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Indemnity Costs Orders - When are they appropriate?
It is the all too common state of affairs where parties begin throwing about threats
of applications for indemnity costs but when are they really appropriate? The bases
of assessment, which are applicable to both Detailed and Summary Assessments, are
detailed within the Civil Procedure Rules in Part 44.4. Under the 'old rules' the
bases were contained within Order 62 rule 12. In deciding whether to and what order
for costs to make the court will consider the nine primary parameters contained within
Under Part 44.4, on the standard basis, the Court will not allow costs that have
been unreasonably incurred or which are unreasonable in amount. Any doubt will always
be resolved in favour of the paying party. The principle addition to the old Order
62 is the introduction of the principle of 'proportionality' to the equation. The
Overriding Objective set out within CPR Part 1.1 also makes clear the need for the
Courts to deal with matters in ways which are proportionate. The Courts are always
to have regard to the Overriding Objective when applying the test of proportionality.
Unfortunately the principle of proportionality is not defined within the Costs Practice
Directions and, at least until perhaps the recent case of Home Office -v- Lownds
(Lord Woolf, Laws and Dyson LJJ) 21 March 2002, very little guidance was provided
in connection with the application of the principle at costs assessments. It should
be remembered that proportionality plays no part on the Indemnity Basis. When an
assessment of costs is carried out on this basis, the court will simply not allow
costs that are unreasonably incurred or unreasonable in amount (see CPR 44.5 (1)
Costs between the parties are usually awarded on the standard basis but when exactly
should one request an order for costs on the indemnity basis? Unfortunately the Civil
Procedure Rules do not make it clear exactly when indemnity costs orders are appropriate.
We have to rely primarily on the guidance enshrined within case law. In the case
of Bowen Jones -v- Bowen Jones  3 All ER 163 it was suggested that indemnity
costs should only be awarded in "exceptional circumstances" but offered little more
direction than that. What are "exceptional circumstances"? It was submitted, in the
case of Connaught Restaurants Ltd -v- Indoor Leisure Ltd  CILL 798 that costs
on the indemnity basis should only be considered appropriate if the circumstances
concerned with the case were "outside the run of normal litigation". In that specific
case it was furthermore considered appropriate that costs should be payable on the
indemnity basis if the proceedings had been conducted "bitterly or unreasonably".
Conduct will commonly be a deciding factor in deciding whether the indemnity basis
is the appropriate alternative to the standard basis and then only if the court considers
a party's conduct has been wholly unreasonable. An example of such unreasonableness
may be where a claiming party has been purposely dishonest and, more to the point,
has intentionally misled the parties to the proceedings. A costs order on the indemnity
basis was awarded as a result of such behaviour in the case of Wanderer Ltd -v- Nigel
Burgess Ltd  (unreported, May CA). Unreasonable conduct may also involve a
party's failure or unreasonable unwillingness to disclose request information or
documentation or perhaps a party's failure to comply with court directions. Naf Naf
-v- Dickens  FSR 424 exemplifies such an instance. Where wasted costs are made
on the indemnity basis, consideration will often be given to the case of Ridehalgh
-v- Horsefield  Ch 205 in which examples of improper, negligent and unreasonable
conduct were respectively defined.
Other circumstances in which an order for costs would not be made on the standard
basis is where a party makes an offer to settle a case and beats that offer at a
subsequent trial or assessment. Most practitioners will be familiar with this scenario
but perhaps not completely au fait with the specifics. Prior to the introduction
of the Civil Procedure Rules in 1999 costs consequences where offers to settle were
made were illustrated by the case of Calderbank -v- Calderbank  3 WLR 586 and
subsequently by CPR Part 36. Where a Claimant does better at trial than the offer
he has already put forward costs will usually be awarded on the indemnity basis.
CPR Part 36.21 (3) (a) stated that "The court may also order that the claimant is
entitled to - his costs on the indemnity basis from the latest date when the defendant
could have accepted the offer without needing the permission of the court;". In costs
proceedings the court may be reluctant to make orders on the indemnity basis where
the claiming party simply recovers more than the paying party had offered prior to
the assessment without circumstances involving conduct issues, highlighted above,
being a significant factor. See Part 47.18 and associated practice direction for
further guidance on factor to be taken into account when the court decides who should
pay the costs of Detailed Assessment.