- 02 May 2016
- Litigation and dispute resolution
A typical clause might contain something along the following lines:
‘Party A shall indemnify party B against all liabilities, costs, expenses, damages and losses (including but not limited to any direct, indirect or consequential losses, loss of profit, loss of reputation and all interest, penalties and legal costs calculated on a full indemnity basis) suffered or incurred by party B arising out of or in connection with any breach of or negligent performance or non-performance of this agreement by party A’.
On the face of it a provision such as this means that, in any litigation between the parties, party B would, if successful, be able to recover from party A all of their costs incurred in connection with that litigation – without limitation.
Anyone who has been involved in litigation will know that the court normally only award costs on a “standard” basis: this means that the successful party does not recover all of their costs – only those that the court considers to have been reasonably incurred. In almost all cases this results in a reduction of the successful party’s costs and is supposed to act as an incentive to early settlement.
In almost all cases this results in a reduction of the successful party’s costs and is supposed to act as an incentive to early settlement.
A clause requiring payment of costs on a ‘full indemnity basis’ such as that set out above appears to get around this limitation on full costs recovery. But does it work?
The answer is that it does – partly. A clause of this type does not entirely displace the court’s discretion when awarding costs. However case law has established that the court will, in exercising that discretion, normally give effect to a clause of this type so that costs will be awarded an “indemnity” basis rather than a “standard” basis.
This does not, however, mean that all the successful party’s costs will be recoverable without limitation. It will still be subject to the normal court rules on indemnity costs so that unreasonable costs cannot be recovered, even though the phrase “full indemnity basis” or similar is used. Similarly, if the unsuccessful party has made an earlier settlement offer to the successful party which has not been bettered then the court is likely to take this into account when exercising its discretion on costs.
Since clauses of this sort can be effective it is important to look out for them when negotiating commercial contracts – and to consider carefully how tactically to deal with them if you are on wrong side of one in litigation.
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.
Read, listen and watch our latest insights
- 08 December 2023
UK Hospitality – Right to Work
The UK’s hospitality sector is strongly impacted by immigration rules and policies post-Brexit.
- 04 December 2023
- Commercial Real Estate
Real Estate update and 2024 expectations
The ECC confers rights on code operators to install and maintain electronic communications apparatus on public land, and even grants operators the right to sometimes apply to court for an order allowing them to install and maintain such apparatus on private land.
- 29 November 2023
How will the Autumn Statement 2023 affect the Construction Industry?
On 22 November 2023 Parliament was presented with the Chancellor’s Autumn Statement.
- 29 November 2023
- Public Procurement
Public Procurement Annual Update 2023
Watch Clarkslegal’s Public Procurement team as they provide you with the essential information businesses involved in public tenders need to know.
- 28 November 2023
The risk of insolvency with equal pay claims: how can you avoid them?
Even though the law states that everyone should be paid equally for work of comparable value, this does not always happen in practice.
- 21 November 2023
- Privacy and Data Protection
Privacy matters: How the 8 data subject rights protect personal data
In this guide we explore the 8 data subject rights under the UK GDPR and discover how they play a vital role in preserving your organisation’s privacy standards in an increasingly interconnected world.