Assessing costs on the indemnity basis
The recent decision of Louis Dreyfus Company Suisse S.A. v International Bank of St. Petersburg (Joint-Stock Company)  EWHC 1039 (Comm) contains a short passage dealing with the approach on detailed assessment where costs are to be paid on the indemnity basis.
The decision was reported in Costs Law Reports. (Copies of their latest reported judgments are available free for a short period on their website, where you can also sign up to their monthly newsletter.)
The headnote to this decision included:
“On taxation the costs would be heavily taxed down, even after the application of the receiving party’s presumption that the costs had been reasonably incurred and any doubt was to be given in its favour under CPR 44.3(3).”
However, there is nothing in the judgment itself that refers to there being a presumption that costs have been “reasonably incurred”.
The relevant part of the judgment reads:
“CPR 44.3 and 44.4 provide that where costs are to be assessed on an indemnity basis, the court (1) will not allow costs which have been unreasonably incurred or are unreasonable in amount; (2) will have regard to all the circumstances in deciding whether costs were unreasonably incurred or unreasonable in amount; and (3) will resolve any doubt which it may have as to whether costs were unreasonably incurred or were unreasonable in amount in favour of the receiving party (“the receiving party presumption”).”
It is more than simple semantics to note that there is a crucial distinction between “any doubt” being resolved in favour of the receiving party and whether there is a “presumption” that any costs have been reasonably incurred. This judgment supports the former (because that is what the rule says) but not the latter.
Interestingly, comments closer to the summary in the headnote were made by Woolf CJ in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm)  EWCA Civ 879, dealing with the pre-Jackson rules, addressing the distinction between costs on the standard basis and the indemnity basis:
“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.”
It is difficult to see how this properly reflects the wording of the actual rule (whether old or new). As currently drafted, CPR 44.3 provides:
“(1) Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs –
(a) on the standard basis; or
(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.
(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.
(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 were reasonably incurred or were reasonable in amount in favour of the receiving party.”
There is no presumption, on either basis, that costs have, or have not, been reasonably incurred.
For example, if a straightforward, low value, contractual dispute has been dealt with by a Grade A fee earner and a QC, there is no presumption on the indemnity basis that this is reasonable. Conversely, on the standard basis there would be no presumption that this was unreasonable. It is for the judge on detailed assessment to decide what is a reasonable and what is not. The “presumption” only comes into play if there is doubt. Cook on Costs quotes the former Chief Taxing Master Matthews on the issue: “If there I no doubt, there is no difference”. That is surely correct.
For the vast majority of item-by-item decisions made by a costs judge, whether on the standard or the indemnity basis, there should not be any doubt. A decision as to what is a reasonable hourly rate, reasonable fees of counsel or reasonable number of hours spent on documents should be clear to the costs judge making the decision (even if not necessarily easily predictable by the parties). Borderline issues where the “doubt” comes into play should be relatively few.
To the extent to which some costs judges adopt a more generous approach as to what they will allow where costs are being assessed on the indemnity basis, they are, I would suggest, falling into error and not applying the actual wording of the rule.