When it comes to maximising costs recovery in litigation, navigating the indemnity principle is essential. Given the increase in Guideline Hourly Rates from 1 January 2025, now is a great time to refresh yourself with the indemnity principle to ensure you do not fall foul of it later down the line.
In this article, we’ll break down the indemnity principle, highlight its implications for hourly rates, and provide actionable steps to ensure you can maximise your costs recovery at the conclusion of a case.
What Is the Indemnity Principle?
The indemnity principle ensures that the paying party in a case is not charged more than the receiving party’s solicitor has agreed to charge their Client. This principle is a cornerstone of cost recovery in most claims, particularly in personal injury and clinical negligence cases conducted under Conditional Fee Agreements (CFAs) or standard retainers.
The practical implication is clear: if your funding documents limit your hourly rates, you’re bound by those rates when submitting your Bill of Costs for inter partes recovery.
The Risks of Ignoring the Indemnity Principle
Failing to address the indemnity principle at the outset of a claim can lead to serious financial consequences:
- Limited Recovery: If your funding documents cap hourly rates below what’s reasonable, you cannot recover costs beyond those caps. i.e. you cannot seek an hourly rate higher than that you have advised your Client. This is particularly relevant given the increase in the hourly rates from 1 January 2025.
- Irretrievable Losses: Once the case is concluded, any restrictive terms in the funding documents cannot, ordinarily, be amended retroactively.
Protect Your Hourly Rates
To avoid these pitfalls, it is a straightforward procedure however, it’s critical to be proactive. Here are some steps to keep in mind:
Draft accurate and robust funding documents
Your retainer and funding agreements must include terms that allow for periodic reviews and potential increases in hourly rates. Clearly outline:
- The method and frequency of rate reviews (e.g., annually or at the start of a new tax year).
- How rate changes will be communicated to Clients.
- Provisions for obtaining Client consent for rate adjustments.
Conduct Regular Reviews
PI and clinical negligence claims can span several years - ensure your funding documents remain relevant by reviewing them regularly. This prevents outdated rates from limiting your costs recovery.
Communicate Rate Changes
When increasing rates, inform your Client in advance. Provide clear explanations of:
- The new rates and their effective date.
- The reasons for the adjustment (e.g., increased complexity or inflation).
- How this impacts their potential costs recovery.
Proactive communication minimises disputes.
Case Law Insights: Samsung and Beyond
The Court of Appeal’s decision in Samsung Electronics has become a frequently cited case in hourly rate disputes. While the judgment emphasized the need for clear and compelling justification to depart from guideline hourly rates, it is important to remember that this was in the context of summary assessments, which differ from detailed assessments (despite how much paying party’s argue the contrary).
The detailed assessment judgment in Harlow District Council v. Powerrapid provides a more nuanced view. This case underscored that guideline rates are merely a starting point, and that Courts must consider the specific facts and issues of each case. Preparing a strong file that highlights the complexity and importance of your case can help secure rates above the guideline.
Takeaway Tips
- Prioritise Funding Documents: Ensure your retainers and CFAs allow flexibility to update hourly rates.
- Stay Proactive: Conduct regular reviews in respect of your hourly rates.
- Document Everything: Keep detailed records of the factors that justify your rates.
- Communicate Clearly: Inform clients about rate changes transparently to avoid surprises.
For more information, contact Karl Robson, here.
