What happens when a party wins indemnity costs after spending several times its approved budget? Baroness Lawrence of Clarendon OBE & Ors v Associated Newspapers Limited [2026] EWHC 2207 (KB), handed down by Mr Justice Nicklin on 21 August 2026, is the clearest recent answer — and the figures make the point unusually vividly.
Associated’s claimed expenditure was £34,481,622.54. The judgment records an approved and varied figure of £13,313,299.40. The claim was therefore some £21.17 million above the position previously put before the court for approval.
The court ordered indemnity costs anyway, refused to impose a ceiling, and ordered an interim payment of £9,544,355.
The commercially useful point is not the identity of the parties. It is this: an indemnity costs order can release the receiving party from the ordinary budget constraint, but it does not release the bill from scrutiny.
The three costs questions
The underlying claims were dismissed after an eleven-week trial. Liability for costs was accepted. Three questions remained:
- standard basis or indemnity basis;
- whether the court could impose a maximum ceiling on what was ultimately recoverable; and
- how much should be paid immediately on account.
The court answered all three, and each answer is useful separately.
Standard basis and indemnity basis
Under CPR 44.3 costs may be assessed on either basis, and the difference is not cosmetic.
| Standard basis | Indemnity basis | |
|---|---|---|
| Proportionality | Applies as a controlling test | Does not operate in the same way |
| Doubt resolved in favour of | The paying party | The receiving party |
| Approved budget | Constrains recovery under CPR 3.18 | Not the ordinary CPR 3.18 constraint |
| Unreasonable costs | Disallowed | Still disallowed |
That last row is the one paying parties forget and receiving parties over-read. Whichever basis applies, CPR 44.3 provides that the court will not allow costs which were unreasonably incurred or unreasonable in amount.
On why proportionality drops out of the picture entirely once the order is made, and why that is worth arguing for at the point the order is sought, see our note on indemnity costs and the proportionality argument.
When indemnity costs are justified
The threshold remains high: conduct or circumstances taking the case outside the norm. Losing, or making the ordinary mistakes of litigation, is not enough, and the conduct need not be morally reprehensible.
What Lawrence illustrates is that the assessment is cumulative. The court identified a series of features — the exceptional breadth of the pleaded case, the speculative and inferential character of claims at the outset, the gravity of allegations against named individuals, serious allegations pursued without proper evidential foundation or in the face of contemporaneous documents, failures to withdraw allegations no longer maintainable, and unpleaded allegations put to witnesses.
The judge was explicit that it was the cumulative effect of those matters that was decisive rather than any isolated episode, describing the conduct as unreasonable to a high degree and well outside the norm.
For anyone building such an application, that is the shape to follow: an accumulation of documented features, not one dramatic incident.
The budget point, which is the important one
The case had been costs managed. Associated’s budget for future costs was revised to £5,187,919, and that figure sat on top of costs already incurred by the time of the first budgeting exercise. The judgment records the approved and varied figure as £13,313,299.40.
The distinction is worth holding on to, because the two numbers get used interchangeably and they are not the same thing. The budgeted element alone is not the right comparator for total claimed expenditure.
The claimants argued that this history counted against an indemnity order, precisely because an indemnity assessment would remove the budget constraint and expose them to recovery far beyond anything considered during costs management.
The court accepted the legal consequence and made the order anyway. Applying Burgess v Lejonvarn [2020] 4 WLR 43, an indemnity costs order removes the ordinary budgetary constraint. The answer to the claimants’ objection was that a party cannot displace the legal consequences of conduct which takes the litigation outside the norm.
Why CPR 3.18 stops applying
CPR 3.18 is directed at assessment on the standard basis where a costs management order has been made. There, the court has regard to the last approved or agreed budgeted costs for each phase, does not depart from them without good reason, and takes account of recorded comments.
That is a powerful control — it is most of the reason budgeting matters, and why a Precedent H is worth preparing properly rather than filing to meet a deadline. But it is directed at the standard basis. An indemnity order takes the assessment outside it.
Which is why the stakes at the point the order is sought are much higher than they look. In this case the basis of assessment was the difference between an approved and varied position of £13.31 million and a claim for £34.48 million.
£34.5 million, and what the judge said about it
The scale drew comment. Nicklin J described the figures as striking and exceptionally high and said that, standing back as the judge who had case-managed and tried the claims, he regarded a costs claim exceeding £34 million as “on its face, excessive”.
He stressed, however, that this was not a summary assessment or a determination of recoverability, which remained matters for the Costs Judge.
Both limbs matter, and quoting one without the other misrepresents the judgment. A receiving party cannot treat the passage as neutral; a paying party cannot treat it as a finding. The trial judge has said the figure looks excessive on its face, and has left whether it is to detailed assessment.
For a paying party facing a bill far above the budgeted position, that observation from the trial judge is worth having in the Points of Dispute. For a receiving party, it is the clearest possible signal that the bill will need to explain itself.
Indemnity assessment still tests reasonableness
This is where the phrase “indemnity costs are a blank cheque” falls apart. What drops away is the proportionality restriction and the standard-basis treatment of doubt. What remains open to challenge on assessment includes:
- whether particular work was reasonably undertaken at all;
- the hours claimed;
- hourly rates;
- the seniority of the fee earners used, and delegation;
- duplication between fee earners or between solicitors and counsel;
- the necessity of particular steps; and
- whether the amounts are reasonable.
Rates in particular do not become unarguable — the 2026 Guideline Hourly Rates and the usual grade and delegation arguments still run. A bill that is weak on evidence does not become strong because the basis of assessment changed.
Can the court cap indemnity costs?
Yes — in principle. This is the part of the judgment most likely to be cited going forward.
The claimants asked for a ceiling in the region of £18 million to £20 million. Associated disputed both the jurisdiction and its exercise.
The court held the jurisdiction exists. The general costs discretion allows orders to be made by proportion, by date, by step or by distinct part of the proceedings, and that power can in principle extend to an order for costs on the indemnity basis. So a quantified ceiling on a detailed assessment is available in an appropriate case.
Why it was refused here
The court declined to exercise it, and the reasons are instructive:
- a temporal limit made little sense, because the matters taking the case outside the norm were present from the outset rather than arising at an identifiable later point;
- an issue-based limit would have produced unworkable complexity at detailed assessment; and
- the receiving party faced detailed assessment in any event, which was itself the safeguard against unreasonable costs.
Underlying all three is the same difficulty: no figure between £18 million and £20 million, or anywhere else, could be justified on a principled basis rather than as an impression of what looked too high. A cap that merely anticipates the assessment replaces it.
The practical lesson for anyone seeking a cap is therefore to anchor the figure to something concrete — a defined period, a discrete issue, a stage, a category of work — rather than inviting the judge to pick a number.
The budget still has a job after an indemnity order
Losing its status as the CPR 3.18 ceiling does not make the budget irrelevant. The costs management history and the assumptions behind it remain useful context at assessment, particularly where actual expenditure has moved dramatically.
A costs judge asked to allow costs far above the budget will want to understand:
- what was originally budgeted, and on what assumptions;
- what changed, and when it became apparent;
- whether a variation was sought, and if not, why not;
- whether the additional work was reasonably required; and
- why the expenditure moved so far beyond the figures previously put before the court.
So the budgeting file does not get closed when the indemnity order is made. If anything it becomes more important, because it is the document that explains the gap. Budgeting is also reaching further into large litigation than it once did — the High Court ordered it in £10m-plus group litigation in Fuschillo v Johnson & Johnson — so fewer heavy cases will be outside the regime in the first place.
The £9.5 million payment on account
The interim payment is the most immediately practical part of the judgment.
Associated sought £9,950,624.37, built as:
- 90% of its budgeted costs — £4,669,127.10; and
- 65% of its incurred pre-budget costs — £5,281,497.27.
The claimants accepted the 90% of budgeted costs but argued for 40% on the pre-budget element. The court allowed 60%. The award was therefore £4,669,127.10 on the budgeted costs and £4,875,228.24 on the incurred pre-budget costs, a total of £9,544,355, payable by 28 August 2026.
| Element | Sought | Claimants’ figure | Allowed |
|---|---|---|---|
| Approved budgeted costs | 90% | 90% | 90% |
| Incurred pre-budget costs | 65% | 40% | 60% |
The split is the point. Budgeted costs have already been through judicial scrutiny, so a high percentage is comparatively safe. Incurred pre-budget costs have not, so the court kept a wider margin — while still allowing more than the claimants proposed, because an indemnity order supports a substantial payment.
Payments on account are deliberately broad brush
The exercise is not a miniature detailed assessment. The court is not identifying what will ultimately be recovered; it is asking what reasonable sum can safely be ordered now.
CPR 44.2(8) requires the court, where it orders costs subject to detailed assessment, to order a reasonable sum on account unless there is good reason not to. That is a default, and a receiving party that treats it as an afterthought is leaving cash flow on the table. The mechanics of how the sum is built are worked through in our notes on how a payment on account is calculated and on the Abbott costs judgment, where the absence of certified costs documentation cost the receiving party fifteen percentage points on the interim award.
What this means for claimant firms
The receiving party here was a defendant, but nothing in the reasoning depends on that. The same principles apply when a claimant obtains an indemnity order.
1. The order is worth more than it looks
Removing the proportionality control and the budget ceiling can be commercially decisive, particularly where costs are high relative to damages. That makes it worth arguing for properly at the point costs are being determined rather than treating it as a long shot.
2. Build the application cumulatively
Lawrence rewards the accumulation of documented features rather than a single complaint. If the conduct argument is going to be run, the file needs to show the pattern.
3. Do not confuse the basis with the outcome
An indemnity order improves the receiving party’s position at assessment. It does not deliver a figure. Rates, hours, delegation and necessity all remain live, and a bill drawn as though they do not will be treated accordingly.
4. Keep the budget papers
The Precedent H, approved and agreed versions, assumptions, Precedent T variations, costs management orders and any recorded comments should stay on the file. Where expenditure has outrun the budget, that material is how the increase gets explained.
5. Deal with the payment on account immediately
Ask for it at the same hearing, with the budgeted and pre-budget elements separated and percentages proposed for each. Lawrence shows the court engaging with exactly that structure.
What the bill should do differently
An indemnity-basis bill is not a standard-basis bill with the objections removed. It still needs to be accurately drawn, properly evidenced, chronologically coherent, correctly phased, and transparent about fee earner grades, rates, counsel and experts.
Where the costs materially exceed the approved budget, the narrative has to explain why. The sentence “costs are on the indemnity basis” answers a question about the basis of assessment. It does not answer a reasonableness objection, and a paying party will say so.
Note too that the basis of assessment can be shifted by other routes — a judgment beating a claimant’s own Part 36 offer carries indemnity costs from expiry of the relevant period, though late acceptance of an offer does not.
Key takeaway
Indemnity costs can take recovery beyond the approved budget. They do not take the bill beyond scrutiny.
Costs budgeting, the basis of assessment and detailed assessment are connected but distinct stages, and Lawrence is a useful reminder that winning the second does not decide the third. A receiving party still has to justify the work, the time, the rates and the total.
We prepare and negotiate claimant costs from budget through to detailed assessment — see our costs drafting services, or send us the file and we will confirm the fixed fee before any work begins.
Sources: Baroness Lawrence of Clarendon OBE & Ors v Associated Newspapers Limited [2026] EWHC 2207 (KB), Mr Justice Nicklin, 21 August 2026, from the approved judgment published by the National Archives; Burgess v Lejonvarn [2020] 4 WLR 43, identified at [92] as the authority for indemnity assessment removing the ordinary budget constraint; CPR 44.2 and 44.3, and CPR 3.18. The costs figures are taken from the judgment: the revised budget for future costs at [91], the approved and varied figure as recorded at [169] alongside the claimed expenditure, the observation that the claim was on its face excessive at [170], the jurisdiction to impose a quantified ceiling at [158]–[164], and the payment on account with its two component elements at [189].