It is an often-misconstrued point of costs law that an indemnity costs order is a magic bullet, the Astra-Zeneca or Pfizer jab of the costs world. However, as the recent case of Louis Dreyfus Company Suisse S.A. v International Bank of St. Petersburg (Joint-Stock Company) [2021] EWHC 1039 (Comm) demonstrates, indemnity costs doesn’t mean you can spend what you like.
In theory – the rules
The bases of costs assessment rank as a book one chapter one of the costs bible foundational costs law principle. They are defined at CPR r. 44.3 (2) and (3) as follows:
(2) Where the amount of costs is to be assessed on the standard basis, the court will –
(a) only allow costs which are proportionate to the matters in issue. Costs which are disproportionate in amount may be disallowed or reduced even if they were reasonably or necessarily incurred; and
(b) resolve any doubt which it may have as to whether costs were reasonably and proportionately incurred or were reasonable and proportionate in amount in favour of the paying party.
(Factors which the court may take into account are set out in rule 44.4.)
(3) Where the amount of costs is to be assessed on the indemnity basis, the court will resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party.
As can be seen above, the difference between how the court will treat costs on the indemnity basis as opposed to the standard basis is not monumental. In fact, the only real difference is that on the standard basis any doubt is resolved in favour of the paying party, whereas on the indemnity basis any doubt is to be resolved in favour of the receiving party.
In practice – the applicable case law
Louis Dreyfus Company Suisse S.A. v International Bank of St. Petersburg (Joint-Stock Company) [2021] EWHC 1039 (Comm) concerned an anti-suit injunction with various other connected issues also dealt with. The ASI was granted, and the Claimant also sought costs on the indemnity basis as is usual in cases such as this[1]. The schedule of costs sought totalled £292,066.00 which Mr Justice Carver described as “surprisingly large”. He considered the conduct of the proceedings and the fact that it had been relatively straight forward with three unopposed hearings. As per the test at r.44.3 the Court had to assess whether the costs were reasonably incurred or were reasonable in amount before then going on to resolve any doubt in favour of the receiving party. The Claimant was reminded of the comments of Leggat J (as was) in Kazakhstan Kagazy plc v Zhunus [2015] EWHC 404 (Comm) para 13, viz. whilst a party may wish to spare no expense in order to obtain a required result, that does not mean that the other party should be expected to foot the bill. It seems to me that that in Mr Justice Carver’s view, the resolution of doubt should not, and cannot override the earlier consideration of costs being unreasonably incurred or unreasonable in amount. In this case, the Claimants costs were reduced by nearly £100,000.00 and allowed at £200,000.00 against a schedule of £292,066.00.
In conclusion – what does this mean for you?
Essentially, the lesson is that assessment of costs on the Indemnity Basis is not a magic bullet and does not mean that the court will give you the benefit of the doubt if your costs were unreasonably incurred or are unreasonable in amount in the first place. Cut your cloth to suit the needs of the case, only incur costs commensurate with the work required in the matter at hand – and always ensure your client is aware that despite wanting a Rolls-Royce, the Court might only agree to a Morris Minor.
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