When a court makes an order for costs, it must decide not only who pays, but on what basis those costs will be assessed. Costs on an indemnity basis are one of the two assessment bases available under the Civil Procedure Rules, and understanding when a court will award them and why matters for any solicitors advising on litigation risk, settlement offer, or detailed assessment strategy.

What Is the Indemnity Basis of Assessment?

Under CPR 44.3, the court has two bases on which it can assess costs: the standard basis and the indemnity basis. The rule reflects the court’s discretion, rooted in section 51 of the Senior Courts Act 1981, to determine by whom and to what extent costs are paid – the Civil Procedure Rules then govern how that discretion is exercised in practice.

On the standard basis, the court will only allow costs that are proportionate to the matters in issue, and any doubt as to whether costs were reasonably incurred or reasonable in amount is resolved in favour of the paying party.

On the indemnity basis, proportionality falls away entirely, and any doubt is resolved in favour of the receiving party instead. This distinction is often the single biggest driver of the size of a costs bill: a receiving party assessed on the indemnity basis will typically recover a materially higher proportion of their legal costs than one assessed on the standard basis, and costs budgeting under CPR Part 3 is disapplied.

When Will the Court Award Indemnity Costs?

There is no fixed list of circumstances in which a court will award indemnity costs, and the court’s discretion under CPR 44.2 is wide. In practice, indemnity costs orders tend to follow one of a small number of recognised patterns:

• Unreasonable conduct of the litigation – for example, pursuing a claim or defence with little or no prospect of success, making unreasonable and disproportionate allegations, or conducting proceedings in a way that amounts to an abuse of process
• Fraud or dishonesty allegations that are proved, or conduct that falls well outside the norm of reasonably competent litigation
• Beating a Part 36 offer – where a claimant equals or betters their own Part 36 offer at trial, CPR 36.17 provides for indemnity basis costs from the date the relevant period expired, alongside enhanced interest and an additional amount
• Contractual indemnity costs clauses – Some commercial contracts, particularly loan agreements, guarantees and leases, expressly provide that one party will indemnify the other for its legal costs in the event of a dispute, and the court will generally give effect to a properly drafted clause of this kind

It’s worth being clear that the general rule remains that costs will be assessed on the standard basis unless the court orders otherwise – indemnity costs are the exception, not the default, and a party seeking them needs to positively justify the departure.

Indemnity Costs and Fixed Recoverable Costs

The interaction between indemnity costs and Fixed Recoverable Costs (FRC) has become considerably more significant since the FRC regime was extended under CPR Part 45, Section IIIA with effect from 1 October 2023. Where a claim falls within the extended FRC regime – now covering most fast track claims and a number of claims on the intermediate track, up to £100,000 in value- recoverable costs are ordinarily capped at the fixed figures set out in the relevant tables, regardless of the basis of assessment that would otherwise apply.

The established exception remains a claimant beating their own Part 36 offer, following the principle in Broadhurst v Tan [2016] EWCA Civ 94: in that scenario, indemnity basis costs are recoverable from the date the offer expired, in addition to (rather than instead of fixed costs up to that point.

Late acceptance of a Part 36 offer is a different matter. The Court of Appeal has confirmed on more than one occasion that late acceptance does not, of itself, unlock indemnity – or even standard basis – costs where FRC applies. Our coverage of Attersley v UK Insurance Limited [2026] EWCA Civ 217 sets out the Court of Appeal’s most recent word on this point: where the fixed costs regime applied at the date the relevant period for a Part 36 offer expired, a claimant who accepts late remains confined to fixed costs for that stage, even if the claim is later allocated to the multi-track. Solicitors advising receiving parties should not assume that delay, or a change in track allocation, will improve a client’s costs position – the courts have been consistently unwilling to let claimants improve their position through late acceptance alone.

How Indemnity Basis Costs Are Assessed

Where an order for indemnity costs has been made, the paying party still has the opportunity to challenge individual items through Points of Dispute and, if necessary, a full detailed assessment; the indemnity basis changes how doubt is resolved, not whether costs can be challenged at all. A Bill of Costs claiming costs on the indemnity basis should clearly identify the basis of the order relied upon, since the court will need to be satisfied that the order genuinely extends to indemnity costs and, where relevant, from what date.

Because proportionality is disapplied, indemnity basis assessments can produce a wider range of outcomes than standard basis assessments, and disputes often turn more heavily on whether individual items of costs were reasonably incurred and reasonable in amount, rather than on the overall proportionality of the bill.

How Greener Costs Can Assist

Our team of costs lawyers and costs draftsmen regularly advises on applications for indemnity costs, drafts and responds to submissions on the point, and prepares Bills of Costs and Points of Dispute for civil litigation matters across England and Wales. Whether you’re weighing up whether to seek an indemnity costs order, or responding to one made against your client, our team can advise on prospects and prepare the supporting documentation.

If you’d like to discuss costs on an indemnity basis in a live matter, get in touch with the Greener Costs team today for a free, no-obligation discussion. Call us on 01204 263047 or email info@greenercosts.co.uk.