The indemnity principle does not apply in relation to fixed recoverable costs (as per Butt v Nizami [2006] EWHC 159 (QB)). This has become increasingly important with the extension of fixed recoverable costs from 1 October 2023.
In the past, the importance of this was often in the context of considering whether there was an enforceable retainer. To the extent to which the indemnity principle did not apply, the absence of an enforceable retainer did not prevent costs recovery from the other side.
The extension of fixed recoverable costs to most civil claims with a value of up to £100,000 is likely to highlight two further issues.
Firstly, costs belong to the client. This applies equally to fixed recoverable costs. Unless the terms of the retainer provide otherwise, if the fixed recoverable costs are greater than the solicitors’ costs calculated on an hourly rate basis (or otherwise), any excess will belong to the client and not the solicitors.
This first issue will flow into the second. There are now greater incentives for a client to challenge their own solicitors’ fees. If a retainer is found to be unenforceable (which still happens), not only will the client not be liable for any of their solicitors’ fees, but they will also be able to retain the full amount of the fixed recoverable costs. Even if the retainer is not unenforceable, to the extent to which the client is entitled to any excess in recovery, there is a much greater incentive to challenge the amount they have been charged. Not only might a reduction in their solicitors’ fees lead to a reduction in what they have to pay, it may lead to them being positively in the black in terms of the costs of the litigation.
