The Indemnity Principle in Court of Protection Costs – Why It Is So Crucial

Introduction

To be defined, the indemnity principle states that, “[…] a successful party cannot recover from an unsuccessful party more by way of costs than the successful party is liable to pay his or her legal representatives.” (The Senior Courts Cost Office Guide, 2021, pg. 21.) When this principle is applied to Court of Protection costs, it posits that a Deputy cannot claim costs higher than that which they have stated in their client care letter or retainer letter.

The Protected Party is not liable to pay costs higher than those that have been stated in such documents, unless evidence is shown that the Deputy has authority to claim higher rates. The earliest form of the indemnity principle can be seen in the judgement from the case of Harold v Smith [1860] 5 H & N 381.

Over recent years, the hourly guideline rates have been in flux, as we have now landed in the era of 2021 Guideline Hourly Rates. In a climate of changing rates, it is crucial for solicitors to evidence that they have not breached the indemnity principle and it is key for Cost Officer’s to ensure the principle is being maintained. Upon having costs assessed, it is extremely common to see Cost Officer’s requesting evidence the principle has not been breached.

This blog aims to outline why this is so important for a Protected Party and to give a brief overview of the key aspects of the indemnity principle in relation to the Court of Protection.

Standard Basis/Indemnity Basis

Costs in Court of Protection are assessed on the Standard Basis, or Deputies may take fixed costs as outlined in Practice Direction 19B – a supplementary material for the Court of Protection Rules 2017. The Standard Basis simply means that in such instances, a costs judge will permit costs to be recovered that are crucially, proportionate, as well as being both reasonable in amount and reasonably incurred. (See the Court of Protection Rules Section 44.3 for further information.) This basis ensures that costs incurred for a Protected Party’s management period will always be appropriate and justified.

If costs were assessed on the indemnity basis (where the notion of proportionality is absent), Protected Parties would be at risk of being taken advantage of, since they would lack the capacity to argue the costs claimed for work carried out were unreasonable. However, the Mental Capacity Act 2005 negates this possibility, as after it was enacted all Court of Protection Costs were assessed on the standard basis.

Breaching the Indemnity Principle

As already alluded to, the common way the indemnity principle may be breached is through the absence of a Client Care Letter or Retainer Letter. A Client Care Letter is typically the first correspondence a client or Protected Party may receive from the Solicitors once the Court has appointed a Deputy. The letter will outline information regarding the services being provided and perhaps most importantly, the cost of legal services in the form of hourly rates. A retainer letter will function the same way, declaring the costs of the Solicitor’s services set out as hourly rates.

A breach of the indemnity principle may occur where a Deputy has claimed rates for work undertaken that they have not outlined to the client. For example, if one were to charge £200.00 an hour in the bill of costs, but initially informed the Protected Party the hourly rate was £100.00, this a breach of the indemnity principle – the Protected Party is liable to pay an hourly rate of £100.00, but the Deputy is attempting to recover higher costs of £200.00 which were not disclosed to the Protected Party.

Where a Deputy chooses to have their costs assessed, a Cost Officer will review the bill of costs to assess the costs that are recoverable for the Deputy. The Client Care Letter or Retainer Letter must be provided to the Senior Courts Cost Office alongside the bill of costs to evidence that the Deputy has authority to claim such rates. If a Cost Officer cannot locate such evidence, they will subsequently reduce the hourly rate of the work undertaken to that which may have previously been claimed, or assess the bill on the basis that the Deputy will provide such evidence upon applying for a Final Costs Certificate.

It is highly unlikely to see Deputies breaching the indemnity principle intentionally. To effectively comply with the SRA Code of Conduct, Solicitors will always prepare a Client Care Letter outlining their work and rates. The problem arises when this is not presented to the Cost Officer along with the bill and thus upon assessment, the Cost Officer does not know the rates at which the Deputy can claim and consequently reduces them.

Problems in Changing Rates

If the hourly rates for Court of Protection Costs were fixed, evidencing that the indemnity principle has not been breached would be much simpler. However, considering we are now into the third set of hourly rates Solicitors can claim, this complicates matters. For a Deputy to claim new rates that come into force, they have an obligation to inform the Protected Party that the rates have changed; by way of updating their Client Care Letter.

It can often be seen on assessment that Solicitors fail to amend the Client Care Letter before the change in rates comes into action, in which case it becomes difficult to claim the higher rates from when they may have commenced.

To illustrate, if hypothetical higher rates came into effect on 30 September 2022, but a Client Care Letter was not updated until 30 October 2022, it would be a breach of the indemnity principle to claim these higher rates from 30 September 2022, because the Protected Party is only liable to pay the costs that have been stated, which up until 30 October 2022, were different rates. Regardless of when the new rates may have came in, if the Protected Party was not aware of such rates, they are not required to pay costs higher than those which have been stated. Therefore, it is essential for Solicitors to amend their Client Care Letters in a timely manner, to ensure they can maximise new rates when they come into force.

Final Remarks – Protecting the Client

From what I have explained in this blog, it should be clear that the indemnity principle serves to Protect a Protected Party. The principle ensures the costs incurred by Deputy’s are always fair and balanced. Recovering costs in Court of Protection work may seem complicated at times, especially when there has been several changes to the hourly rates. However, it is important that the necessary measures remain in place to ensure Protected Party’s pay costs that are fair and proportionate to the work carried out.

For more information on what has been discussed, I invite you to consider the following resources:

You can find out more about our services here or you can contact the Costs and Litigation Funding team at costs.support@clarionsolicitors.com.

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