An insurer must pay indemnity costs following failed fraud allegations, despite properly pleading and pursuing them through experienced counsel, where objective weaknesses were apparent from an early stage and substantial harm was inflicted.
The making of serious and wide-ranging allegations of dishonesty or fraud, particularly when pursued aggressively over an extended period, is a circumstance that can take a case out of the norm and justify an order for indemnity costs. [9, 19, 29]
A party making allegations of fraud runs a significant risk that, if the allegations fail, indemnity costs will be awarded against them, as the party defending such allegations is often forced to incur substantial costs to vindicate its position. [6, 8, 21]
The fact that serious allegations of dishonesty were properly pleaded and pursued by experienced legal representatives in a measured way is not, in itself, an answer to a claim for indemnity costs if the allegations were weak and subject to inherent flaws that were or should have been reasonably apparent. [12, 23, 27, 28]
When determining the appropriate basis for costs, the court will consider whether the unsuccessful party continued its case in circumstances where it should have been apparent that its claim or defence was weak and that there was a real and serious risk of failure. [10, 23, 28]
In the specific circumstances of a compromised disclosure application where the parties cooperated to agree a narrower scope of disclosure and it is not fruitful to determine the outcome of a contested hearing, the court may order that each party bears its own costs. [33, 34].
