The New Lottery Company Limited & Anor v The Gambling Commission

Summary

After the losing bidder's challenge to the award of the Fourth National Lottery Licence was dismissed, the court dealt with the costs of the proceedings. The bidder accepted it had to pay the regulator's and the interested parties' costs on the standard basis.

The regulator and the interested parties went further and asked for their costs on the indemnity basis, saying the bidder's conduct throughout the litigation had taken the case out of the norm.

Mrs Justice Joanna Smith awarded indemnity costs for the whole of the proceedings. The bidder's conduct had been unreasonable to a high degree, which is the touchstone for an indemnity costs order, and that justified departing from the standard basis.

Background and facts

The claimants had challenged the Gambling Commission's decision to award the Fourth National Lottery Licence to a rival, and had sought damages of more than a billion pounds. That challenge was dismissed in full.

At the consequentials hearing, it was common ground that the claimants had to pay the costs of the Commission and of the interested parties on the standard basis. The dispute was whether those costs should instead be assessed on the more generous indemnity basis, which the winning parties said was warranted by the claimants' conduct of the litigation.

The issue

The court had to decide whether to award costs on the indemnity basis rather than the standard basis, which turned on whether the claimants' conduct had taken the case out of the norm to the required degree.

The decision

Mrs Justice Joanna Smith awarded indemnity costs. She set out the test, drawing on the established principles in Three Rivers DC v Bank of England [2006] EWHC 816 (Comm):

"The touchstone is unreasonableness, but that unreasonableness must be 'to a high degree'. Unreasonable in this context does not mean merely wrong or misguided in hindsight."Mrs Justice Joanna Smith

The court may aggregate a number of features of the conduct in deciding whether that threshold is met. Having weighed the claimants' conduct across the litigation, the judge concluded that the threshold was crossed for the whole case:

"an award of indemnity costs in favour of both the defendant and the IPs is appropriate in respect of the entirety of the proceedings."Mrs Justice Joanna Smith, paragraph 6

The claimants were therefore ordered to pay the costs of the regulator and the interested parties on the indemnity basis for the whole of the proceedings.

Practical implications

Losing a hard-fought challenge can bring indemnity costs rather than standard costs. A claimant that pursues a large procurement challenge and loses does not automatically escape with a standard basis order. Where its conduct has been out of the norm, the court can award indemnity costs, which are assessed more generously to the receiving party and resolve doubt in its favour.

The test is a high degree of unreasonableness, judged across the case. Being wrong, or even misguided with hindsight, is not enough. The court looks at the conduct of the litigation as a whole and may aggregate a number of features to decide whether the threshold is met. A party running an aggressive or unreasonable case should understand that the pattern of its conduct, not any single step, may attract the order.

An indemnity order can cover the entirety of the proceedings. The court is not confined to marking particular episodes; where the conduct justifies it, the order can apply to the whole case. That materially increases the costs exposure of a losing party whose conduct is criticised.

Conduct throughout the litigation is in play at the end. Parties sometimes treat costs as a footnote to the judgment, but the way a case has been run from start to finish is precisely what the court examines on an indemnity application. Keeping the conduct of the litigation reasonable and proportionate is a protection against the more punitive costs basis.

The New Lottery Company Limited and Northern and Shell Plc v The Gambling Commission [2026] EWHC 1311 (TCC), Technology and Construction Court, Mrs Justice Joanna Smith DBE. Judgment given 22 May 2026.