Costs: Assessment on an Indemnity or Standard Basis?

When advising clients as to their prospects of success at trial there are a number of variables that may impact upon the outcome, one of which is the credibility of an expert witness upon whom the client’s case is reliant. Experts are of course instructed for their expertise in a certain area however as is almost always the case in a dispute where opposing experts disagree, one such expert’s opinion, in the view of the court at least, will be wrong. In those circumstances how should the court assess the basis upon which costs should be awarded? Moreover, how big a part should the benefit of hindsight play in any such decision?

Case Law

In Governors and Company of the Bank of Ireland and another v Watts Group plc [2017] EWHC 2472 (TCC) the High Court considered the basis of the assessment of costs. The proceedings had been issued by the claimant Bank for professional negligence arising out of the failure of the defendant, a development company, to whom the Bank had lent money. The claim had ultimately been dismissed, the allegations of negligence having not been made out, and in the event that they had been, Mr Justice Coulson found it difficult to say that they had resulted in any loss to the Bank. Coulson J also found that the loss was caused by the Bank’s decision to lend the money to the developer and its employees’ failure to adhere to its lending rules.

Following the decision at trial it had been agreed that the Bank would pay the developer’s costs however there remained two issues for the Court to determine, one of which being the basis of the assessment of costs, i.e. whether it should on the standard or indemnity basis. Prior to the trial the developer had made three Part 36 offers and in light of the Bank’s failure to beat any of them, it accepted it was liable to pay interest on those costs since the date of the first offer, pursuant to CPR 36.17(3)(b). It was also agreed that interest should be paid at 2% over base for the relevant period. Thereafter the Bank asserted that the costs should be assessed on a standard basis, whereas the developer sought assessment on an indemnity basis.

Coulson J opined that one of the reasons for the developer’s application was the quantum of costs it had incurred. Its costs budget had been approved in the sum of £345,000 and it was agreed it had also incurred costs of £39,424 in relation to two additional interim applications thus amounting to an enhanced budget figure of £384,424. However the developer actually incurred costs of £616,000, there having been no subsequent application to amend the budget over the figure of £384,424.

The developer relied on three arguments, firstly that the claim was unreasonable and hopeless and should never have been brought, secondly that they had made offers which they had subsequently beaten, and finally that the evidence of the Bank’s expert and the court’s criticism thereof made the case unusual or extreme such that indemnity costs should be awarded. Whilst the Bank accepted it had lost the case ‘badly’ it denied the claim was brought unreasonably and warned against the benefit of hindsight. It is of note that in its Judgement the Court had been critical of the Bank’s expert, Mr Vosser, a quantity surveyor.

The Court recited the relevant legal principles as previously summarised by Coulson J in Elvanite Full Circle Limited v Amec Earth and Environmental (UK) Limited [2013] EWHC 1643 (TCC) as also stated by Gloster J in Euroption Strategic Fund Ltd v Skandinaviska Enskilda Banken AB [2012] EWHC 749 (Comm).

In determining the issue Coulson J, with one exception, did not believe indemnity costs were justified or proportionate as the Court felt that the claim was not one which was, or should have been viewed as, hopeless from the outset. Indeed it was, in part at least, supported by expert evidence, as well as detailed accounts of the events, and whilst the Bank was always going have difficulties, it would be wrong to conclude that they would have been regarded as insurmountable.

Coulson J stated that when assessing the basis of the assessment of costs the Court must avoid the dangers of hindsight. Reference was made to the importance of the answers given under cross-examination of the Banks’ factual witnesses also. Coulson J stated ‘this was a case won at trial; it was not a foregone conclusion.’ Indeed given that the developer’s final Part 36 offer prior to trial had been in the sum of £545,000 inclusive of costs, it would seem that the developer had also believed the Bank had a viable claim.

The exception referred to above was in relation to Mr Vosser’s evidence. Whilst the Court felt that ordering full indemnity costs on the basis of the conduct of the expert would be to penalise it twice for that conduct, the Bank having lost the case in part as a result of it, it did feel that the conduct should be reflected in a costs order. Coulson J opined it would be disproportionate to award the entirety of the developer’s costs on an indemnity basis, particularly in light of it having been the first time the expert had given evidence. The Court followed the authorities of Balmoral v Borealis [2006] EWHC 2531 (Comm) and Williams v Jervis [2009] EWHC 1837 (QB) which stated that where a court concludes that the conduct of an expert should be marked in a costs order, it may be appropriate to order that the specific costs generated by that expert should be assessed on an indemnity basis. As such Coulson J ordered that the costs of the developer’s expert, together with those occasioned by the Mr Vosser’s oral evidence at trial, should be assessed on an indemnity basis.


Whilst lawyers are always likely to face the difficult challenge of being required to assess a client’s prospects of success at trial despite the fact that such an outcome is dependent upon numerous factors upon which the lawyer has neither any control nor any ability to accurately predict, such as a witness’ ability to withstand the scrutiny of cross-examination at trial (or indeed in many cases whether such a witness would even attend the trial), it is helpful to know that, at least in some cases, such a lawyer will not be assumed to be fully clairvoyant and that the benefits of hindsight will not be used as a stick to beat him or her with.