Indemnity Costs: Applicable Principles and Considerations
“You lose, you pay” seems to be the general principle in the judicial system when it comes to awarding costs. There are two ways in which the Court can order costs to be paid:
- Standard basis; or
- Indemnity basis.
The determinative factor of whether standard or indemnity costs will be awarded is largely concerned with the conduct of both parties. Behaviour of parties that include tactics of “bad faith”, delaying judicial process, professional misconduct, false allegations and possessing ulterior motives, often lead to the imposition of indemnity costs rather than standard costs.
The general principle of costs is expressed in R 681(1) of the Uniform Civil Procedure Rules (QLD) (“UCPR”) which provides: “Costs of a proceeding, including an application in a proceeding, are in the discretion of the court but follow the event, unless the court orders otherwise.”
In simple terms, the party who is unsuccessful will be ordered to pay the costs of the successful party.
Standard costs only take into consideration costs that were necessary or proper for the attainment of justice or for enforcement or defence of rights (Rule 702, UCPR). These are task-based, not time-based (Rule 691, UCPR). As a general rule, only 60-75% of Solicitors fees are usually recoverable and only part indemnity is provided for. Most law firms will have a specific cost agreement with their clients, and if there is an additional amount owed that is in excess of the Court’s scale of costs for work performed – this amount is owed by the client.
Indemnity costs may be viewed as the next level of costs awarded only in circumstances involving misconduct. Some good examples of circumstances in which indemnity costs were enforced are as follows (and the cases they were from):
- When allegations of fraud are made that are known to be false.
- Thors v Weekes (1989) 92 ALR 131 at 152.
- Prolonging court proceedings with evidence of misconduct.
- Justice French in Tetijo.
- When proceedings are instigated with ulterior motive.
- Justice Woodward in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397.
- When claims are made that have no basis and should never have been made in the first place.
- Justice Davies in Ragata Developments Pty Ltd v Westpac Banking Corporation  FCA 115.
- When settlement is offered are there is evidence of a lack of willingness to compromise or negotiate.
- Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724.
- Wilful disregard for known facts or clearly established law.
- J-Corp Pty Ltd v Australia Builders Labourers Federation Union of Workers (WA) (No 2) (1993) 46 IR 301 at 303.
The most important case to consider when seeking to understand indemnity costs is: Colgate-Palmolive Company and Colgate-Palmolive Pty Limited v Cussons Pty Limited  FCA 536.
In this case, Justice Sheppard described the practice of cost orders usually made on a party and party basis unless a different order ought not to be made, as “standard”. His Honour goes onto comment that the only circumstance in which an indemnity cost order be made is in “the existence of some special or unusual feature of a particular case justifying such an order”. His Honour’s colleague, Justice Roberts-Smith goes on to comment and outline circumstances in which the court will impose an indemnity cost order, most of which have been outlined above.
There is a stark similarity between these principles outlined by Justice Sheppard and the criteria contained in R 162(1) of the UCPR in relation to the striking out of pleadings.
One may contend that the commentary on the imposition of indemnity costs reveals a willingness of legislators and judges alike to deter parties in the judicial system from participating in misconduct, filing empty allegations and abusing the judicial process.
 Colgate-Palmolive Company and Colgate-Palmolive Pty Limited v Cussons Pty Limited  FCA 536 – http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCA/1993/536.html?stem=0&synonyms=0&query=Colgate%20Palmolive%20and%201993
Colgate-Palmolive Company and Colgate-Palmolive Pty Limited v Cussons Pty Limited  FCA 536 – http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/cth/FCA/1993/536.html?stem=0&synonyms=0&query=Colgate%20Palmolive%20and%201993