The following Dispute Resolution practice note provides comprehensive and up to date legal information covering:
This Practice Note explains the indemnity principle as applied when seeking to recover costs in proceedings. The principle sets out the extent of a successful party’s entitlement to recover their costs.
Note that the indemnity principle is different to the indemnity basis used when undertaking a costs assessment. The indemnity basis is explained in Practice Note: Indemnity costs orders—principles.
When seeking to recover costs incurred in proceedings, it is generally the case that the amount of recoverable costs is less than the costs that have actually been incurred. The extent of costs recovery can therefore, at times, be uncertain, This is invariably due to the application of rules on costs recovery and the requirement for costs to be proportionate. For guidance, see Practice Notes: Costs assessment—basis of assessment and Costs and proportionality.
However, there is a clear rule that a client cannot recover costs that exceed the amount it is due to pay to its own solicitor. This is known as the ‘indemnity principle’.
The indemnity principle was established by the decision of the Court of Exchequer in 1860 in Harold v Smith, where it was held that:
‘Costs as between party and party are given by the law as an indemnity to the person entitled to them: they are not imposed as a punishment on the party who pays them,
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