The Million-Dollar Legal Fee: What Are Indemnity Costs?
The circumstances in which indemnity costs can be awarded (and add thousands to legal fees)
We all know that litigation is expensive and have heard how costs which start out being manageable can quickly get out of control. Many people would assume that this is because of the rates solicitors charge – $100 to read an email here, $400 to write a letter there. But this isn’t the only way legal costs can rise. As the recent case involving the Tabbaa family and Channel Nine shows, indemnity costs are another way that costs, if awarded against you, can end up costing you more than your house (especially where fees are paid by the hour, rather than fixed-fee arrangements).
In this case, the Tabbaa family (after losing their defamation case against Channel 9) have become stuck with more than $1 million to pay in legal fees, not just for themselves but also the (assumedly expensive) fees of Channel Nine’s legal team.
Here we will give an overview of indemnity costs and when they can be awarded.
What are indemnity costs?
Indemnity costs are costs usually awarded to the successful party in proceedings. They are one step beyond party/party costs, and usually have a wider scope on what can be recovered than the costs more commonly awarded in proceedings. Indemnity costs are awarded in instances where there is a “sufficient or unusual feature” or a “relevant delinquency”. In the case of the Tabbaa family, they were ordered to pay costs on an indemnity basis because it was found they had given false evidence during the trial, amounting to an abuse of process. However, indemnity costs aren’t intended to be punitive, but compensatory to the successful party.
Beyond cases where there has been an abuse of process, indemnity costs can also be awarded for cases where there was no reasonable prospect of success, fraud, misconduct and unreasonable conduct. In cases where there are no reasonable prospects of success, indemnity costs orders can be a useful way to discourage parties from continuing on with cases they are unlikely to succeed with. This in turn has the effect of taking pressure off the legal system by encouraging settlements between parties.
The most common circumstance in which indemnity costs are awarded are by what are called ‘Calderbank offers’. A Calderbank offer is when a party makes an offer of settlement on a ‘without prejudice save as to costs’ basis. If the offer is refused, and the litigation proceeds to result in favour of the party who made the offer, they can seek indemnity costs on the basis the offer was refused and unnecessarily proceeded to litigation. In this sense, Calderbank offers can be seen to put pressure on the receiving party to settle, particularly where they do not have a strong case.
The Court doesn’t often award indemnity costs where there has been an abuse of process, but if the circumstances are serious enough, they can end up totalling millions of dollars. If you’re in the midst of litigation, it is important to be compliant with the process of the Court and be realistic about your prospects of success. Further, it is important to exercise cost-saving measures early on to avoid having to pay down the track.
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Jackie is the Content Manager at Lawpath and manages the content team. She has a Law/Arts (Politics) degree from Macquarie University and is an admitted solicitor in the Supreme Court of NSW. She's interested in how technology can help shape the future legal landscape.