[1] It is not possible for the basis of assessment to be neither the standard, nor the indemnity. This is as a result of CPR r.44.3(4)(b); r.44.3(4) provides (so far as presently material):

'Where-

...

(b) the court makes an order for costs to be assessed on a basis other than the standard basis or the indemnity basis,

the costs will be assessed on the standard basis.'

In Digicel (St Lucia) Ltd v Cable and Wireless plc [2010] 5 Costs LR 709, Morgan J said, at paragraph 10 (r.44.4 has become r.44.3):

'On the question as to the basis of assessment of costs, the choice for the court appears to be between either the standard basis or the indemnity basis. First of all, neither party asked me to adopt a position half way between the two bases, for example, by removing one of the differences between the two bases whilst leaving the other in force. Further, the provisions of rule 44.4(4) appear to prevent the court from saying, for example, that the costs should be assessed on a basis where the burden of persuasion in a case of doubt is on the paying party but that the paying party should retain the benefit of the requirement of proportionality; but see the note in Civil Procedure at para 44.4.4.'

[2] CPR r.44.3(4)(a) is relevant here. It provides:

'Where-

(a) the court makes an order about costs without indicating the basis on which the costs are to be assessed

...

the costs will be assessed on the standard basis.'

[3] To understand the difference between: (a) the standard basis of assessment; and (b) the indemnity basis of assessment, reference must be made to the detail in r.44.3:

(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs summary

(a) or on detailed the standard assessment) basis; or orit will assess those costs-

(b) on the indemnity basis,

but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.

(Rule 44.5 sets out how the court decides the amount of costs payable under a contract.)

(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 reasonably incurred or were reasonable in amount in favour of the receiving party.

(4) ...

(5) Costs incurred are proportionate if they bear a reasonable relationship to-

(a) the sums in issue in the proceedings;

(b) the value of any non-monetary relief in issue in the proceedings;

(c) the complexity of the litigation;

(d) any additional work generated by the conduct of the paying party;

(e) any wider factors involved in the proceedings, such as reputation or public importance; and importance; and

(f) any additional work undertaken or expense incurred due to the vulnerability of a party or any witness.'

In Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson (A Firm) [2002] EWCA Civ 879, Lord Woolf said, in respect to the difference, at paragraph 15:

'The differences are two-fold. First, the differences are as to the onus which is on a party to establish that the costs were reasonable. In the case of a standard order, the onus is on the party in whose favour the order has been made. In the case of an indemnity order, the onus of showing the costs are not reasonable is on the party against whom the order has been made. The other important distinction between a standard order and an indemnity order is the fact that, whereas in the case of a standard order the court will only allow costs which are proportionate to the matters in issue, this requirement of proportionality does not exist in relation to an order which is made on the indemnity basis. This is a matter of real significance. On the one hand, it means that an indemnity order is one which does not have the important requirement of proportionality which is intended to reduce the amount of costs which are payable in consequence of litigation. On the other hand, an indemnity order means that a party who has such an order made in their favour is more likely to recover a sum which reflects the actual costs in the proceedings. The question of whether an order for costs on a standard or indemnity basis is made in litigation of the sort with which we are here concerned may be a matter of substantial financial significance. That no doubt explains why in this case the claimants have considered the matter one which justified the appeal which is now before us.'

In Hosking v Apax Partners LLP [2018] EWHC 2732 (Ch), Hildyard J said, at paragraph 38:

'An award of indemnity costs is valuable to a receiving party for two separate reasons: (1) the burden of persuasion as to reasonableness is shifted to the paying party, and (2) the paying party does not have the benefit of the limitation that only costs which were proportionate to the matters in issue are recoverable: see Digicel (St Lucia) Ltd v Cable and Wireless plc [2010] 5 Costs LR 709, para 9.'

[4] Two provisions to note here:

(1) Section 51 of the Senior Courts Act 1981 states that the Court shall have full power to determine by whom and to what extent costs are to be paid (see section 51(3)); and

(2) CPR Part 44, which is entitled 'General Rules about Costs', wherein there is the main costs provision, in r.44.2, entitled 'Court's discretion as to costs'. R.44.2(1) and (2) provide:

'(1) The court has discretion as to-

(a) whether costs are payable by one party to another;

(b) the amount of those costs; and

(c) when they are to be paid.

(2) If the court decides to make an order about costs-

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the court may make a different order.

(3) The general rule does not apply to the following proceedings-

(a) proceedings in the Court of Appeal on an application or appeal made in connection with proceedings in the Family Division; or

(b) proceedings in the Court of Appeal from a judgment, direction, decision or order given or made in probate proceedings or family proceedings.

(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including-

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of its case, even if that party has not been wholly successful; and

(c) any admissible offer to settle made by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply.

(5) The conduct of the parties includes-

(a) conduct before, as well as during, the proceedings and in particular the extent to which the parties followed the Practice DirectionPre-Action Conduct or any relevant pre-action protocol;

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended its case or a particular allegation or issue; and

(d) whether a claimant who has succeeded in the claim, in whole or in part, exaggerated its claim.

(6) The orders which the court may make under this rule include an order that a party must pay-

(a) a proportion of another party’s costs;

(b) a stated amount in respect of another party’s costs;

(c) costs from or until a certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings;

(f) costs relating only to a distinct part of the proceedings; and

(g) interest on costs from or until a certain date, including a date before judgment.

(7) Before the court considers making an order under paragraph (6)(f), it will consider whether it is practicable to make an order under paragraph (6)(a) or (c) instead.

(8) Where the court orders a party to pay costs subject to detailed assessment, it will order that party to pay a reasonable sum on account of costs, unless there is good reason not to do so.'

[5] In Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson (A Firm) [2002] EWCA Civ 879 ('Excelsior'), in the Court of Appeal, Lord Woolf LCJ (with whom Waller LJ and Laws LJ agreed), set out the position under the heading 'Indemnity Orders for Costs'.

Lord Woolf outlined the basic rule governing the principle of imposing a costs order, at paragraphs 11 to 12 of Excelsior (note r.44.3 has since become r.44.2):

'In relation to the principal issue on the appeal it is necessary to turn, first, to the relevant provisions of the CPR. Whilst not forgetting the general provisions of Part 1 the CPR, it is convenient, first, to go to the provisions of Part 44.3 which, so far as relevant, read:

“44.3(1) The court has discretion as to-

(a) whether costs are payable by one party to another;

(b) the amount of those costs; and

(c) when they are to be paid.

(2) If the court decides to make an order about costs -

(a) the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but

(b) the court may make a different order.

…

(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including -

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 3).

( Part 36 contains further provisions about how the court's discretion is to be exercised where a payment into court or an offer to settle is made under that Part.)

(5) The conduct of the parties includes -

(a) conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol;

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.

(6) The orders which the court may make under this rule include an order that a party must pay -

(a) a proportion of another party's costs;

(b) a stated amount in respect of another party's costs;

(c) costs from or until a certain date only;

(d) costs incurred before proceedings have begun;

(e) costs relating to particular steps taken in the proceedings;

(f) costs relating only to a distinct part of the proceedings; and

(g) interest on costs from or until a certain date, including a date before judgment.

…”

The provisions of Part 44.3 make it clear how wide and generous is the discretion of the court in making orders as to costs. Equally it is made clear that, in exercising its judicial discretion, it is the obligation of the court to look at the circumstances of the case in general, and here I make particular reference to the wide terms of paragraph 44.3(5).'

Then in Excelsior, Lord Woolf moved on to the basis of assessment CPR rule (the focus of this article), from paragraph 13:

'Part 44.4(1) sets out the two bases of assessment, namely the standard basis and the indemnity basis. In addition to drawing attention to those two different bases it provides:

”… the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount.”

I draw attention particularly to that passage of 44.4 because it emphasises the general requirement that costs which are to be ordered to be paid must not be unreasonably incurred or unreasonable in amount.

44.4(2) and 44.4(3) draw a distinction between the difference in substance between a standard order for costs and an indemnity order for costs. The differences are two-fold. First, the differences are as to the onus which is on a party to establish that the costs were reasonable. In the case of a standard order, the onus is on the party in whose favour the order has been made. In the case of an indemnity order, the onus of showing the costs are not reasonable is on the party against whom the order has been made. The other important distinction between a standard order and an indemnity order is the fact that, whereas in the case of a standard order the court will only allow costs which are proportionate to the matters in issue, this requirement of proportionality does not exist in relation to an order which is made on the indemnity basis. This is a matter of real significance. On the one hand, it means that an indemnity order is one which does not have the important requirement of proportionality which is intended to reduce the amount of costs which are payable in consequence of litigation. On the other hand, an indemnity order means that a party who has such an order made in their favour is more likely to recover a sum which reflects the actual costs in the proceedings. The question of whether an order for costs on a standard or indemnity basis is made in litigation of the sort with which we are here concerned may be a matter of substantial financial significance. That no doubt explains why in this case the claimants have considered the matter one which justified the appeal which is now before us.'

Lord Woolf, from paragraphs 16, went on to consider Part 36 offers in relation to determining the basis of assessment.

Reference was made to: (a) Reid Minty (a firm) v Gordon Taylor [2002] 2 All ER 150 ('Reid Minty'); and (b) Kiam v MGN Ltd (No 2) [2002] 2 All ER 242 ('Kiam').

In relation to Reid Minty:

(1) May LJ said:

'31. Thus, in my view, the letter of 3 December 1999 may be rather more persuasive than the letter of 1 September 1999 - although I emphasise that the court has to take all relevant circumstances into account.

32. There will be many cases in which, although the defendant asserts a strong case throughout and eventually wins, the court will not regard the claimant's conduct of the litigation as unreasonable and will not be persuaded to award the defendant indemnity costs. There may be others where the conduct of a losing claimant will be regarded in all the circumstances as meriting an order in favour of the defendant of indemnity costs. Offers to settle and their terms will be relevant and, if they come within Pt 36, may, subject to the court's discretion, be determinative.'

(2) Lord Woolf in Excelsior said of May LJ and this: 'May LJ in approached a different factual situation from that which we are considering in a way which I find wholly appropriate.' (Excelsior, paragraph 28)

(3) Waller LJ in Excelsior said of Reid Minty, that it '...was concerned with the exercise of discretion under Part 44.3 and emphasised that it was not necessary for there to be conduct deserving moral condemnation for the court to have power to order indemnity costs.' (Excelsior, paragraph 37).

In Esure Services Ltd Ltd v u Quarcoo [2009] EWCA Civ 595 ('Esure'), Waller LJ (with whom Longmore LJ and Richards LJ agreed) summarised the decision in Excelsior (decision of course, in which he was part of the Court of Appeal), as follows, at paragraph 17 to 23 of Esure (note r.44.3 has now become 44.2; r.44.4 has become r.44.3):

'17. In the Court of Appeal it was suggested that it was not open to the judge to make an order for indemnity costs. What we said in that case was that the right starting point in considering the power of the court to order indemnity costs was the rules. We indicated that there were many circumstances in which it might be appropriate to order indemnity costs and, in particular, we used the language that it would be appropriate to order indemnity costs as opposed to costs on a standard basis where the case was outside the norm. One sees that in particular from paragraph 19 of the judgment of Lord Woolf where he referred to something that I had said during the argument suggesting that the circumstances where it might be appropriate to award indemnity costs were those that take the case “out of the norm”. Lord Woolf then having cited a number of authorities, in relation to indemnity costs, came back to the question whether the judge was entitled to take the view that the circumstances of that particular case, Excelsior, were outside the norm and found that he was. On that the basis we held that the judge was entitled to make an order for indemnity costs.

18. That decision, it should be recognised, was made in the context of previous decisions and, in particular, previous decisions where the argument mounted was that under the CPR indemnity costs should only be ordered where there was some sort of lack of probity or conduct deserving of moral condemnation on the part of the paying party. Thus in Reid Minty v Taylor, a Court of Appeal decision, reported at [2002] 2 All ER 150, that was the view of the judge at first instance, as recorded by May LJ at paragraph 10. He recorded that the main ground of appeal in that case was that the judge at first instance misdirected himself in saying that:

“costs should only be awarded on an indemnity basis if there has been some sort of moral lack of probity or conduct deserving of moral condemnation on the part of the paying party.”

19. May LJ went on to quote in full the relevant rules of the CPR, in particular 44.3(1), (4) and (5) and rule 44.4. He then referred to a number of decisions, and then he summarised the position in this way at paragraph 27:

"27. In my judgment, the judge here was wrong to constrain himself in the way that he did. He was, I think, implicitly guided by pre- CPR authorities which are no longer apt for the new procedural code in this respect. Under the CPR, it is not, in my view, correct that costs are only awarded on an indemnity basis if there has been some sort of moral lack of probity or conduct deserving moral condemnation on the part of the paying party. The court has a wide discretion under Rule 44.3 which is not constrained, in my judgment, by authorities decided under the rules which preceded the introduction of the CPR. The discretion has to be exercised judicially, in all the circumstances, having regard to the matters referred to in Rule 44.3(4) and Rule 44.3(5). The discretion as to the amount of costs referred to in Rule 44.3(1)(b) includes a discretion to decide whether some or all of the costs awarded should be on a standard or indemnity basis. Rule 44.4 describes the way in which an assessment on each basis is to operate, but does not prescribe the circumstances in which orders on one or the other of the bases is to be made.

28. As the very word “standard” implies, this will be the normal basis of assessment where the circumstances do not justify an award on an indemnity basis. If costs are awarded on an indemnity basis, in many cases there will be some implicit expression of disapproval of the way in which the litigation has been conducted. But I do not think that this will necessarily be so in every case. What is, however, relevant to the present appeal is that litigation can readily be conducted in a way which is unreasonable and which justifies an award of costs on an indemnity basis, where the conduct could not properly be regarded as lacking moral probity or deserving moral condemnation.”

20. It is a total misreading of Reid Minty, and Excelsior to suggest they support a view that if there has been some misconduct which is deserving of moral condemnation that an order for indemnity costs is inappropriate because however unfortunate dishonest claims are not “outside the norm”.

21. What those authorities show is that the starting point is the rules, and the important rule is 44.3, which provides:

“44.3

(1) The court has discretion as to -

(a) whether costs are payable by one party to another;

(b) the amount of those costs; and

(c) when they are to be paid. …

(4) In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including -

(a) the conduct of all the parties;

(b) whether a party has succeeded on part of his case, even if he has not been wholly successful; and

(c) any payment into court or admissible offer to settle made by a party which is drawn to the court's attention (whether or not made in accordance with Part 36).

(5) The conduct of the parties includes -

(a) conduct before, as well as during, the proceedings, and in particular the extent to which the parties followed any relevant pre-action protocol;

(b) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(c) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(d) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim.”

22. It is 44.4 which provides the basis of assessment and indicates the difference between an assessment on a standard basis and an assessment on an indemnity basis, and it is well recognised that there is a considerable difference between the two.

23. Reid Minty and Excelsior, were implicitly recognising as obvious that it would often be appropriate to award indemnity costs where a paying party had been guilty of conduct meriting moral condemnation. The conduct of the parties is one of the very key matters to which 44.3 refers. Indeed if a court has found that a claim is dishonestly brought or has been dishonestly maintained, it seems to me that it will be normal for a court to seek to mark its disapproval by the costs order it makes. If the party is the losing party and thus would be the paying party even if the claim were honest, that disapproval can best be marked by an order for indemnity costs.'

[6] Tomlinson J in Three Rivers District Council v Bank of England [2006] EWHC 816 (Comm) set out the authorities from which he extracted the relevant principles/propositions, as should act as a guide to whether a party ought to be required to pay costs on an indemnity (assessed) basis, at paragraph 25:

'...the authorities, including IPC Media Ltd v. Highbury Leisure Publishing Ltd [2005] EWHC 283 (Ch)(Laddie J), Cambridge Antibody Technology Ltd v. Abbot Biotechnology Ltd [2005] EWHC 357 (Ch)(Laddie J), Amoco (UK) Exploration Co v. British American Offshore Ltd [2002] BLR 135 (Langley J) and Cepheus Shipping Corporation v. Guardian Royal Exchange Plc [1995] 1 LL Rep. 647 (Mance J) demonstrate that the following principles should guide the Court’s determination whether the Claimants should be required to pay the Bank’s costs of the action on an indemnity basis:-'

[6a] In Whaleys (Bradford) Ltd v Bennett [2017] EWCA Civ 2143; [2017] 6 Costs L.R. 1241 ('Whaleys'), Newey LJ (with whom David Richards LJ agreed), said at paragraphs 19 and 20:

'19. Guidance as to when an indemnity order might be appropriate is to be found in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879; [2002] CP Rep 67. In that case, Lord Woolf CJ said (at para 32) that the “critical requirement” was that “there must be some conduct or some circumstance which takes the case out of the norm”. Likewise, Waller LJ said (at para 39):

“The question will always be: is there something in the conduct of the action or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs?”

20. Excelsior was one of the cases considered by the Court of Appeal in Esure Services Ltd v Quarcoo [2009] EWCA Civ 595. There, a Recorder had found the claimant to have been dishonest but declined to order him to pay costs on the indemnity basis. An appeal by the defendant was allowed. In the course of his judgment, Waller LJ said:

“25. The Recorder seems to have construed the word ‘norm’ as indicating that if the situation facing the court was one that quite often occurred that would mean that the situation was within the norm. In my view the word ‘norm’ was not intended to reflect whether what occurred was something that happened often so that in one sense it might be seen as ‘normal’ but was intended to reflect something outside the ordinary and reasonable conduct of proceedings. To bring a dishonest claim and to support a claim by dishonesty cannot be said to be the ordinary and reasonable conduct of proceedings.

26. In my view the Rules entitle a court to take account of the conduct of the parties whether that conduct occurs on many occasions or whether it is rare. So in my judgment, as I say, the Recorder has misdirected himself. That being so, it is for this court to exercise the discretion anew.

27. I have already recited the Rules and it is to the Rules that one must first go. Once one sees the type of conduct that the court must have regard to, it seems to me clear that this was a case in which the conduct of the claimant was one where the court should be inclined to mark its disapproval of the bringing of a dishonest claim and the supporting of that claim by lies, including a lie about whether he had produced a key which did not belong to the car, and which included in fact an attack on the integrity of the claims handler although that was not pursued in cross-examination. The best method by which a court can mark its disapproval when, as here, the claimant would be the paying party, is by making an order for indemnity costs. I for my part have no hesitation in saying that, where insurers establish that a claim has been brought dishonestly, they should on the whole be entitled to an order for indemnity costs not just because of the extra cost they may incur in defending such a claim - though that is considerable - but so that others are discouraged. It is both in the interests of insurers and indeed any defendants, and in the interests of the court, that persons should be discouraged from bringing dishonest claims and from supporting dishonest claims by lies.

28. In my view the appropriate order in this case was to order [the claimant] to pay the costs and to pay those on an indemnity basis. I would allow the appeal against the Recorder's order in this case and make that order.”

In a similar vein, Longmore LJ said (at para 31):

“A fraudulent claim is, in my judgment, indeed out of the norm and it would be a sad day if this court were to give the impression that fraudulent claims being brought at first instance were in any way within the norm.”'

[7] In Whaleys (Bradford) Ltd v Bennett [2017] EWCA Civ 2143; [2017] 6 Costs L.R. 1241, David Richards LJ said, at paragraph 28:

'In my view, it was unfortunate that the judge used the word “exceptional” to describe the circumstances that may justify an order for indemnity costs. The formulation repeatedly used by this court is “out of the norm”, reflecting, as Waller LJ said in Esure Services Ltd v Quarcoo [2009] EWCA Civ 595 at [25], “something outside the ordinary and reasonable conduct of proceedings”. Whatever the precise linguistic analysis, “exceptional” is apt as a matter of ordinary usage to suggest a stricter test and is best avoided. Its use in this case gave rise to an arguable ground of appeal and while I am satisfied, particularly in the light of the submissions made to him, that the judge was not applying a stricter test, for the future it would be preferable if judges expressly used the test of “out of the norm” established by this court.'

[8] The classic case for creditor winding up petitions is In Re a Company (No 0012209 of 1991) [1992] 1 WLR 351, wherein Hoffman J said that resort to winding up petitions by creditors was a 'high risk strategy' and, where such resort, amount to an abuse of process, because that person was ineligible to resort to a winding up petition, it would be appropriate that indemnity costs be awarded. Hoffman J said, at 11:

'The basis upon which the injunction is granted is that presentation of the petition is an abuse of the process of the court. I think that it should be made clear that abuse of the petition procedure in these circumstances is a high risk strategy, and consequently I think the appropriate order is that the petitioner should pay the company's costs on an indemnity basis.'

This applies to both: (a) pre-winding up petition presentation, as well as (b) post-presentation of the winding up petition. In the recent case of Alpha Schools (Holdings) Ltd v Signal Alpha III Fund LP [2024] EWHC 2862 (Ch), Deputy ICC Judge Baister said, at paragraph 72:

'Hoffmann J's dictum to the effect that resort to winding up can be a "high risk strategy" is well known (see In Re a Company (No 0012209 of 1991) [1992] 1 WLR 351 ). His warning applies equally, in my view, to the intention to do so evinced by service of a statutory demand.'

[12] In Digicel (St Lucia) Ltd v Cable and Wireless plc [2010] 5 Costs LR 709, Morgan J said, from paragraphs 11 to 19:

'11. There was little between the parties as to the principles to be applied in making the choice between the two bases of assessment. However, in order to explain my approach, I will refer to the essential principles which I will attempt to apply.

12. First, on either basis, the receiving party is only entitled to receive costs which it has actually incurred and, further, is only entitled to receive costs which were reasonably incurred and reasonable in amount.

13. Secondly, the standard basis, as the name suggests, is the normal basis of assessment: see Reid Minty v Taylor [2002] 1 WLR 2800 at [28] and Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 87 at [32]. This proposition has the result that there has to be something about the present action which takes it outside the norm before it would be appropriate for the court to award costs on the indemnity basis.

14. Thirdly, cases vary considerably and the Court of Appeal has declined to lay down guidelines on the subject: see the Excelsior case at [32].

15. There are cases which are outside the norm where the receiving party does not criticise the behaviour of the paying party. An example given in Excelsior was of a test case. However, in most of the cases where the court has to consider an application for indemnity costs, the receiving party is critical of the behaviour of the paying party in some way. The present is such a case.

16. Where the application for indemnity costs is put on the basis that the behaviour of the paying party justifies that response, it may be helpful to refer to how the matter was described by Colman J in National Westminster Bank plc v Rabobank Nederland (No. 2) [2008] 1 All ER (Comm) 243. The learned judge set out the relevant rules of the CPR and referred to a number of decisions of the Court of Appeal. He then collected a number of statements of judges at first instance which had “attempted to develop more coherent objective criteria for indemnity costs orders”. He then said at [26]–[30]:

26. Against that background one comes to the notorious and, on its facts, extreme, case of Three Rivers DC v Bank of England [2006] EWHC 816 (Comm), [2006] All ER (D) 175 (Apr) in which Tomlinson J made an indemnity costs order against the claimant and in doing so, set out (at [25]) a helpful summary of what he considered to be matters relevant to be taken into account in deciding whether to make an indemnity costs order in the following words:

‘(1) The court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide.

(2) The critical requirement before an indemnity order can be made in the successful defendant's favour is that there must be some conduct or some circumstance which takes the case out of the norm.

(3) Insofar as the conduct of the unsuccessful claimant is relied on as a ground for ordering indemnity costs, the test is not conduct attracting moral condemnation, which is an a fortiori ground, but rather unreasonableness.

(4) The court can and should have regard to the conduct of an unsuccessful claimant during the proceedings, both before and during the trial, as well as whether it was reasonable for the claimant to raise and pursue particular allegations and the manner in which the claimant pursued its case and its allegations.

(5) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails.

(6) A fortiori, where the claim includes allegations of dishonesty, let alone allegations of conduct meriting an award to the claimant of exemplary damages, and those allegations are pursued aggressively inter alia by hostile cross-examination.

(7) Where the unsuccessful allegations are the subject of extensive publicity, especially where it has been courted by the unsuccessful claimant, that is a further ground.

(8) 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 only 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; (c) where the claimant actively seeks to court publicity for its serious allegations both before and during the trial in the international, national and local media; (d) where the claimant, by its conduct, turns a case into an unprecedented factual inquiry by the pursuit of an unjustified case; (e) where the claimant pursues a claim which is, to put it most charitably, thin and, in some respects, farfetched; (f) where the claimant pursues a claim which is irreconcilable with the contemporaneous documents; (g) where a claimant commences and pursues large-scale and expensive litigation in circumstances calculated to exert commercial pressure on a defendant, and during the course of the trial of the action, the claimant resorts to advancing a constantly changing case in order to justify the allegations which it has made, only then to suffer a resounding defeat.’

27. I would, however, make the following comments on this summary.

28. Where one is dealing with the losing party's conduct, the minimum nature of that conduct required to engage the court's discretion would seem, except in very rare cases, to be a significant level of unreasonableness or otherwise inappropriate conduct in its widest sense in relation to that party's pre-litigation dealings with the winning party or in relation to the commencement or conduct of the litigation itself. It is important to distinguish in Tomlinson J's formulation of relevant considerations between that underlying concept and his identification of examples of more specific patterns of conduct capable of rendering a party's overall conduct relevantly unreasonable or inappropriate. Grounds (4) to (8) inclusive are specific examples of conduct which, taken alone, or in combination, may in all the surrounding circumstances often be capable of giving rise to a conclusion that the losing party's conduct has been so unreasonable or inappropriate overall as to justify an order which gives him a more effective costs indemnity than would be the case under the standard order. But in each case in which the costs of the whole litigation are under consideration, the conduct adversely criticised must be looked at in the context of the entire litigation and a view taken as to whether the level of unreasonableness or inappropriateness is in all the circumstances high enough to engage such an order. This approach leaves entirely intact the approach to indemnity costs orders envisaged by Lord Woolf CJ in the Excelsior Commercial and Industrial Holdings case [2002] CP Rep 67 at [31], such as the case of a losing party involved in a test case with no other interest than resolution of the issue or, I would add, in the context of commercial litigation, the case of banks not parties to proceedings or other non-parties who are obliged to incur expenses in giving effect to freezing injunctions for in such cases it is not the character of the loser's conduct that engages the court's discretion but the justice of the circumstances in which the receiving party has become involved in the proceedings.

29. Finally, I would refer to observations of Christopher Clarke J in Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 2531 (Comm) at [1], [2006] All ER (D) 183 *719 (Oct) at [1], in which, having adopted Tomlinson J's summary, he said this:

‘The discretion is a wide one to be determined in the light of all the circumstances of the case. To award costs against an unsuccessful party on an indemnity scale is a departure from the norm. There must, therefore, be something – whether it be the conduct of the claimant or the circumstances of the case – which takes the case outside the norm. It is not necessary that the claimant should be guilty of dishonesty or moral blame. Unreasonableness in the conduct of the proceedings and the raising of particular allegations, or in the manner of raising them may suffice. So may the pursuit of a speculative claim involving a high risk of failure or the making of allegations of dishonesty that turn out to be misconceived, or the conduct of an extensive publicity campaign designed to drive the other party to settlement. The making of a grossly exaggerated claim may also be a ground for indemnity costs.’

30. Here again, it is important not to lose sight of the essential requirement of unreasonable or inappropriate conduct overall and not to treat examples of such which may amount to such conduct as necessarily constituting it.”

17. It should be noted that the comments made by Tomlinson J at para (8) of his summary in the Three Rivers case were very much directed at the facts of that case which, as Colman J pointed out, was an extreme case.

18. I also bear in mind that the fact that a case is complex and involves a long trial does not of itself take the case out of the norm, for the purposes of the present discussion. No doubt, long cases are not as common as short cases and complex cases are not as common as more straightforward cases. But they are not on that account to be considered to be “out of the norm” in the present context. The point may go further. Long and complex cases may have other features which distinguish them from shorter, more straightforward cases. For example, the long complex case may give rise to more amendments of the pleadings, more opportunities for further disclosure as the case develops during the trial, a refocusing of the allegations during the trial as witnesses fail to come up to proof or add unexpectedly to their evidence, further refinements of the legal or factual analysis as the parties deepen their understanding of the issues and the adoption of new positions in the light of indications, direct or indirect, actual or guessed at, of how the judge appears to be approaching the matter. Those features of some long and complex cases may mean that it would be wrong to regard those features as taking the case outside the norm when they are not particularly unusual in long and complex cases.

19. Finally, I have found it useful, when asking myself whether the conduct of the paying party was at a sufficiently high level of unreasonableness or inappropriateness to make it appropriate to order indemnity costs, to remind myself of why precisely I am asking that question. The purpose behind the question is whether the relevant conduct makes it just as between the parties to remove from the paying party the twofold benefit of an order on the standard basis, as compared with an order on the indemnity basis, that is to say, to enable the receiving party to recover its costs, reasonably incurred and reasonable in amount, with the benefit of the doubt being given to the receiving party and without the receiving party having to address (and persuade the court upon) the subject of proportionality. In this regard, I need to give proper weight to the significance which the CPR attach to this question of proportionality. The policy considerations behind the requirement of proportionality and the weight to be attached to the requirement are emphasised in Lownds v Home Office [2002] 1 WLR 2450, in particular, at [8]–[10]. The matters which will be relevant to any dispute about proportionality include those set out at CPR rule 44.5(3), which I have set out above, and also the similar provisions in rule 1.1(2)(c).'

[10] In Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 2531 (Comm), Christopher Clarke J said, at paragraph 1:

'The basic rule is that a successful party is entitled to his costs on the standard basis. The factors to be taken into account in deciding whether to order costs on the latter basis have been helpfully summarised by Tomlinson, J., in Three Rivers District Council v The Governor and Company of the Bank of England [2006] EWGC 816 (Comm). The discretion is a wide one to be determined in the light of all the circumstances of the case. To award costs against an unsuccessful party on an indemnity scale is a departure from the norm. There must, therefore, be something — whether it be the conduct of the claimant or the circumstances of the case — which takes the case outside the norm. It is not necessary that the claimant should be guilty of dishonesty or moral blame. Unreasonableness in the conduct of the proceedings and the raising of particular allegations, or in the manner of raising them may suffice. So may the pursuit of a speculative claim involving a high risk of failure or the making of allegations of dishonesty that turn out to be misconceived, or the conduct of an extensive publicity campaign designed to drive the other party to settlement. The making of a grossly exaggerated claim may also be a ground for indemnity costs.'

[14] In Euroption Strategic Fund Ltd v Skandinaviska Enskilda Banken AB [2012] EWHC 749 (Comm), Gloster J said the following, at paragraphs 11 to 14:

'There was virtually common ground between the parties as to the principles to be applied by the court in making its choice between the two bases of assessment. The principles are well known and have been exhaustively rehearsed in the relevant authorities. The following is no more than a headline summary.

First, on either basis, the receiving party is only entitled to recover costs which it has actually incurred, and, further, is only entitled to receive costs which were reasonably incurred and were reasonable in amount. Second, the standard basis is the normal basis of assessment: see Reid Minty v Taylor [2002] 1 WLR 2800, para 28; Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 at [19]. This means that there has to be something in the conduct of the action, or about the circumstances of the case in question, which takes it out of the norm in a way which justifies an order for indemnity costs: see the Excelsior case and Noorani v Calver [2009] EWHC 592 (QB) at [9], per Coulson J. Third, cases vary very considerably, and the Court of Appeal has declined to lay down guidelines on the subject: see the Excelsior case at para 32. It is obvious from a reading of the authorities that each case is highly fact-dependent.

Fourth, to demonstrate that a case has gone outside the norm of behaviour, it is not necessary to show that the paying party's conduct lacked moral probity or deserved moral condemnation in order to attract recovery of costs on an indemnity basis: see Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 2531 (Comm) at [1], where Christopher Clarke J said: ‘The basic rule is that a successful party is entitled to his costs on the standard basis. The factors to be taken into account in deciding whether to order costs on the latter basis have been helpfully summarised by Tomlinson, J in Three Rivers District Council v Governor and Company of the Bank of England [2006] EWHC 816 (Comm). The discretion is a wide one to be determined in the light of all the circumstances of the case. To award costs against an unsuccessful party on an indemnity scale is a departure from the norm. There must, therefore, be something - whether it be the conduct of the claimant or the circumstances of the case - which takes the case outside the norm. It is not necessary that the claimant should be guilty of dishonesty or moral blame. Unreasonableness in the conduct of the proceedings and the raising of particular allegations, or in the manner of raising them may suffice. So, may the pursuit of a speculative claim involving a high risk of failure or the making of allegations of dishonesty that turn out to be misconceived, or the conduct of an extensive publicity campaign designed to drive the other party to settlement. The making of a grossly exaggerated claim may also be a ground for indemnity costs.’

However, as Mr Shivji emphasised, by reference to para 8 of the decision in Noorani's case, conduct must be unreasonable ‘to a high degree’ to attract indemnity costs. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight: see per Simon Brown LJ in Kiam v MGN Ltd (No 2) [2002] 1 WLR 2810. In each case, it is a fact dependent question as to whether or not the paying party's conduct has been unreasonable to a high degree.”

Gloster J continued, at paragraph 15:

'One example of a case of unreasonable conduct in the conduct of proceedings was Digicel (St Lucia) Ltd v Cable & Wireless plc [2010] EWHC 888 (Ch) at [68] - [69]. The claimant had shown no interest in proportionality by casting its claim disproportionately wide, and requiring the defendant to meet such a claim. In such circumstances, Morgan J held there was no injustice in denying the claimant the benefit or an assessment on a proportionate basis, given that, in such circumstances, the claimant had forfeited its right to the benefit of the doubt on reasonableness: at [68] - [69]. Another relevant example of conduct of the paying party which took the case outside the norm was Re Continental Assurance Co of London plc (in liquidation) (unreported) 13 June 2001, where Park J approached the question of indemnity costs on the grounds that the liquidators had pursued all issues at full length and right to the end of trial, with the result that the amount of costs incurred was enormous. It was appropriate that the costs of the successful respondents should be assessed on the indemnity basis so that they, and not the liquidators, received the benefit of any doubt as to whether incurring the cost was reasonable.'

[18] In Hosking v Apax Partners LLP [2018] EWHC 2732 (Ch) ('Hosking'), Hildyard J considered the law in this area, under the following headings:

(1) 'The approach in determining the basis of costs' - at paragraphs 37 to 43;

(2) 'Application of the approach in the particular context of discontinuance' - paragraphs 44 to 49;

(3) 'Hallmarks of cases falling “outside the norm”' - paragraphs 50 to 54.

Hildyard J in Hosking said, at paragraphs 37 to 54:

The approach in determining the basis of costs

'37. The standard basis of costs is, as its description denotes, the norm. Only if the case is “out of the norm” may the indemnity basis be justified.

38. An award of indemnity costs is valuable to a receiving party for two separate reasons: (1) the burden of persuasion as to reasonableness is shifted to the paying party, and (2) the paying party does not have the benefit of the limitation that only costs which were proportionate to the matters in issue are recoverable: see Digicel (St Lucia) Ltd v Cable and Wireless plc [2010] 5 Costs LR 709, para 9.

39. The decision of Morgan J in the Digicel case contains a useful review of prior authority at paras 14–19: see in particular para 19 where Morgan J asked whether the “conduct of the paying party was at a sufficiently high level of unreasonableness or inappropriateness to make it appropriate to order indemnity costs”.

40. More recently, the Court of Appeal said the following on the subject in Excalibur Ventures llc v Texas Keystone Inc (No 2) [2017] 1 WLR 2221, para 21:

“The principles which should guide the court in exercising its discretion as to the basis upon which a costs order should be made are too well known to require restatement. They are accurately summarised in the judge's costs judgment, to which the judge referred at para 60 of the judgment which is the subject of this appeal. CPR Pt 44 makes clear, as the judge noted at para 62, that the conduct of the parties is one, but only one, of the circumstances to be taken into account. The discretion is to be exercised in the light of all the circumstances of the case. To award costs on an indemnity scale is a departure from the norm and one therefore looks for something, whether it be the conduct of the relevant party or parties, or the circumstances of the case, which takes the case outside the norm. The judge cited in his costs judgment some of the many cases which attempt to collect examples of circumstances which may take a case out of the norm—such as his own judgment in Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 2531 (Comm), my judgment in Three Rivers District Council v Governor and Company of the Bank of England [2006] 5 Costs LR 714 and the judgment of Gloster J in Euroption Strategic Fund Ltd v Skandinaviska Enskilda Banken AB [2012] EWHC 749 (Comm).”

41. In the passage from her judgment in Euroption Strategic Fund Ltd v Skandinaviska Enskilda Banken AB [2012] EWHC 749 (Comm) which is referred to above, Gloster J said the following:

“11. There was virtually common ground between the parties as to the principles to be applied by the court in making its choice between the two bases of assessment. The principles are well known and have been exhaustively rehearsed in the relevant authorities. The following is no more than a headline summary.

“12. First, on either basis, the receiving party is only entitled to recover costs which it has actually incurred, and, further, is only entitled to receive costs which were reasonably incurred and were reasonable in amount. Second, the standard basis is the normal basis of assessment: see Reid Minty v Taylor [2002] 1 WLR 2800, para 28; Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 at [19]. This means that there has to be something in the conduct of the action, or about the circumstances of the case in question, which takes it out of the norm in a way which justifies an order for indemnity costs: see the Excelsior case and Noorani v Calver [2009] EWHC 592 (QB) at [9], per Coulson J. Third, cases vary very considerably, and the Court of Appeal has declined to lay down guidelines on the subject: see the Excelsior case at para 32. It is obvious from a reading of the authorities that each case is highly fact-dependent.

“13. Fourth, to demonstrate that a case has gone outside the norm of behaviour, it is not necessary to show that the paying party's conduct lacked moral probity or deserved moral condemnation in order to attract recovery of costs on an indemnity basis: see Balmoral Group Ltd v Borealis (UK) Ltd [2006] EWHC 2531 (Comm) at [1], where Christopher Clarke J said: ‘The basic rule is that a successful party is entitled to his costs on the standard basis. The factors to be taken into account in deciding whether to order costs on the latter basis have been helpfully summarised by Tomlinson, J in Three Rivers District Council v Governor and Company of the Bank of England [2006] EWHC 816 (Comm). The discretion is a wide one to be determined in the light of all the circumstances of the case. To award costs against an unsuccessful party on an indemnity scale is a departure from the norm. There must, therefore, be something—whether it be the conduct of the claimant or the circumstances of the case—which takes the case outside the norm. It is not necessary that the claimant should be guilty of dishonesty or moral blame. Unreasonableness in the conduct of the proceedings and the raising of particular allegations, or in the manner of raising them may suffice. So, may the pursuit of a speculative claim involving a high risk of failure or the making of allegations of dishonesty that turn out to be misconceived, or the conduct of an extensive publicity campaign designed to drive the other party to settlement. The making of a grossly exaggerated claim may also be a ground for indemnity costs.’

“14. However, as Mr Shivji emphasised, by reference to para 8 of the decision in Noorani's case, conduct must be unreasonable ‘to a high degree’ to attract indemnity costs. ‘Unreasonable’ in this context does not mean merely wrong or misguided in hindsight: see per Simon Brown LJ in Kiam v MGN Ltd (No 2) [2002] 1 WLR 2810. In each case, it is a fact dependent question as to whether or not the paying party's conduct has been unreasonable to a high degree.”

42. The emphasis is thus on whether the behaviour of the paying party or the circumstances of the case take it out of the norm. The merits of the case are relevant in determining the incidence of costs: but, outside the context of an entirely hopeless case, they are of much less, if any, relevance in determining the basis of assessment.

43. The cases cited show that amongst the factors which might lead to an indemnity basis of costs are: (1) the making of serious allegations which are unwarranted and calculated to tarnish the commercial reputation of the defendant; (2) the making of grossly exaggerated claims; (3) the speculative pursuit of large-scale and expensive litigation with a high risk of failure, particularly without documentary support, in circumstances calculated to exert commercial pressure on a defendant; (4) the courting of publicity designed to drive a party to settlement notwithstanding perceived or unaddressed weaknesses in the claims.

Application of the approach in the particular context of discontinuance

44. In my view, the like considerations apply in the context of discontinuance; but their application is made the more difficult because at that stage the court will not itself have assessed all the evidence and reached an adjudication, and the reasonableness (or not) of the way the case has been conducted may be more difficult to assess. For example, it may well be difficult to dismiss a claim which has not proceeded to adjudication as “unwarranted”.

45. Discontinuance connotes (in the absence of agreed terms or particular different explanation) that the discontinuing party no longer considers its claim to be worth pursuing, or that it can no longer afford to pursue it. However, whether that is on a cost/benefit analysis, or because of funding difficulties, or changed strategic priorities, the court is unlikely to be in a position to know or determine. Discontinuance does not necessarily connote an acceptance that the case was, is or has become hopeless; and a fair assessment of the merits will be difficult, if not impossible, at least if there remains any real issue by the date of discontinuance.

46. I accept also, in light of Chadwick LJ's statement in In re Walker Wingsail Systems plc [2006] 1 WLR 2194, para 12, quoted at para 36 above, that in the ordinary course, and given these uncertainties, any adjudication of the merits will ordinarily not be the court's function at the discontinuance stage.

47. However, I do not read that statement as precluding the court from considering whether in the particular circumstances the sudden discontinuance confirms that a claim, though perhaps not susceptible to summary determination at an earlier stage, lacks or has come to lack any real vitality; nor is it precluded from examining the particular circumstances, including the documentary record, to assess whether it appears that it has been continued, not with a view to its adjudication on its merits, but with a view to extracting a settlement on account of its nuisance, expense, and any uncertainty as to the result inherent in almost all litigation.

48. Further, I do not accept that the court cannot assess whether the fact of discontinuance, where no other explanation is offered and no change in the forensic landscape which might excuse a change of perception or tack is apparent, raises an inference in all the circumstances that the discontinuing party has not only recognised weaknesses such as no longer in its perception justify pursuit of the claim but that such weaknesses were always an incident of that claim.

49. By the same token, there is, in my view, no reason for particular reluctance, at the stage of discontinuance, to award an indemnity basis of costs if the conduct of the parties or the circumstances of the case are by then revealed as being “out of the norm”. In that context, I do not accept the suggestion put forward on behalf of the Liquidators at the hearing of consequential matters that the fact that the express provision in the CPR for discontinuance provides for the payment of standard costs places some higher hurdle, or tips the balance, against an award on the indemnity basis. The CPR simply caters in this context for the norm: it does not fetter the court in determining the appropriate response to cases which it is persuaded are “out of the norm”. If anything, the sudden, unexplained discontinuance of a large claim, carried on for days at trial after enormous expense, invites the question whether it was reasonable to pursue it at all, or at least, so far.

Hallmarks of cases falling “outside the norm”

'50. As is apparent from para 41 above, a recurring theme of these considerations, and a hallmark of cases falling “out of the norm” in the relevant sense, is that the proceedings in question have been high risk, and apparently pursued, and usually publicised, to exert pressure in the hope of extracting a settlement, with frail evidential support and little regard to their prospects of success at trial or any real and realistic objective of securing vindication by adjudication.

51. Whilst that may not technically amount to abuse, it is close to it, since the court is intentionally, though in the event, unsuccessfully, being used as an anvil for settlement rather than as an adjudicator; and it may cause the court to set aside, in assessing costs of the victim, the ordinary constraints of proportionality and reasonableness, precisely because the court is persuaded that the victim has been pursued and subjected to legal process in a way and for a reason which is neither proportionate nor reasonable.

52. If the court reaches the conclusion that this was, or at some point became, a fair depiction of the proceedings, discontinuance should not deter the court in a case “out of the norm” from an order of costs which better fits such circumstances. On the contrary, especially where by discontinuance of the proceedings without explanation the victim in such a case is deprived of any prospect of vindication in which very serious allegations of impropriety or worse have been advanced, pursued, intentionally widely publicised and suddenly abandoned, it is right in my judgment for the court to be inclined towards an indemnity basis of costs.

53. Whilst I would accept that neither Three Rivers District Council v Governor and Company of the Bank of England [2006] 5 Costs LR 714, para 24, per Tomlinson J, nor Jordan Grand Prix v Vodafone Group plc [2003] 2 All ER (Comm) 864 (which he cited) is directly in point, since the one went to the question of whether there was a sufficient issue remaining, after the claimants had already abandoned their claims and agreed to pay costs on an indemnity basis, to warrant the court making observations as to the substance of the case, and the other went to the question whether the court should give judgment after discontinuance, both illustrate the court's reluctance to permit parties which have invoked its jurisdiction and pursued proceedings for purposes or in a manner of which the court disapproves to withdraw silently and deprive the other party of some proper recompense or vindication.

54. That sharpens focus on why this claim, which was pursued all the way and yet suddenly dropped after four days of trial without apparent reason beyond the fact of failed negotiations, was pursued until then, and whether there are factors relating to the way it was so pursued which take it “out of the norm”.'