When Are Indemnity Costs Awarded? Lessons from Sciallis v Fender

An award of indemnity costs is one of the most significant costs orders a court can make. Unlike costs assessed on the standard basis, indemnity costs are generally more favourable to the receiving party, often resulting in a higher level of recovery.

However, indemnity costs are not awarded simply because one party wins the case.

The court will usually only depart from the standard basis where there are exceptional features or litigation conduct that takes the case “out of the norm”.

A recent decision of the Competition Appeal Tribunal in Sciallis v Fender & Others provides a useful reminder of the circumstances in which the court may be prepared to award costs on the indemnity basis.

At ARC Costs, we regularly advise solicitors on the recovery and assessment of legal costs. This decision highlights how a party’s conduct throughout litigation can significantly influence the eventual costs order.

What are indemnity costs?

In most civil litigation, the successful party recovers costs on the standard basis.

When costs are assessed on the standard basis, the court will only allow costs that are both reasonably incurred and proportionate. Any doubt is resolved in favour of the paying party.

An assessment on the indemnity basis operates differently.

The proportionality test does not apply in the same way, and any reasonable doubt is generally resolved in favour of the receiving party.

Whilst indemnity costs do not guarantee full recovery, they often result in a substantially higher percentage of costs being recovered.

When will the court award indemnity costs?

There is no single rule that determines when indemnity costs should be awarded.

Instead, the court exercises its discretion under the Civil Procedure Rules after considering the conduct of the parties and the overall circumstances of the litigation.

Examples that may justify indemnity costs include:

• Misleading the court.
• Pursuing hopeless claims.
• Serious procedural misconduct.
• Abuse of the court’s process.
• Failing to comply with court orders.
• Unreasonable litigation conduct.
• Refusing to engage constructively with the opposing party.

Ultimately, the court asks whether the conduct complained of takes the case outside the ordinary course of litigation.

What happened in Sciallis v Fender?

The claim arose from proposed collective proceedings alleging anti-competitive conduct by several musical instrument manufacturers.

The proposed class representative later sought permission to withdraw the proceedings after it became clear that litigation funding had not been secured.

That, in itself, was not the issue.

The Competition Appeal Tribunal focused instead on what happened after the funding arrangements fell apart.

The Tribunal found that the proposed class representative and her legal team failed to inform either the Tribunal or the proposed defendants that funding negotiations had ended.

When questions were raised, the responses were described by the court as:

• Unhelpful.
• Uncooperative.
• Deliberately obfuscatory.
• Misleading.

The Tribunal also concluded that there had been a continuing failure to provide clear answers over a prolonged period.

Why did the court award indemnity costs?

The Tribunal accepted that there had initially been a genuine expectation that litigation funding would be secured.

However, once those negotiations ended, the court considered that there had been a duty to keep both the Tribunal and the opposing parties informed of the material change in circumstances.

Instead, the litigation continued for a considerable period without that information being disclosed.

The judge concluded that this conduct was unreasonable to a high degree and outside the norm of ordinary litigation.

That finding justified an award of costs on the indemnity basis from April 2023 onwards.

Conduct matters throughout litigation

One of the key lessons from this decision is that costs are influenced by far more than the outcome of the case.

A party may have perfectly arguable legal claims, but the manner in which the litigation is conducted can still have significant costs consequences.

Courts increasingly expect parties to:

• Comply with procedural rules.
• Cooperate where appropriate.
• Be transparent with the court.
• Deal with correspondence promptly.
• Avoid unnecessary costs.

Where those standards are not met, indemnity costs may become a real possibility.

Why this decision matters

Whilst this case arose in the context of collective proceedings before the Competition Appeal Tribunal, the principles apply much more widely.

Solicitors involved in commercial litigation, professional negligence claims, clinical negligence and other High Court proceedings should recognise the importance of litigation conduct when advising clients on costs risk.

The decision reinforces that indemnity costs are not reserved solely for dishonest conduct.

Persistent failures to engage properly with litigation, particularly where they increase costs unnecessarily, may also justify a departure from the standard basis.

Our commentary

Many people assume indemnity costs are only awarded where there has been fraud or deliberate wrongdoing. In reality, the court looks much more broadly at how litigation has been conducted. Procedural failures, lack of cooperation and conduct that unnecessarily increases costs can all influence the court’s decision.

This case is a good reminder that costs strategy should form part of litigation strategy from the outset. Advising clients on conduct, compliance and proportionality is often just as important as advising on the substantive issues in dispute.

Practical lessons for solicitors

The decision provides several practical reminders for legal practitioners.

Where there is a material change in circumstances, particularly one that affects the viability of proceedings, consideration should be given to whether the court and the opposing party should be informed.

Correspondence should be dealt with constructively wherever possible, and unnecessary procedural disputes should be avoided.

Solicitors should also remember that litigation conduct may ultimately influence not only who pays the costs but also the basis upon which those costs are assessed.

Managing costs risk is therefore an ongoing exercise throughout proceedings rather than something considered only after judgment has been handed down.

How ARC Costs can help

At ARC Costs, we regularly advise solicitors and law firms on complex costs disputes, including issues relating to indemnity costs, standard basis assessments and detailed assessment proceedings.

Our team assists with:

• Bills of Costs.
• Points of Dispute and Replies.
• Costs budgeting.
• Part 36 strategy.
• Detailed assessment.
• Costs negotiations.
• Advice on litigation conduct and recoverability.

The decision in Sciallis v Fender reinforces that the conduct of litigation can have significant financial consequences. Obtaining specialist costs advice throughout a case, not simply once it has concluded, allows law firms to better manage costs risk, protect recoverability and place themselves in the strongest possible position should a costs dispute arise.

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