[2025] EWHC 2901 (Comm)

The principles applicable to determining whether an order for indemnity costs is appropriate were largely common ground. Nevertheless, I was referred to a number of authorities as providing guidance both as to the applicable principles and as to their application.

An order for an assessment on the indemnity basis is a matter of real significance, Excelsior Commercial and Industrial Holdings Ltd v. Salisbury Hannah Aspden and Johnson [2002] EWCA Civ 879 per Woolf LJ at [15]. It is considerably more favourable than an award on the standard basis because:

The starting point in all cases is that costs should be assessed on the standard basis and the burden of proving that costs should be assessed on an indemnity basis lies with the receiving party. In Thakkar v Mican [2024] 1 WLR 4196 at [28] and [29], the Court of Appeal recently rejected submissions that there is a presumption in favour of indemnity costs or that the usual burden of proof is reversed when a defendant makes unsuccessful allegations of fraud or dishonesty. However, the Court went on to say that nevertheless failed allegations of fraud will frequently attract indemnity costs:

“… But nothing that I say … is intended to detract in any way from this statement of the obvious: that because the making of a dishonest claim will very often attract an indemnity costs order against a claimant, a failed allegation of dishonesty will very often lead to the making of an indemnity costs order against the defendant, on the simple basis that ‘what is sauce for the goose is sauce for the gander’: see Tomlinson LJ in Manna v Central Manchester University Hospitals NHS Foundation Trust [2017] 1 Costs LO 89 at para 42. A defendant who makes allegations of this kind therefore runs a very significant risk that, if the allegations fail, indemnity costs will be awarded against them.”

To similar effect is the statement of David Richards J (as he then was) in Clutterbuck v HSBC Plc [2016] 1 Costs LR 13 at [16] cited with approval in Thakkar v Mican at [22] and [29]:

“The general provision in relation to cases in which allegations of fraud are made is that, if they proceed to trial, and if the case fails, then in the ordinary course of events the Claimants will be ordered to pay costs on an indemnity basis. Of course. the court retains complete discretion in the matter and there may well be factors which indicate that notwithstanding the failure of the claim in fraud, indemnity costs are not appropriate.”

David Richards J. went on to say at [17]:

“The underlying rationale of that approach is that the seriousness of allegations of fraud are [sic] such that where they fail they should be marked with an order for indemnity costs because, in effect, the defendant has no choice but to come to court to defend his position.”

There is a certain tension between the proposition that where allegations of fraud are made there is no presumption in favour of indemnity costs and a proposition that the making of failed allegations of fraud will nevertheless ordinarily lead to the making of an order for indemnity costs. However, that tension can be resolved by accepting that allegations of fraud which have failed, while not giving rise to any presumption in favour of an order for indemnity costs, are a significant factor when it comes to determining whether there are circumstances which justify treating a case as being out of the norm so as to attract an order for indemnity costs. In this regard, Tomlinson J. (as he then was) in Three Rivers DC v Bank of England at [8] put the position in the following terms:

“The following circumstances take a case out of the norm and justify an order for indemnity costs, particularly when taken in combination with the fact that a defendant has discontinued at a very late stage in proceedings.

(a)

Where the claimant advances and aggressively pursues serious and wide-ranging allegations of dishonesty or impropriety over an extended period of time;

(b)

Where the claimant advances and aggressively pursues such allegations, despite the lack of any foundation in the documentary evidence for those allegations, and maintains the allegations, without apology to the bitter end;

…”

More recently in Suez Fortune Investments Ltd v. Talbot Underwriting Ltd [2019] Costs LR 2019, Teare J. made an order for indemnity costs against a bank, which had brought a claim for an indemnity under a war risks policy in respect of the constructive loss of a vessel by piracy. The bank’s claim failed in circumstances where the court found that the Vessel was lost by reason of the wilful misconduct of her owner and not by reason of an insured peril. Teare J. accepted at [11] that for an order for indemnity costs to be appropriate what matters is whether, when one looks at the circumstances of the case as a whole, the case is out of the norm in such a way as to make it just to order costs on the indemnity basis. Teare J. held that an order for indemnity costs was appropriate in all the circumstances because he found at [18] and following:

The Claimant further submits that:

So far as whether an order for indemnity costs is appropriate in circumstances where the allegations of fraud are properly made and pursued, the Claimant relies on the following passage from the judgment of Zacaroli J. in Farol Holdings v Clydesdale Bank [2024] EWHC 1044 (Ch) at [8] – [9] for the proposition that it is no answer to an application for indemnity costs to say that the allegation was reasonably made or advanced by experienced and responsible counsel.

“I accept that the case was advanced by experienced and responsible counsel. I also accept that they adopted a measured approach throughout the trial, and I do not suggest (nor did the defendants) that there was anything improper in the claimants’ legal representatives’ behaviour in pleading and pursuing the claims in deceit. … That is not an answer, however, to the claim for indemnity costs. For reasons which are set out at length in the Judgment, I consider that the allegations of deceit were weak and subject to inherent flaws but were nevertheless pursued to the bitter end.”

Teare J. also held, to similar effect, that the bank in Suez Fortune Investments Ltd was entitled to pursue its claim and to argue every point, but it did so in circumstances where its claim was weak and there was a high risk of failure (at [42]).

In turn, the Defendant submits that what is required for an order for indemnity costs is conduct which is unreasonable to a high degree. In particular, where a party pursues a claim or relies on a line of defence which is speculative, weak, opportunistic or thin, then that party is taking a high risk and can expect to pay indemnity costs; see Three Rivers District Council v. The Governor and Company of the Bank of England [2006] EWHC 816 (Comm), especially at [25]. The Defendant further submits that a defence (including a fraud defence) supported by credible, lay and expert evidence is not deemed to be speculative, weak, opportunistic or thin simply because it ultimately proves unsuccessful at trial. The Court must be careful not to use hindsight when assessing the strength of an unsuccessful party’s case; see Governors and Company of the Bank of Ireland & Anr v Watts Group Plc [2017] EWHC 2472 (TCC) at [7] – [8].

In support of its argument against an award of indemnity costs, the Defendant points out that the insurance industry is plagued with fraudulent claims and the financial pressures facing businesses both during and following the lockdowns imposed by the UK government in response to the Covid-19 pandemic only exacerbated the problem. The Defendant submits that insurers have a duty to challenge insurance claims which appear disingenuous (in whole or in part). If insurers fail to do so and fraudulent claims go unchallenged then this adversely impacts upon premiums across the industry and all policy holders suffer.