Key Takeaways
- Indemnity costs in UK litigation are higher than standard costs and typically awarded when a party acts unreasonably during legal proceedings.
- Failing to act reasonably can result in the court ordering indemnity costs, meaning you may pay a greater share of the other side’s legal fees.
- The main difference: with standard costs, doubt is resolved in favour of the paying party; with indemnity costs, doubt benefits the receiving party.
- Courts can award indemnity costs for dishonest conduct, refusal to settle, or unreasonable behaviour before or during litigation.
- Ignoring a costs warning or settlement offer could lead the court to consider an indemnity costs order against you.
- Requests for indemnity costs should be made promptly after judgment or at the relevant costs hearing.
- Failure to act if you might be liable for indemnity costs can greatly increase the financial risks you face in litigation.
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If you need tailored guidance on avoiding or seeking indemnity costs, contact our expert litigation solicitors for a Free Consultation on 0207 459 4037.
What Is the Difference Between Standard and Indemnity Costs in UK Litigation?
Many clients are caught off guard when losing a case leads not only to paying their opponent’s legal fees, but sometimes a far larger sum than anticipated. When a party behaves unreasonably during proceedings, courts may impose indemnity costs—substantially increasing the financial stakes beyond a standard costs order.
The crucial distinction lies in the court’s approach to scrutiny. Under standard costs, only “reasonable and proportionate” costs are recoverable and any doubt is resolved in favour of the party paying. With indemnity costs, the burden shifts—any doubt about reasonableness is resolved in favour of the receiving party. This can dramatically increase what the losing side has to pay.
Understanding these differences is vital for risk management, settlement decisions, and litigation tactics.
To obtain a fixed-fee assessment of your case and litigation risk exposure, our solicitors can provide immediate, strategic advice to safeguard your position.
What Are Indemnity Costs in UK Litigation and How Do They Differ From Standard Costs?
In legal proceedings in England and Wales, indemnity costs are a stringent costs sanction, requiring the losing party to pay nearly all legal expenses of the winner—unless the costs claimed are plainly unreasonable.
By contrast, under standard costs, only those expenses the court considers both reasonable and proportionate are ordered—usually resulting in a lower recovery for the successful party. Any uncertainty about whether a cost was reasonable is resolved in favour of the payer under standard costs, but under indemnity costs, that doubt works in favour of the recipient.
If you’re negotiating a dispute or thinking about settlement, being clear on the impact of costs orders can change both strategy and outcomes.
For practical advice on mitigating costs exposure, speak to our litigation team for a tailored approach that fits your specific dispute.
When Do Courts in England & Wales Award Indemnity Costs?
Courts have wide discretion to award indemnity costs, but only exercise it when a party’s conduct falls outside accepted standards of litigation behaviour. The default position under CPR 44.2 is standard costs unless there is a compelling reason for indemnity.
Typical triggers for indemnity costs orders include:
- Dishonest or fraudulent conduct, such as fabricating evidence or misleading the court
- Unjustifiably refusing to negotiate or settle
- Ignoring reasonable Part 36 or other settlement offers
- Needlessly escalating proceedings through aggressive correspondence, unnecessary applications, or concealing documents
- Pursuing hopeless claims or defences, or abusing court process
Judges emphasise that indemnity costs are not awarded simply for losing. They are a response to behaviour that increases the cost or complexity of litigation unnecessarily. This serves as a caution for parties tempted to take unreasonable positions.
What Conduct Triggers an Indemnity Costs Order in UK Courts?
Indemnity costs are only awarded for conduct that “takes the case out of the norm.” Actions or omissions that regularly result in such orders include:
- Dishonesty (deliberately misleading the court, concealing evidence)
- Consistent failure to comply with court directions or time limits
- Persistently running weak or unmeritorious claims or defences
- Threatening or hostile correspondence designed to intimidate
- Flat refusal to engage in alternative dispute resolution or mediation
A party’s approach before and during litigation can greatly influence the final costs decision.
How Ignoring Costs Warnings or Settlement Offers Affects Costs Orders
Refusing to engage with costs warnings or credible settlement offers can be extremely costly. UK courts view the rejection of a reasonable Part 36 or other open offer as strong evidence of unreasonable conduct, especially where refusing the offer results in greater costs for both parties.
Wherever possible, weigh the financial risk of ignoring offers against the chance of achieving a better result at trial.
What Is the Practical Difference Between Indemnity and Standard Basis Costs?
How Costs Are Assessed—and What It Means for You
The assessment of costs directly affects what you pay or recover at the end of litigation:
- Standard Costs: Only costs that are both reasonable and proportionate will be recoverable. If there is any doubt about a cost’s necessity, that doubt favours the party paying.
- Indemnity Costs: Parties may recover all costs that are reasonable in amount, even if disproportionate. Doubts will be resolved in the recipient’s favour. Items are only disallowed if manifestly unreasonable.
Knowing exactly how each basis works enables better budgeting, risk mapping, and more informed negotiation.
How to Apply for Indemnity Costs in Court Proceedings
When and How to Request Indemnity Costs
An application for indemnity costs should be made as soon as judgment is delivered, but before the final order is sealed. The key steps are:
- Act without delay when unreasonable conduct becomes evident.
- Assemble documented evidence—letters, emails, settlement offers, and examples of the other party’s poor behaviour.
- Clearly articulate in written submissions why indemnity is justified, referencing CPR 44.2 and supporting case law.
Being well-prepared for the costs hearing maximises your chances of a successful application or mounting an effective defence.
If you anticipate a dispute about costs or face the risk of an indemnity order, our solicitors will help you prepare robust, compelling submissions.
What Are the Risks and Consequences of Indemnity Costs Awards?
Shifting to indemnity costs changes the financial reality of litigation for both sides. For those ordered to pay, their exposure can increase sharply.
The risk of indemnity costs:
- Drives parties towards reasonable settlement
- Discourages aggressive or bad faith litigation tactics
- Impacts negotiation leverage, risk appetite, and reputational considerations
- Can have significant financial implications for entrepreneurs, directors, and businesses
Strategic, timely action in response to offers and conduct often saves parties substantial costs.
What Laws and Deadlines Apply to Indemnity Costs Orders in the UK?
The legal rules on costs in England and Wales are found primarily in the Civil Procedure Rules (CPR):
- CPR 44.2: Sets the overarching rule for costs, defaulting to standard basis unless there is a “sufficient reason” for indemnity.
- CPR 44.3: Explains what is meant by costs being “reasonable and proportionate” (standard basis) or just “reasonable” (indemnity).
- Timelines: Applications for costs should be made immediately after judgment and no later than the final costs order being sealed. Parties must observe tight CPR timelines for submitting bills and responding to Points of Dispute where detailed assessment occurs.
Missing a deadline can mean losing the right to claim costs or defend against an indemnity order. Courts rarely extend deadlines without compelling justification.
Prompt, informed action is essential to protect your financial interests.
What Do the Courts Say About Indemnity Costs and Standard Costs in Recent Cases?
| Case | Facts | Outcome | Why It Matters |
|---|---|---|---|
| Three Rivers DC v Bank of England [2006] EWHC 816 (Comm) | Claims of dishonesty and bad faith led to significant litigation conduct issues | Indemnity costs awarded | Makes clear that misconduct or exceptional behaviour, not just defeat, is required for indemnity costs |
| Kiam v MGN Ltd [2002] EWCA Civ 66 | Persistent refusal to apologise following judgement; aggressive tactics | Indemnity costs awarded | Underlines the dangers of declining reasonable resolution or using hostile tactics |
| Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 | Refusal to engage in ADR and overtly adversarial conduct | Indemnity costs awarded | Demonstrates that persistent unreasonableness and ADR refusals can result in indemnity costs |
Key takeaways:
- Indemnity costs orders are reserved for serious or “out of the norm” behaviour.
- The courts inspect the entirety of parties’ conduct, not just the final event.
- Strong, timely evidence can help you argue for, or defend against, such orders.
If making or resisting an indemnity costs application, aligning your arguments to recent case law will significantly enhance your position.
How Can Understanding Indemnity Costs Protect Your Business or Personal Interests?
Strategic Tips for Litigation and Settlement Negotiation
Proactive use of indemnity costs arguments is vital for effective negotiation and risk management. Consider the following steps:
- Issue clear, written settlement offers early and throughout litigation.
- Every correspondence—keep it professional and avoid emotional or hostile tone.
- Respond to every reasonable offer and formal warning of costs risk, if only to clarify your position.
- Factor the increased risk of an indemnity order into all strategic litigation decisions.
- Highlight clear, documented examples of your opponent’s unreasonable conduct early—presenting supporting evidence at every opportunity.
Forewarning your legal strategy with insights on indemnity costs helps you maintain leverage and reduces long-term exposure.
To discuss litigation or explore tailored costs strategies, arrange a Free Consultation with our specialist team.
Our Approach to Indemnity Costs: Standard vs Indemnity Costs in Litigation
Our team of litigation solicitors has a proven track record of successfully advising on both recovery and defence in indemnity costs scenarios across England and Wales. We:
- Analyse every case in detail to assess prospects of standard or indemnity costs, providing strategic risk assessments
- Prepare thorough, evidence-based submissions—including the latest case law and practical guidance
- Advise individuals, directors, and businesses on making or responding to costs offers, tactical correspondence, and negotiation leverage
- Handle breach of contract, construction, professional negligence, insolvency, property, IP, tax, crypto, and other commercial disputes—all with fixed-fee or capped-fee options for cost certainty
- Deliver practical, accessible support, assisting at every step from early-stage negotiation through to final costs hearings
Clients trust us for clear, honest advice and unwavering focus on outcomes—whether you are making an application or defending against one, our support gives you the edge.
If you need experienced support with any costs issue, our solicitors are ready to help you maximise recovery and avoid costly pitfalls.
Frequently Asked Questions
1. What are indemnity costs in UK litigation?
Indemnity costs are legal costs ordered by the court when the losing party behaved unreasonably or dishonestly. These enable the successful party to recover a much greater share of their legal bill.
2. How do indemnity costs differ from standard costs?
Standard costs are only those deemed reasonable and proportionate, favouring the party paying. Indemnity costs allow the recipient to recover all reasonable (not just proportionate) expenses, unless clearly unjustified.
3. When are indemnity costs awarded?
Courts order indemnity costs for exceptional conduct, including dishonesty, refusal to settle, ignoring ADR opportunities, or escalating the case needlessly.
4. What is a “costs order” in litigation?
A costs order is a formal court decision about who pays legal costs and on what basis (standard or indemnity) at the end of a case or specific hearing.
5. What evidence do I need for an indemnity costs application?
Written offers, correspondence showing deliberate refusal to engage, records of ADR or mediation proposals, and documentation of dishonest, late, or aggressive conduct can all support your application.
6. Are indemnity costs easier to recover than standard basis legal costs?
Yes. On indemnity basis, the court’s assessment is more generous—items must be plainly unreasonable to be disallowed and the burden of proof shifts to the payer.
7. Can refusing to mediate result in indemnity costs?
Refusal to attempt mediation or ADR—especially when proposed by the court—is a common reason for indemnity costs awards.
8. How quickly must I apply for indemnity costs after trial?
Applications should be made immediately after judgment, before the costs order is sealed, with supporting evidence and legal argument ready.
9. Does accepting a Part 36 offer protect me from indemnity costs?
Accepting a reasonable Part 36 offer on time protects you. Delaying or refusing may expose you to an indemnity costs order if you later lose or do less well at trial.
10. Can indemnity costs awards be appealed?
Appeals are possible, but higher courts rarely overturn costs decisions unless the judge made a clear legal or procedural error.
Get Strategic Advice on Indemnity Costs in Litigation
A clear understanding of the risks and triggers for indemnity costs enables you to negotiate, settle, or proceed to trial with confidence. By recognising the real financial impact and shaping your approach accordingly, you protect your interests and secure a stronger outcome.
Our litigation solicitors support clients with tailored, transparent advice on all aspects of costs—from early-stage negotiation to robust defence at hearing. Whether you wish to apply for indemnity costs, defend against an application, or want a realistic assessment of your risk, you will receive honest, strategic support every step of the way.
Call us for a Free Consultation on 0207 459 4037 or use our online booking form to get started.
