regime and prevents endless satellite litigation over unrecovered costs) and the compensatory principle in tort law. By recognizing that negligent misrepresentation causing a claimant to split litigation into multiple proceedings can generate a separate, recoverable claim for the additional costs incurred, the court has expanded the circumstances in which litigation expenses may be recovered as damages. This is particularly significant for litigants funded through litigation financing agreements, who would otherwise bear the full cost of duplicative proceedings caused by another party’s tortious conduct.
The judgment also addresses a modern litigation problem: the interaction between the costs regime (which limits recovery of actual costs incurred) and litigation funding (which creates real financial obligations independent of the costs regime). By treating funder fees and additional litigation expenses as potentially recoverable damages rather than prohibited “costs,” the court has created a practical mechanism for ensuring that parties injured by tortious conduct are properly compensated, notwithstanding the formal costs regime. The decision may have significant implications for complex multi-party or multi-stage disputes where misrepresentation or other torts cause a claimant to incur duplicative litigation expenditure.