Malhotra Leisure Limited v Aviva Insurance Limited

An indemnity costs order remains exceptional. The starting point is assessment on the standard basis, and the receiving party bears the burden of showing that the case is out of the norm. Failed allegations of fraud do not create a presumption in favour of indemnity costs, but their seriousness is a significant factor. Where such allegations are pursued aggressively, despite obvious weaknesses and a foreseeable risk of failure, indemnity costs may be justified. The effect of indemnity assessment on approved costs budgets is not, without more, a relevant circumstance in deciding the appropriate basis of assessment.

Following an earlier trial judgment in the same action, the court determined consequential costs matters. Aviva accepted liability for Malhotra Leisure’s costs, subject to the costs of a specific disclosure application. The parties disputed whether the costs should be assessed on the standard or indemnity basis, who should bear the disclosure application costs, and the appropriate payment on account.

The central issue was whether Aviva’s unsuccessful allegations that the insured loss involved dishonesty and a fraudulent conspiracy took the case out of the norm so as to justify indemnity costs.

1. Indemnity costs. The starting point was assessment on the standard basis, with the burden on the receiving party. A failed allegation of fraud creates no presumption in favour of indemnity costs, but the seriousness of such allegations may be a significant circumstance taking a case out of the norm. The court must assess the circumstances overall and avoid hindsight.
2. The effect of indemnity assessment on approved costs budgets was not a relevant circumstance in this case. The governing principles were explained in Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hannah Aspden and Johnson [2002] EWCA Civ 879, Lejonvarn v Burgess [2020] 4 WLR 43 and Thakkar v Mican [2024] 1 WLR 4196. The approach in Three Rivers DC v Bank of England and Suez Fortune Investments Ltd v Talbot Underwriting Ltd was applied.
3. Aviva’s allegations were at the highest level of seriousness, had been pursued through trial, and had caused foreseeable financial and reputational harm. There were significant weaknesses apparent before trial, including the absence of direct evidence, weaknesses in the alleged financial motive, the dependence of alleged false statements on proof of deliberate causation, the late development of additional motive theories, and the late abandonment of an allegation concerning a birthday celebration.
4. The fact that the allegations were properly pleaded and pursued by experienced representatives did not prevent an indemnity order. The court accepted that there was evidence supporting the possibility of deliberate causation and that expert evidence assisted Aviva’s case. Those matters did not outweigh the obvious difficulties and the decision to pursue the allegations to trial. The costs of the proceedings were therefore ordered to be assessed forthwith on the indemnity basis.
5. Disclosure application. The application had been compromised before hearing, with the claimant providing most of the documents sought. It was not fruitful to speculate about the result of a contested hearing. The fair order was no order as to costs, each party bearing its own costs.
6. Payment on account. Aviva was ordered to pay £660,000 on account of the indemnity costs within 21 days.

Not an appeal. The judgment determined consequential costs matters following the court’s earlier judgment in the same action, handed down on 7 May 2025.