Indemnity Costs: Why You Must Act Reasonably During Litigation

Costs are legal expenses that you will incur during a litigation claim.

Costs include the hourly rate that you will pay to your solicitor for the work done on your behalf, in addition to disbursements which are out-of-pocket expenses that your solicitor incurs in order to try and progress your case. These can include things like expert reports or barrister’s fees.

Costs – the general rule

Typically, a judge at trial (or beforehand if a case is settled earlier) will order that the unsuccessful or ‘losing’ party will have to pay the winning party’s costs. This is the general rule but is not necessarily automatic. Factors which can change the decision include the complexity of the issues in your claim and the way either party has behaved which may have unnecessarily delayed the claim, amongst others. At all times, the Judge considers what is fair and reasonable in the circumstances and you will not necessarily recover 100% of your costs, in fact, this is very rare. As a general ‘rule of thumb’, you are likely to recover around 70% of your costs, unless the behaviour of the other party has been unreasonable.

Costs – standard basis v indemnity basis

Standard basis

When a Judge is assessing costs under the standard basis, any doubt they may have will be exercised in favour of the unsuccessful party. In other words, if there is any doubt about the costs that have been incurred during the case, the unsuccessful party will be favoured over the winning party and some of these costs may not be recovered from the losing party.

Indemnity basis

When a Judge is assessing costs under the indemnity basis, any doubt they may have will be exercised in favour of the successful party and they will be favoured over the unsuccessful party. This could mean that the winning party could get back a much higher percentage of their costs than would be the case if costs were assessed on the standard basis.

When will costs be assessed on an indemnity basis?

The Court of Appeal has declined to define the circumstances in which a Court could or should make an order for costs on the indemnity basis. However, it has been decided that an indemnity costs order would be made where a party’s conduct or circumstances were ‘out of the norm’. The Judge will take into account the conduct of the unsuccessful party (how you have acted throughout the case), whether it was reasonable to pursue the allegations in the first place and if the case was speculative, weak or opportunist.

It is therefore very important to act properly during a case to avoid any award for costs being made against you. If you need legal advice about a possible claim and want to ensure that your conduct is appropriate our Litigation specialists on 0800 088 6004.