Ordinary Costs v Indemnity Costs - Know the Difference

If you ever commence legal proceedings, particularly in relation to a commercial matter, you may begin to hear the phrases ‘ordinary costs’ and ‘indemnity costs’ more and more as your case progresses, especially if the matter goes to Court. There is an important distinction between these two phrases and thus, it is important that you know the difference. An order of either ‘ordinary’ or ‘indemnity’ costs  is an order of which party pays costs when the matter is heard and finalised in Court.

Meaning of Ordinary Costs and Indemnity Costs

‘Ordinary Costs’ means that where there is doubt as to the reasonableness of costs (costs are defined as fees, disbursements and other expenses related to the court proceedings), the matter is to be resolved in favour of the successful party. In contrast, indemnity costs means any doubt as to the reasonableness of the costs incurred will be resolved in favour of the paying party.

Why do two ‘types’ of costs exist?

Ordinary costs arise in standard proceedings to ensure costs remain proportionate to the matter and the costs to the paying party are not unduly high or unreasonable. However where there is something sufficiently unusual about the case, such as in cases of fraud, or where one party has unnecessarily prolonged proceedings, indemnity costs exist to ensure the more innocent party is compensated for any costs that are deemed ‘unreasonable’.

When can Indemnity Costs be ordered?

There is no absolute rule or test to determine when indemnity costs can be ordered. In any case, the courts have established several instances where indemnity costs are generally ordered. These include:

• Hopeless cases (cases that continue despite no reasonable chances of success)
• Cases where there has been an abuse of process
• Cases where there is unreasonable conduct such as fraud or perjury
• Cases involving parties who unreasonably fail to accept offers of settlement

The court’s discretion to order either ordinary or indemnity costs where appropriate is an important way of ensuring costs in court proceedings remain fair and proportionate, and that in situations where one party detriments the other such as in the above instances, they must compensate the more innocent party.

For more information on indemnity and ordinary costs, the types of costs associated with litigation or to discuss your commercial law matter, give us a call on 02 8917 8700 or fill out the enquiry box and we will get back to you ASAP.