The end of the indemnity principle?

The 31st July witnessed the release of two documents of great interest to the litigation world being published:

1) Lord Justice Jackson’s report on civil litigation costs.
2) The Court of Appeal’s decision in Stevendrake –v- Hunt

Lord Justice Jackson’s report was widely anticipated. He had been commissioned to provide a report into how the system of recovering legal costs in litigation works, together with any proposals for improving this.
The Court of Appeal’s decision in Stevendrake –v- Hunt resolved a dispute between an insolvency practitioner and a firm of solicitors he engaged to undertake insolvency work for a company he was investigating.
Both of these are likely to lead to further calls for the ending of the ‘indemnity principle’ in litigation.

“What is the indemnity principle?”
The indemnity principle is the idea that in litigation you can only recover from the losing party the costs which you have incurred in pursuing the claim.

“Why is it under threat?”
As part of his report, Lord Justice Jackson has proposed a makeover of how litigation is funded. The whole report (without appendixes) is 135 pages long and we don’t have enough time to go over all of his proposals, but at page 80 of the report he says:
“I have previously argued that, in relation to costs, the common law ‘indemnity principle’ served no useful purpose and should be abolished.

The Stevendrake –v- Hunt decision meant an insolvency practitioner could rely on a course of dealings between himself and the firm of solicitors. These agreements meant he only paid their fees if he recovered them from the other party to the litigation. If he did not recover their fees, they did not charge him.

On the face of it this would be a breach of the indemnity principle. If his solicitors would never have charged him if the money wasn’t recovered, then he should not be able to charge the loser to the litigation.

Notwithstanding this, the Court of Appeal allowed the insolvency practitioner to avoid paying his legal fees as he had not recovered them from the other party to the litigation.

The High Court Judge who had originally heard the case had recognised that this could be an issue, but the Court of Appeal only stated that: “The question of whether that would affect the recoverability of [the solicitor’s] fees from third parties is a separate one”.

“Where does that leave us?”
Given Lord Justice Jackson’s standing in the legal community and the thoroughness of his report, it is extremely likely that his recommendations will be accepted by the government. Combined with the Court of Appeal’s decision which seems to fly in the face of the status quo, we could be seeing the end of the indemnity principle.

It remains to be seen, if the principle is removed, whether the issue of litigation costs will be complicated or simplified by its’ removal.

Our dispute resolution team at Hall Smith Whittingham are on hand to provide expert advice concerning all aspects of litigation. Contact us on 01270 212000 or 01270 610300 or contact us via email here