4.2 Award of Costs (2)
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In determining the amount that the winning party is entitled to, the Courts will also take into account the indemnity principle, under which, the winning party will be prevented from recovering more than he has actually paid to his solicitor during the litigation.
The courts assess costs on both the standard and indemnity basis. Regardless of the method used - either standard or indemnity, the underlying principle remains that the winner cannot recover more than he has actually incurred in terms of costs.
The Standard Basis
This is the usual formula used to assess costs. Under CPR 44.4(2), only proportionate costs can be recovered. Should there be a question over proportionality, the Courts will rule in favour of the party who is paying the costs - i.e. usually the loser.
The Indemnity Basis
Usually, costs are only awarded on this basis if one of the parties has behaved unreasonably, for example in rejecting a Part 36 offer, being dishonest, ignoring courts orders or continuing with litigation despite the fact that the claim is clearly unjustified. If costs are assessed on this basis, any doubt as to reasonableness in relation to costs will be resolved in favour of the party who is being paid - i.e. usually the winner.
Indemnity costs differ from the indemnity principle. The indemnity principle is an idea or an assumption - i.e. that a winner cannot recover more costs than he has incurred. Indemnity costs meanwhile are simply a basis or formula for calculating the actual costs..