What is an Indemnity Costs Assessment?

Under CPR 44.3, the Court can assess the costs on a standard basis or an indemnity basis. It is at the Court’s discretion as to on what basis the costs are assessed dependant upon the factors of the case.

Where a matter proceeds to assessment on the standard basis, the Court will allow costs which are proportionate to the matters in issue and resolve any doubt which it may have to whether the costs were reasonably and proportionately incurred or were reasonable and proportionate in amount. The assessment would place the balance of doubt as to these issues in favour of the paying party.

Indemnity costs under CPR 44.3(3) are the amount of costs which one party must pay another, assessed on the basis that the Court will resolve any doubt it has to whether costs have been reasonably incurred or whether they are reasonable in amount. This type of assessment changes the balance in favour of the receiving party, and the onus is on the paying party to show that the costs claimed are unreasonable. For the avoidance of doubt, proportionality does not apply to indemnity costs. Therefore, at an indemnity costs assessment, the receiving party is highly likely to obtain a higher percentage of their costs than if assessed on a standard basis.

There is a distinct difference between costs on a standard basis and that of an indemnity basis. As mentioned, assessment on the standard basis allows costs that are proportionate to the matters in issue whereas, indemnity costs assessment does not. This means that as long as the indemnity costs are reasonably incurred and reasonable in amount, they can be disproportionate.

Further to this, the Receiving Party bears the onus of establishing whether the costs were reasonable on the standard basis. Whereas, on an indemnity basis, the onus is on the Paying Party to prove the costs were unreasonable.

Indemnity Costs Assessment: When are Indemnity Costs Awarded?

Indemnity costs can be awarded under the provisions of Part 36 (for beating an offer at Trial) or upon an application made by a party and at the Court’s discretion, to reflect unreasonable conduct.

Where a Claimant matches or beats their own Part 36 offer at Trial, they are entitled to indemnity costs from the date of expiry of the offer. However, a Defendant is not entitled to the same, and any costs recovered by them is awarded on the standard basis. In Legonvarn v Burgess [2020] EWCA Civ 114, the Defendant was awarded costs on the standard basis. The Defendant appealed this on the ground that the claims were ‘out of the norm’. The Defendant also raised submissions in regards to a previous Part 36 Offer made by themselves. The Judge was unwilling to accept the Defendant’s submissions and labelled the claims “at the very least, weak”. The Judge stated that there is no automatic entitlement to indemnity costs on the part of the Defendant for a Part 36 Offer. The Judge concluded, the Claimant’s failure to accept and then beat the Defendant’s offer was a separate issue in their conduct, which was out of the norm and did, in fact, justify an award for costs on an indemnity basis.

Excelsior Commercial and Industrial Holdings v Salisbury Hamer Aspden and Johnson [2002] EWCA Civ 879

The case of Excelsior Commercial and Industrial Holdings v Salisbury Hamer Aspden and Johnson [2002] EWCA Civ 879, sets out the principles upon which the Court considers when considering whether awarding costs on an indemnity basis is appropriate:

1) Conduct of the parties

2) Circumstances of the litigation

Indemnity Costs Assessment: Important Case Law

In the case of Balmoral v Borealis, the Court detailed the circumstances of litigation which would be taken into consideration. This must be something that was outside the ordinary and reasonable conduct of proceedings. For example, it must take the case outside the norm. The Claimant is not required to be guilty of dishonesty; however, unreasonableness in the conduct of proceedings, including raising particular allegations or the manner in which they are raised, could meet the threshold. Pursuing a speculative claim or making allegations of dishonesty that turn out to be misconceived or an exaggerated claim could also be circumstances that cause the Court to order indemnity costs. In Evalanite Full Circle Limited v Amec Earth and Environmental (UK) Limited [2013] EWHC 1643 (TCC), Coulson J stated when assessing the basis of the assessment of costs, the Court must avoid the dangers of hindsight.

It is important to note that an order for costs on an indemnity basis is not a penal order or one that connotes stigma. It ensures the receiving party, who has been caused to incur expense due to litigation unnecessarily, recovers a larger proportion of their costs.

It is important to note that assessment of indemnity costs are not constrained by a costs budget. In the case of Legonvarn v Burgess and Burgess [2020] EWCA Civ 114, the Court of Appeal found there was an absence of overlap between costs budgeting, where the costs were assessed as reasonable and proportionate and an order for costs on an indemnity basis, where reasonableness might be an issue. Whilst proportionality was central to costs budgeting; it was not an issue with indemnity costs. The assessment of costs on an indemnity basis, in principle, is not constrained by the approved costs budget. As such, the Court held that even if there had been an approved budget figure, it could not impact on whether the Court should make an order for indemnity costs or not.

In Louis Dreyfus Company Suisse S.A v International Bank of St Petersburg [2021] EWHC 1039 (Comm), the Judge awarded an anti-suit injunction against the Defendant. The Judge held that costs should be awarded on an indemnity basis; however, it was held that the costs claimed were too high. The Claimant claimed a total of £292,066 for their costs, despite there being three hearings which were uncontested. This meant the hearings were relatively straightforward and short. The Judge referred to Kazakhstan Kagazy PLC v Zhnus [2015] EWHC 404 (Comm) (para 13), which stated, “in cases with large amounts of money, it may be entirely reasonable from the point of the party incurring costs to spare no expense that might possibly help to influence the result of the proceedings. It does not follow that such expense should be regarded as reasonably or proportionately incurred or reasonable and proportionate in amount when it comes to determining what costs are recoverable from the other party.” Thus, this must be judged objectively. The hallmark is not the amount of costs which was in the party’s best interests to incur but the lowest amount which could have reasonably been expected to spend to have the case conducted and presented proficiently, when having regard to all circumstances. It is a balance between the costs reasonably attributable to the other party’s conduct in bringing proceedings and costs which are attributable to a party’s own choice in advancing its interests.

In the case of Louis Dreyfus Company Suisse, the Claimant chose to appoint Counsel of their choice, namely, a QC, who presented the case without the assistance of junior Counsel. However, the Court held this did not mean the Claimant was entitled to recover the costs of Queen’s Counsel from the Defendant. “Even on an indemnity basis, costs which are significantly greater in amount than it might otherwise reasonably have incurred, whilst still having its case conducted and presented proficiently.” As such, the Court reduced these costs claimed by almost a third, by awarding the Claimant £200,000 for their costs.

How Can ARC Costs Assist?

ARC Costs are a team of highly skilled and experienced Costs Lawyers and Costs Draftsmen. We regularly provide assistance in costs disputes in many types of cases involving Part 36 Offers. Our highly experienced staff can assist in handling and recovering your legal costs in disputes concerning the costs on an indemnity basis, or challenge the level of costs claimed if you are a paying party.

We understand the importance of cashflow, and this why we consistently secure an interim payment on account. We can also provide assistance in the preparation of Costs Budgets and Bills of Costs.

We can be contacted via email at info@arccosts.co.uk, or by telephone on 01204 397302. For more information on legal costs, please find out more about our speciality areas of expertise and our services on our legal costs page.

Follow Us