What are Legal Costs on an Indemnity Basis?

If you are a lawyer or work in a legal capacity, you will be aware that legal costs will inevitably be incurred in a legal case on an hourly rate basis, and that in certain types of dispute, such costs can be recovered for your client conclusion of a matter in the event of a successful outcome. The general rule of thumb is that the successful party will be entitled to recover costs from the unsuccessful party to a case, to be assessed on a standard basis. A costs assessment is usually required to determine the level of costs owed by the unsuccessful party, and a costs order will determine the basis that the costs will be assessed.

In the majority of cases, the Judge will usually order costs to be assessed on the standard basis. In certain circumstances, however, such as if one party acts unreasonably, an indemnity costs order may be awarded instead. 

Having costs assessed on an indemnity basis has a number of benefits. This type of assessment means that any decision as to reasonableness will be in favour of the winning/receiving party, and will assume that the costs were proportionate in amount and reasonably incurred.

Costs assessed on the standard basis are usually more favourable towards the losing/paying parties, and will mean that the Court will decide in favour of the paying party on issues of reasonableness and proportionality which are brought into question.

The benefit of obtaining legal costs on an indemnity basis for the receiving party is that cost orders allow for a higher proportion of costs to be recovered than if they were assessed on the standard basis, and there is also no requirement for proportionality to be considered, and costs budgeting is disapplied.

The Court has full discretion as to which basis a costs order should be made, and in most circumstances, the will consider the conduct or behaviour of the parties.

In the case of Balmoral v Borealis, the Court detailed the circumstances of litigation which could lead to indemnity basis costs. It was stated that the circumstances must meet a criteria to be considered 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 dishonest behaviour; however, unreasonableness in the conduct of proceedings, including raising particular allegations or the manner in which they are raised, could meet the threshold.

Costs may also be awarded on an indemnity basis if a receiving party beats their own Part 36 Offer, if a paying party fails to accept a reasonable offer, if a party pursues a speculative claim or makes allegations of dishonesty that turn out to be misconceived, makes an exaggerated claim, or if their general conduct throughout the case is held to be unreasonable. 

Indemnity Costs for Unreasonable Conduct

It is common for legal costs on an indemnity basis to be awarded due to a party’s unreasonable conduct or behaviour.

In the case of Navig8 Chemicals Pool Inc v Aeturnum Energy International Pte Ltd [2022] Costs LR 163, the Judge had the task of deciding whether costs should be awarded on a standard or indemnity basis following allegations for unreasonable conduct by the defendant/paying party.

The Claimant submitted that it should be awarded the costs of this action to date, on the basis that it has been entirely successful, and that costs should, in the normal way, follow the event.

“I am guided in relation to this question by the provisions of CPR Part 44. In this case, in my judgment, it is clear that the claimant has been successful and that accordingly, in line with CPR 44.2(2)(a), the defendant should pay the claimant’s costs.

In this case, unreasonable conduct was described as behaviour which could be seen as “out of the norm. ”

The Judge agreed that the Defendant should be responsible for payment of the successful Claimants costs under CPR 44.2(2)(a). The Claimant provided the argument that they should be awarded legal costs on an indemnity basis as the defendant had acted unreasonably on a number of occasions, leading to additional costs being incurred.

The unreasonable behaviour alleged by the Claimant included :

1. The Defendant abruptly disengaged with the proceedings after the case management conference (CMC)
2. The Defendant willfully and continuously refused to comply with an interim injunction which was granted by the Court on 9th December 2020 and continued on 18th December 2020.

The Judge cited the cases of AXL Resources Ltd v Antares Underwriting Services Ltd and Another [2010] EWHC 3244 (Comm), Kinetics Technology v Cross Seas Shipping (“The Mosconici”) [2001] 2 Lloyd’s Reports 313, and Kuwait Airways v Kuwait Insurance [2000] 1 All ER (Comm) 973 when making his decision on the costs and interest of the case.

It was held that the Defendant’s choice to disengage with the proceedings midway through had clearly led to increased costs. Due to this, the Judge found it appropriate to award legal costs on an indemnity basis. Christopher Hancock QC stated:

“I have concluded that this is a case in which the award of indemnity costs is justifiable, largely because of the fact that the defendant has, in effect, chosen to disengage with the proceedings part way through and had undoubtedly increased the costs as a result.”

An award of £155,000 was recommended by the Court.

“Finally, I am asked to summarily assess the costs, since this trial has taken less than a day. I have been provided with a schedule of costs. The total amount claimed is £161,496.30, which is significantly less than the amount budgeted. I have considered that schedule carefully. I have come to the conclusion that there are a very limited number of the costs which are on their face not justified. However, on the broad brush basis that an exercise such as this must be carried out, I have concluded that the amount which should be awarded is £155,000.”

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 involving awards for legal costs on an indemnity basis due to unreasonable behaviour or conduct. 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.

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