Report No. 240
2.11 A bill of costs is a certified, itemized statement of the amount of the expenses incurred in bringing or defending a law suit/proceeding. The charges/expenses claimed are taxed by the Court or its officer according to the procedural rules and set norms.
2.12 The basis of assessment of costs in UK has been explained thus in Halsbury's Laws of England: 1Para 22, Vol. 10, 4th edn., re-issue
"Where the court is to assess the amount of costs (whether by summary or detailed assessment) it will assess those costs on the standard basis or on the indemnity basis, but the court will not in either case allow costs which have been unreasonably incurred or are unreasonable in amount. Where the amount of costs is to be assessed on the standard basis, the court will only allow costs which are proportionate to the matters in issue and will resolve any doubt which it may have as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party.
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. Where the court makes an order about costs without indicating the basis on which the costs are to be assessed, or makes an order for costs to be assessed on a basis other than the standard basis or the indemnity basis, the costs will be assessed on the standard basis."
2.13 Part 44 of the Civil Procedure Rules (CPR) contains general rules about costs and entitlement to costs. The rules are supplemented by practice direction. However, part 44 does not apply to the assessment of costs to the extent different provisions exist, for eg, Access to Justice Act, 1999 and the Legal Aid Act, 1988. Further, the general rule that the unsuccessful party will be ordered to pay the costs of the successful party unless the court makes a different order does not apply to family proceedings.
2.14 The circumstances to be taken into account when exercising the court's discretion have been narrated in Halsbury's Laws of England110th Vol. 4th Edn. at para 17 as follows:
"In deciding what order (if any) to make about costs, the court must have regard to all the circumstances, including:
(i) The conduct of all the parties;
(ii) Whether a party has succeeded on part of his case, even if he has not been wholly successful; and
(iii) Any payment into court or admissible offer to settle made by a party which is drawn to the court's attention. The conduct of the parties includes:
(a) Conduct before, as well as during, the proceedings and in particular the extent to which the parties followed any relevant pre-action protocol;
(b) Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;
(c) The manner in which a party has pursued or defended his case or a particular allegation or issue; and
(d) Whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim".
2.15 An order for indemnity costs is intended to provide a party to litigation, when its costs are assessed, with recovery of all, or nearly all, its outlay in the litigation. Even the indemnity principle rests on the assumption that a winner cannot recover more than the costs he has incurred. Indemnity costs are simply a basis or formula for calculation of the actual costs. In the case of a standard order, the court will only allow costs which are proportionate to the matters and issues (vide R 44.2a).
In an indemnity order, there is no requirement of proportionality at all. Usually, costs are awarded on indemnity basis, after one of the parties has behaved unreasonably e.g. in rejecting an offer of settlement or being dishonest, ignoring Court's orders and continuing with litigation despite the fact that the claim is clearly unjustified. In other words, indemnity costs are quite often awarded for unreasonable conduct or abuse of process by resorting to vexatious or unmeritorious proceedings.
2.16 Lord Scott observed in Fou.-v-Le Roux  UKHL 1 that "the difference between costs at the standard rate and costs on an indemnity basis is, according to the language of the relevant rules not very great." He proceeded to say:
"According to CPR 44.5(1), where costs are assessed on the standard basis the payee can expect to recover costs "proportionately and reasonably incurred" or "proportionate and reasonable in amount"; and where costs are assessed on the indemnity basis, the payee can expect to recover all his costs except those that were "unreasonably incurred" or were "unreasonable in amount".
It is difficult to see much difference between the two sets of criteria, save that where costs have been ordered on an indemnity basis, the onus must lie on the payer to show any unreasonableness criterion. The concept of costs that were unreasonably but proportionately incurred or are unreasonable but proportionate in amount, or vice versa, is one that I find difficult to comprehend."
2.17 Mr. Riyaz Jariwalla (Solicitor) explains: "Indemnity costs are penal in nature as they can be ordered to compensate one party following another party's wrongful conduct of proceedings. However, that compensation must never offend the spirit of the indemnity principle. The party recovering costs must never recover more than they have actually spent. It should be recognized that 100% recovery of costs is rare but the indemnity basis of assessment will take a party nearer that percentage than the standard basis."