Back in the spotlight: Breaching the indemnity principle

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The judgment received in the recent case of Tucker v Hampshire Hospitals NHS Foundation Trust has brought the issue of breaching the indemnity principle back into the spotlight. Susie Power, Costs Consultant at PIC, takes a look at the case and offers some advice.

In brief, the Claimant suffered a stroke and sought to sue the Defendant for a failure to treat chest pains experienced in November 2011. Irwin Mitchell had conduct of the case and following the issue of proceedings, and during case progression, two costs budgets were served. Upon service of the Claimant’s Bill of Costs after settlement, the Defendant noted that the two costs budgets had differing figures for the pre-action costs phase, which were in turn higher than those recorded in the Bill of Costs. Following scrutiny of the same it was identified that the Claimant had sought to use ‘blended’ rates in the costs budget and retainer rates in the bill. Unfortunately, the blended rates breached the indemnity principle.

The Defendant, represented by Keoghs, pressed the case to detailed assessment and filed an application for costs to be disallowed on the basis of misconduct. Master Rowley provided a contemptuous judgment where the Claimant lost all cost management costs and Irwin Mitchell were found to have acted improperly.

So what is to be learned from the judgment in Tucker v Hampshire Hospitals NHS Foundation Trust. First of all, remember your costs are your costs. If you feel that the complexity of the case warrants a higher hourly rate then review your retainer terms and at the requisite time, send a letter advising the Claimant of a change to the hourly rates. From the date of that letter the increased hourly rates can be used. Should you be approaching the requirement of a costs budget and the terms of your retainer mean that you are unable to increase your hourly rates for some time after filing the costs budgets, advise your costs draftsman and they can discuss the best course of action.

Secondly, any hourly rate which the Claimant has been informed of can be included in your costs budgets, however a high hourly rate should not be used to ‘front-load’ a budget with the express intention of using a lower hourly rate in the bill to allow for room within the phases. A bill should be prepared in line with the costs budget and if the costs budget has been exceeded then CPR 3.18 will be triggered and an explanation needs to be provided as to why the costs have not remained within budget. Lowering your hourly rates in the bill should not be seen as a ‘plan B’ approach if the budget has been exceeded.

Thirdly, be prepared! Get your files to the costs draftsman as early as possible so that all time can be accurately recorded and checks can be made on all funding documents to ensure the bill will be as close to the costs budget as possible to avoid any issues or allegations of misconduct.

Finally, it is well documented that Courts do not like getting involved in hourly rates arguments, nor do they comment in depth in relation to incurred costs. These are generally considered in relation to anticipated costs of each phase. However, this should not provide an area of law that should be treated with egregious exploitation.

To summarise, just remember the golden rule of costs: ‘Do not breach the indemnity principle’. Also, ensure all costs budget are as accurate as possible to avoid issues when it comes time to recover your costs.

If you have any doubts in relation to current or future costs budgets, do not hesitate to contact PIC. We can aid you in your preparation and costs management.

Optimized-DSC_3948Susie Power is a Costs Consultant at PIC.

To contact her regarding any matter in this blog, please click here.