When Litigation Fails: The Real Cost of Refusing to Compromise

A £9.5 million interim costs payment in Prince Harry and others’ failed litigation against Associated Newspapers provides a striking reminder that litigation risk extends far beyond the amount originally in dispute.

On 21 August 2026, Mr Justice Nicklin handed down his costs judgment in Various Claimants v Associated Newspapers Limited [2026] EWHC 2207 (KB). The claimants — who included Baroness Lawrence of Clarendon, Elizabeth Hurley, Sir Elton John, David Furnish, Sir Simon Hughes, Prince Harry, Duke of Sussex, and Sadie Frost Law — had their claims dismissed following trial on 7 July 2026.

This article does not take sides in the underlying dispute, and nothing in it is a criticism of any individual claimant. The case is of wider interest because the costs judgment illustrates, in unusually stark figures, several risks which arise in ordinary commercial litigation.

Key figures · Associated Newspapers stated that its total costs of defending the proceedings to 9 July 2026 were approximately £34.5 million · Costs were ordered to be assessed on the indemnity basis, save where already dealt with by earlier orders · An interim payment on account of £9,544,355 was ordered by 4pm on 28 August 2026 · The Court declined to impose the cap on recoverable costs sought by the claimants.

What the Court actually decided

The unsuccessful claimants accepted that they had to pay Associated Newspapers’ costs. The principal dispute was over the basis of assessment: the ordinary standard basis, or the more adverse indemnity basis.

Mr Justice Nicklin ordered indemnity costs, except where costs had already been dealt with by earlier orders.

Associated stated that its total costs of defending the proceedings by 9 July 2026 were approximately £34.5 million. The judge described that figure as striking and exceptionally high, and noted that costs on that scale were unprecedented in the Media & Communications List.

Importantly, the Court did not decide that £34.5 million was recoverable. Unless the figures are agreed, recoverability will be determined through detailed assessment by a specialist Costs Judge. The £9,544,355 ordered is an interim payment on account, not the final determination of the costs payable.

What are indemnity costs?

On the standard basis, costs must be reasonably incurred, reasonable in amount and proportionate. Any doubt is resolved in favour of the paying party.

On the indemnity basis, proportionality does not operate as a separate limitation, and doubts about reasonableness are resolved in favour of the receiving party. The practical effect is usually a materially higher recovery.

There is an important qualification, however, and the judge made it expressly: indemnity costs are not a “blank cheque”. Costs which were unreasonably incurred, or which are unreasonable in amount, may still be disallowed on assessment.

Indemnity costs also remain unusual. The conduct or circumstances relied upon must take the case sufficiently “out of the norm”.

Why did the Court order indemnity costs?

The judge relied on the cumulative effect of a number of matters arising from the way the case had been run, including:

• the exceptional breadth of the pleaded case;
• the gravity of allegations made against named individuals;
• continuing to pursue serious allegations which lacked an adequate evidential foundation;
• failing to withdraw allegations which could no longer properly be maintained;
• issues surrounding reliance upon the Burrows material;
• the manner in which the “Leveson Lies” allegations were advanced; and
• putting unpleaded allegations to witnesses during cross-examination.

“The cumulative effect of these matters takes the case well outside the norm. The conduct was unreasonable to a high degree.”

Two points deserve emphasis. The Court expressly stated that the indemnity order was not made simply because the claimants lost. And the judge did not find that any of the claimants had acted dishonestly. Indemnity costs followed from how the litigation was conducted, not from the fact of defeat.

A costs budget is not necessarily a ceiling

For commercial litigants, this may be the most practically significant aspect of the judgment. Had costs been assessed on the standard basis, the defendant’s approved costs budget would ordinarily have restricted recovery unless there were good reasons to depart from it.

The indemnity costs order changed that position. Associated may now seek costs exceeding its approved budget, although those costs remain subject to assessment for reasonableness.

The lesson is straightforward: a party should not assume that its opponent’s approved costs budget represents the maximum adverse-costs exposure. Budgeting provides real discipline in the ordinary case, but it is not an insurance policy against every outcome.

Litigation is an investment carrying downside risk

Businesses understandably focus on the merits of their claim or defence, the amount they hope to recover, and their own legal costs. A proper litigation-risk analysis should be wider, and should include:

• the opponent’s costs;
• Part 36 consequences;
• interest;
• expert and counsel fees;
• management time;
• disclosure burdens;
• reputational consequences, where applicable;
• the possibility of an indemnity costs order; and
• the possibility that the evidence deteriorates or changes as the case develops.

A case which looked attractive when proceedings were issued may look very different after disclosure, witness statements or expert evidence. Merits and proportionality should therefore be reviewed continuously. The decision to issue proceedings is not irreversible, and treating it as such is itself a commercial risk.

Settlement is not surrender

Commercial settlement is fundamentally an exercise in transferring risk. A negotiated settlement exchanges an uncertain range of possible litigation outcomes for a known result.

Suppose a party genuinely believes its claim is worth £500,000. That belief does not automatically make it rational to reject £350,000. The proper comparison is between the certain net value of settlement and the probability-weighted net value of continuing — taking account of one’s own future costs, potential adverse costs and litigation risk.

None of this means that settlement is always the correct course. Some cases properly require determination by a court: a point of principle, a precedent, a limitation issue or a party which will not engage at all. The point is that compromise should be evaluated against the full downside of continuing, not only against the hoped-for judgment.

Part 36 sharpens this analysis considerably. A well-judged offer shifts costs risk onto the other side and forces a disciplined valuation of the case on both sides of the record.

Mediation changes the risk equation

Mediation allows parties to negotiate without either side conceding that its legal analysis is wrong. It can produce solutions a court could not necessarily order — future trading terms, apologies, phased payments, variation of contracts — and it allows the parties themselves to decide how much litigation risk they are prepared to retain.

Mediation tends to be particularly valuable:

• after pleadings have clarified the issues;
• after disclosure has exposed evidential strengths or weaknesses;
• after expert evidence;
• before substantial trial preparation costs are incurred; or
• whenever a significant development changes the risk profile of the dispute.

Mediation does not require the parties to “split the difference”. It provides a structured opportunity to test risk with an independent mediator and to explore whether certainty has greater commercial value than continuing. Our mediation process page explains how a mediation day is structured, and our fees page sets out the cost of mediating — figures which sit in a very different order of magnitude from the costs of a trial.

A £34.5 million reminder

The lesson of this case is not “the claimants should have settled”. We do not know what settlement opportunities were available, or on what terms.

What the extraordinary figures in Various Claimants v Associated Newspapers do demonstrate is the potential scale of litigation risk. Associated stated that its defence costs had reached approximately £34.5 million. The immediate payment ordered is more than £9.5 million, with the ultimate recoverable amount still to be determined on assessment.

Most commercial disputes involve vastly smaller figures, but the principle is identical. Every decision to continue litigation is also a decision to continue accepting litigation risk.

The question for a commercially minded litigant is therefore not simply: “Can we win?” It is also: “What is the best available commercial outcome, taking account of what happens if we don’t?”

Early neutral evaluation, negotiation and mediation are most useful when they form part of litigation strategy — considered and diarised at the points where the risk profile changes — rather than being reached for only after litigation strategy has failed. A related illustration is our note on ML Technology v BEAT SAM, where some £4 million of costs produced no overall commercial winner.

Sources: the High Court judgment in Various Claimants v Associated Newspapers Limited [2026] EWHC 2207 (KB), 21 August 2026, and the Judiciary press summary of the same date. The costs decision was reported by the Daily Mail on 21 August 2026. This article also refers directly to the High Court’s published judgment and official press summary. Statements made by or attributed to Associated Newspapers in press reporting are not findings of the Court. This article is general information about mediation and litigation risk and does not constitute legal advice. Specific advice should be obtained on any particular dispute.