Indemnity costs: when courts award them and what difference they make

CPR 44.3 explains the two bases. On the standard basis, the court allows only costs that are proportionate to the matters in issue and resolves any doubt about whether costs were reasonably incurred or reasonable in amount in favour of the paying party. On the indemnity basis, proportionality is not applied and any doubt is resolved in favour of the receiving party.

Indemnity costs still must be reasonably incurred and reasonable in amount. They are not a blank cheque, and the indemnity principle continues to apply. The practical effect, however, is often a noticeably higher level of recovery, particularly where the paying party would otherwise have strong proportionality arguments.

Outside the specific rules, the court has a discretion under CPR 44.2 and 44.4 to award indemnity costs. The authorities show that the conduct or circumstances must take the case out of the norm. Unreasonable conduct to a high degree, such as pursuing a hopeless claim, deliberate misconduct, dishonesty, failing to comply with orders, or an aggressive and oppressive approach to litigation, may justify an indemnity order.

Losing an arguable case is not enough. Nor is a failure that is simply careless. Courts look at the conduct as a whole and ask whether it would be unjust to limit the receiving party to standard costs.

The most common route is Part 36. Where a claimant obtains a judgment at least as advantageous as its own offer, indemnity costs from the expiry of the relevant period will ordinarily be ordered. Contractual entitlement is another route: loan agreements and leases often provide for costs on an indemnity basis, and the court will usually give effect to such terms when exercising its discretion.

Indemnity costs may also follow from findings of contempt or from the unreasonable refusal of alternative dispute resolution in serious cases, although the court has a wide range of possible sanctions.

An application for indemnity costs should identify specific conduct, by reference to documents and dates, and explain why it was out of the norm. Generalised criticism rarely succeeds.

The paying party should engage with each allegation and highlight context, such as reasonable reliance on advice or genuine factual uncertainty. Our Costs Lawyers prepare submissions on the basis of assessment and advise on the likely recovery difference, so clients can decide whether the argument is worth pursuing.