End to indemnity sparks cost fears

The indemnity principle has been ditched by the Master of the Rolls and the Lord Chancellor, leading to fears that the cost of losing court actions will spiral.

According to the indemnity principle, the losing party must pay costs on a rate agreed by the winner and their solicitor at the start of the action. But now there is a danger that unscrupulous solicitors could inflate their costs after winning a case.

The principle has been abolished because it conflicts with conditional fee arrangements (CFAs), which replaced most civil legal aid after the Woolf reforms. The Master of the Rolls, Lord Phillips, decided to scrap the principle last year, but discussions have now begun on how to bring about the changes.

Gordon Wignall, a barrister at 36 Bedford Row, said CFAs would now be able to “work as they should, without convoluted attempts to maintain the fiction of a true indemnity between solicitor and client”.

The changes may allow pro bono lawyers to recoup their fees. Under the current system, if a client cannot agree costs with their solicitor, the lawyer cannot claim anything back.

Michael Smyth, pro bono and litigation partner at Clifford Chance, said his firm could propose to recover costs from the defendant in pro bono cases to strengthen negotiations. “If the other side thinks that they’ll be liable for a pro bono client’s costs, they may be more likely to settle,” he added.