COSTS PAID BY A THIRD PARTY – BREACH OF THE INDEMNITY PRINCIPLE?

The case of HMRC -v- Gardiner and Others [2018] EWHC 1716 (QB) is a case concerning an alleged breach of the indemnity principle.

Background

The Respondents were amongst several tax payers challenging penalties imposed by HMRC for incorrect tax returns. EDF Tax Defence Ltd (“EDF”) were the tax advisors.

The Respondents were successful and HMRC were ordered to pay their costs.

Costs proceedings

EDF were at the forefront of the work carried out in the matter. Counsel was instructed to represent the Respondents and the fees were paid by EDF. HMRC therefore alleged a breach of the indemnity principle on the basis that the Respondents had not paid Counsel’s fees and that there was no direct retainer in place between the Respondents and Counsel.

The argument failed and the key points to note are as follows:

  1. There was never an agreement that the Respondent would not be liable for Counsel’s fees (see paragraph 30 of the Judgment – “The presumption that a client instructing a solicitor or representative to represent them will be liable for costs incurred for such representative may be rebutted by the paying party proving that there was a bargain between the client and the representative that under no circumstances was the client to be liable for costs”).
  2. Counsel represented the Respondents at the hearing, not EDF.
  3. The arrangement was no different to a trade union funding arrangement.
  4. The key for the indemnity principle is a liability to pay and not payment/discharge of the liability (see paragraph 30 of the Judgment – “It is liability to pay rather than who makes payment which is material”).

Had evidence been produced that the Respondents would never have been liable for Counsel’s fees, then the Court would have reached an alternative conclusion. This is therefore a useful case to rely on for parties seeking costs which have been met by a third party, but are facing indemnity principle challenges from a paying party.

This blog was prepared by Andrew McAulay who is a Partner at Clarion and the Head of the Costs Litigation Funding Team. Andrew can be contacted at andrew.mcaulay@clarionsolicitors.com
or on 0113 336 3334 or on 07764 501252.

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