Blog - Friday 20 February 2015

Indemnity Costs

In  Richmond Pharmacology Ltd v Chester Overseas Ltd & Ors [2014] EWHC 3418 (Ch) the High Court has provided a useful summary of authorities relating to circumstances in which an order for costs on the indemnity basis should be made.

The Court identified that the following factors are particularly pertinent:

  1. It is a critical requirement for there to be some conduct or circumstance which takes the case out of the norm.
  2. Dishonesty or moral blame does not have to be established, but indemnity costs are appropriate only where the conduct of the paying party was unreasonable to a high degree. "Unreasonable" in this context does not mean merely wrong or misguided in hindsight.
  3. The discretion to award indemnity costs is wide. When it is being exercised the Court should take into account all the circumstances and consider the matters complained of in the context of the overall litigation. Cases vary considerably and each case is highly fact-dependent.
  4. Individual examples of unreasonable conduct may not necessarily constitute a case being conducted unreasonably.
  5. The pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, provided that the claim was at least arguable. However, the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may lead to such an order. 
  6. If a claimant casts its claim disproportionately wide, and requires the defendant to meet such a claim, there may be no injustice in denying the claimant the usual benefits of requiring costs to be proportionate and resolving the benefit of the doubt on reasonableness in the claimant’s favour.
  7. A grossly exaggerated claim may be a ground for indemnity costs.
  8. The rejection of reasonable attempts to settle will not normally, by itself, justify an award of indemnity costs. However, if coupled with other factors, it may do so.

The Court made much of the fact that a standard basis assessment provides the paying party with twofold protection: firstly, by virtue of the requirement for costs to be proportionate; and secondly because of the fact that doubts as to reasonableness should be resolved in favour of the paying party.

Although a number of factors were identified by the Defendant which, it was said, justified an award of costs on the indemnity basis, the Court did not readily accept these. 

The Defendant was, however, successful in being awarded indemnity costs from the stage at which disclosure was concluded. It was held that the decision to continue to argue the claim in a nebulous fashion and to maintain a claim for a grossly exaggerated amount represented a disproportionate approach to the litigation which was sufficiently out of the norm to justify indemnity costs.

Analysis

It is usual for costs to be awarded on the standard basis. Unless the Rules provide for an indemnity basis assessment, the burden is on the receiving party to persuade the Court that this usual position should be departed from.

The bar is set relatively high. It is not enough for the paying party to conduct the claim in an unreasonable fashion. Instead, its conduct must be unreasonable to a high degree.

There is an infinite variety of situations where an award of costs on the indemnity basis would be justified. As the country’s largest specialist costs solicitors, Just Costs is ideally placed to advise on whether indemnity costs are appropriate in particular cases. If we consider that an award of costs on the indemnity basis would be appropriate, we can prepare the necessary application and attend Court on your behalf to argue for the order sought.

By Alex Bagnall, Associate and Costs Advocate