What are costs on an indemnity basis?

What is meant by indemnity basis?

Costs on an indemnity basis are made with this intention to indemnify a party. The principle of indemnifying means compensating a party for their loss. Indemnity costs are only awarded in certain circumstances some of which include:

• If a party has incurred unnecessarily high expenses during proceedings 
• If a party has made untrue allegations of fraud
• Where there is evidence of misconduct by a party leading to loss of time to the court and the other party
• Where a party has made baseless allegations and contentions

How are costs assessed on the indemnity basis?

The Civil Procedure Act 2005 gives courts the power to award costs. Section 98 allows the court to determine by which parties, to whom and to what extent the costs are to be paid. The court will generally exercise its power to order indemnity costs on the basis that contractual agreements provide a provision in which costs are to be assessed ‘plainly and unambiguously’. This means that costs in accordance with the contractual agreement will be construed on a standard basis unless it is plain and unambiguous that the costs required are on an indemnity basis.

What is the difference between standard costs and indemnity costs?

• Standard costs are costs that are necessary for the attainment of justice or for enforcing the rights of a party whose costs are being assessed. Standard costs will be the courts first starting position when costs are being assessed. These typically entitle a party to recover 50-66% of actual costs incurred. 

• Indemnity costs are generally higher than standard costs and are only awarded under the courts discretion. Typically parties will be able to recover 90-100% of costs incurred through indemnity compensation. 

Key takeaway 

Generally courts will take the route of standard costs first however if there are circumstances under which indemnity costs are required the court will have complete discretion to order theses for any given party.