Indemnity costs for litigation misconduct: What parties need to know

When a court says costs are payable on an “indemnity basis”, it is sending a clear message about conduct in the case. In simple terms, if a party behaves very badly in litigation, the court can order them to pay a greater share of the other side’s legal costs than may have otherwise been appropriate. This can significantly increase the financial risk of misconduct.

A recent Family Court decision shows how serious this can be. In financial remedy proceedings, the judge found that the husband had been thoroughly dishonest, failed to comply with court orders, caused delays that required additional hearings and enforcement steps, and obstructed basic information-gathering such as bank statements and property valuations. The court found he had tried to conceal and move assets. 

Because his behaviour was so far outside what is acceptable, the court ordered him to pay the wife’s costs on an indemnity basis under the Family Procedure Rules (FPR 28.3). The wife’s total costs were £577,468, and after the court’s approach to assessment and related adjustments, the husband was ordered to pay £163,451.75, plus 70% of any further costs incurred for bringing the matter back to court over costs. The judge considered the case an example to parties of the consequences of attempting to deceive the court or ignoring orders.

How misconduct increases costs risk

Misconduct often results in additional applications, hearings and enforcement steps, and it can trigger urgent measures like freezing orders, all of which increase the other parties’ costs, and you may be ordered to pay these additional costs. In the recent case, failures to comply and attempts to conceal information required multiple applications, including to obtain bank records, and disrupted valuation processes. That escalation directly fed into the indemnity costs award.

Key takeaways for parties

Tell the truth and disclose information fully and on time. The court takes a very dim view of any attempt to mislead it or to conceal assets, and this can drive an indemnity costs order.

Follow court orders precisely. Repeated non-compliance, delays, and forcing the other party to chase information or bring enforcement applications increase the chances of an indemnity order.

Understand the financial exposure. An indemnity costs order can leave you paying a significantly larger sum than under the standard approach, including additional costs caused by having to return to court about the issues of costs themselves. In the recent case, the court ordered payment of the full amount sought on an indemnity basis and a further percentage of the costs incurred in relation to the additional costs hearing.

If you are looking for support with your family law matter, please get in contact today.