The usual costs order is that the party who succeeds in an action is awarded its costs on a party and party basis. An order for indemnity costs will be made only if there is some special or unusual feature in the case to justify departure from the ordinary practice. The court has power to make an indemnity costs order whenever justice requires it: Unioil International Pty Ltd v Deloitte Touche Tohmatsu (No 2) (1997) 18 WAR 190; Flotilla Nominees Pty Ltd v Western Australian Land Authority [2003] WASC 122 (S); (2003) 28 WAR 95 [8].
The categories of cases in which the discretion to award indemnity costs may be exercised are not closed: Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 536; (1993) 46 FCR 225, 233-234; Unioil International Pty Ltd (191).
Most of the situations in which indemnity costs have been awarded have involved an element of improper or unreasonable conduct on the part of the unsuccessful party or its advisers in the conduct of the case: Flotilla Nominees Pty Ltd [9]; Colgate-Palmolive Co (233-234). In Flotilla Nominees Pty Ltd [9] Pullin J gave some examples:
Thus, the making of allegations of fraud knowing them to be false, or the commencement of proceedings for some ulterior motive, or in wilful disregard of known facts or the established law, or the making of allegations which ought never to have been made, or the undue prolongation of a case on groundless contentions, and even an unreasonable refusal to accept an offer of compromise, may lead to indemnity costs orders. See Colgate-Palmolive v Cussons (supra) at 233. The creation of false issues by tactical denials or failures to admit the facts may, in the circumstances of particular cases, lead to such an order: Unioil's case. An action commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success, may lead to such an order because such action might be presumed to have been commenced or continued for some ulterior motive or because of some wilful disregard of the known facts or the clearly established law. See Fountain Selected Meats (supra).
Where one party points out to the other, with sufficient particularity, reasons why it is inevitable that the other party's case must fail, this can be a factor in favour of an award of indemnity costs: NMFM Property Pty Ltd v Citibank Ltd (No 2) [2001] FCA 480; (2001) 109 FCR 77 [87] - [88].
Generally at least, an indemnity costs order will not be made unless it is shown that some part of the costs order will not be covered by an order for party party costs or by a special costs order: Unioil International Pty Ltd (193); Flotilla Nominees Pty Ltd [11], [24]-[26].