Indemnity Principle

Question 1

Definition of Indemnity?

Answer 1

Security or protection against a loss or a burden

Question 2

WHAT is the Indemnity Principle?

Answer 2

• A long-established principle of law which effectively means that a successful party cannot recover more in legal costs then they are liable to pay their solicitor under the terms of the contract with their solicitors.
• The amount the PP has to pay cannot exceed the amount the RP has to pay their solicitor.
• The principle means that where the RP is not liable to pay costs to their solicitor the RP does not need and is not entitled to indemnity.

Question 3

Why does the Indemnity Principle exist?

Answer 3

• To indemnify the winner for the reasonable legal costs incurred on the matter. In practice, the loser contributes to those costs.

Question 4

What could be an issue if the indemnity principle did not exist?

Answer 4

a losing party could face a costs liability higher than the winner is liable to pay his solicitor.

This would mean that a client would make a profit from the costs of the litigation which is not the intention of costs awards

Question 5

What is the intention of the Indemnity principle?

Answer 5

The intention is to reasonably compensate the winner for the legal costs they have incurred.

Question 6

What are some exceptions to the indemnity principle?

Answer 6

• inter-partes claims for costs where the matter was funded by way of a Legal Aid Certificate,
• fixed costs claims i.e. where the costs incurred are lower than the costs that can be claimed inter parties.

Question 7

Name 5 key indemnity principle cases

Answer 7

1. Harold v Smith [1860] - Not punishment or to profit from litigation
2. Gundry v Sainsbury [1910] - Sol acted for free, no entitlement to IP costs
3. JH Milner & Sons v Percy Bilton [1966] - no retainer = no right to recover costs
4. General of Berne Insurance v Jardine [1998] - Extended Indemnity principle from contentious business to ALL costs. Item by item basis - not globally
5. Hollins v Russell (2003) - Indemnity principle applies to CFAs

Question 8

Which case authority made the following points:
- Costs orders inter-partes are awarded as an indemnity to the RP. They are not awarded to impose a punishment on the party who pays them.
- Established the principle that litigant should not profit from litigation.
- Nor should IP costs be a ‘bonus’ to the RP.

Answer 8

Harold v Smith [1860]

Question 9

Which CoA case authority reaffirmed the underlying principle set out in Harold v Smith 1860?

Answer 9

Gundry v Sainsbury [1910]

Question 10

What points can Gundry v Sainsbury [1910] be used to argue?

Answer 10

A solicitor who does not charge his client any legal fees cannot seek to recover Inter partes costs from the opponent.

• The solicitor acted for no charge and tried (unsuccessfully) to seek costs from the opponent.
• The Court held that the solicitor was not entitled to recover costs as there was no agreement from the client to pay.
• A successful party cannot recover a sum in excess of his liability to his own solicitor.

Question 11

Which case authority can be relied upon to support the principle that a retainer is fundamental to recovering inter partes costs and if there is no valid retainer then there can be no right to recover costs ?

Answer 11

JH Milner & Sons v Percy Bilton [1966]

Question 12

Applying the indemnity principle which rates take precedent - retainer rates v guideline rates?

Answer 12

Retainer Rates

The retainer rates trump the guideline rates (i.e. can’t charge more than retainer rates, even if guideline is higher)

Question 13

Which case extended the indemnity principle in Gundry from contentious business to ALL costs.

Answer 13

General of Berne Insurance v Jardine [1998]

Question 14

In addition to extending the indemnity principle from contentious business to ALL costs what other point does General of Berne Insurance v Jardine [1998] make?

Answer 14

• Considering indemnity principle – Court should look at costs item by item basis not globally.

Question 15

What authority does Hollins v Russell (2003) provide?

Answer 15

• Confirmed the Indemnity principle EXTENDED and APPLIES to cases funded by CFAs

Question 16

Why does Hollins v Russell (2003) EXTEND the Indemnity principle to apply to cases funded by CFAs

Answer 16

• Because that was the policy of s58 of the Courts and Legal Services Act 1990.

Question 17

WHY is Indemnity Principle IMPORTANT?

Answer 17

• Taking into account the key cases (which remain good authorities) the indemnity principle is clearly very important as breaching the indemnity principle can not only have dire financial consequences but it can also lead to serious professional consequences.

Question 18

What is the Bailey Presumption?

Answer 18

Bailey v IBC Vehicles Ltd [1998]

• The Bailey Presumption = that there has been no breach of the indemnity principle
• Presumption – signature on Bill = is confirmation that the indemnity principle has not been breached
• Mis-certification of a bill is serious (disciplinary) offence.

Question 19

What authority does Tucker v Hampshire Hospital Trust [2017] support?

Answer 19

• Budget statement = “fair and accurate statement” = similar importance to signing the Bill of Costs Accuracy certification
• 2 Budgets / Blended hourly rates – Bill of costs Incurred costs were lower than in the Budget = Finding of impropriety and ALL Costs Management Costs were disallowed on assessment.

Question 20

What costs pleadings can solicitors sign to confirm there has been no breach of the indemnity principle?

Answer 20

Costs Budgets,
Statements of costs for summary assessment Bill of Costs

Question 21

In which case did the Court impose a penalty of 50% reduction to Part 1 of the Bill of Costs because of the mis-certification of the Bill?

Answer 21

Gempride v Bamrah & Law Lords of London Ltd [2018]

Whilst the penalty in the end was not too severe, the real damage for the law firm was to its reputation.

Question 22

Which case sets out that the PP would need to raise a ‘genuine issue’ as to whether the RP is liable for his solicitor’s costs, before the RP would need to adduce evidence to show that he is entitled to his costs.

Answer 22

Hazlett v Sefton Metropolitan Borough Council [2000]
- PP must have a ‘Genuine reason’ for believing that there is not a proper retainer in place – Not a fishing expedition.
- If the RP is unable to evidence costs were properly incurred – he is unlikely to recover his costs.