When I offer advocacy for low value personal injury cases subject to the fixed recoverable costs regime I do so at a reduced rate. I take into account that I do not have a chambers to pay (and I do my own admin) but it also allows those who instruct me to retain the cost saving. This is because of the indemnity principle not applying to fixed recoverable costs.
This is something that all personal injury lawyers should know and any lawyer who is in an area of law that will be subject to fixed recoverable costs in October ought to know.
The indemnity principle
The indemnity principle is relatively straightforward. A party may only recover the amount of legal costs it is liable for. Each time there is a signature request on an N260 or bill of costs, it is to confirm this point.
If I were to charge a client £500 but put £750 on the cost schedule which was to be relied on to obtain a cost Order in my client’s favour then I would be in breach of the indemnity principle.
Disapplication of the indemnity principle
The High Court in Butt V Nizami [2006] EWHC 159 (QB) determined that the indemnity principle did not apply to fixed costs.
This means that, using the previous example, if a law firm does £500 worth of work and their client can recover £750 worth of fixed costs, then there is no breach of the indemnity principle and the law firm could retain the difference (subject to the retainer allowing them).
What does this mean?
If a law firm instructs an advocate who undertakes the work at a lower rater than the fixed costs allowed would be able to retain the difference. Jackson endorsed this in his supplementary fixed costs report by stating that lawyers could instruct Counsel or Specialist Lawyers (used in his example to also include CILEX Lawyers) to undertake ring-fenced work or they could undertake the work themselves.
For the same reason, one could instruct Counsel or an advocate for more than the fixed amount.
The best way to see fixed costs is that ‘this is your budget, you can deal with things in house or outsource. The end result is you will not get more money.”
Stage three example
I recently had a Stage 3 hearing where the Claimant was an infant. Claimants who are infants will also recover an additional sum for advice on quantum (Stage 3 Type C costs of £150 + VAT).
They get this sum irrespective of if it settles at Stage 3 or proceeds to a Stage 3 hearing. The Solicitors had instructed an advocate to prepare the advice on quantum (which was cheaper) leaving a deficit between the cost of the advice in relation to the Stage 3 Type C costs. They would have retained this but they inadvertently included the fee note in the bundle.
My opponent argued that as this was the actual costs, the Defendant should only have to pay the lower fee. I submitted that the indemnity rule did not apply. In principle the Judge accepted this and found that the Claimant had submitted a fee note with a lower fee and therefor this should be accepted.
I did not seek permission to appeal because it was such as small amount and I expect it would be disproportionate in costs. The Judge was wrong in law. The rules were quite clear that the Court has to Order the Defendant to pay Stage 3 Type C costs when it is a child.
It was strange because usually a fee note would never be put in for Counsel’s advice on the basis that it is paid as part of Stage 3 Type C.
Information
AJH Advocacy Limited, a Limited Company which is regulated by the Bar Standards Boards (entity number 190758), ceases trading on the 12th January 2026.
From the 12th January 2026 and onwards, Alec Hancock will practice as a Barrister at Magdalen Chambers in Exeter. For instructions on matters on or after 12th January 2026, please contact Magdalen Chambers via clerks@magdalenchambers.co.uk or by telephone on 01392 285 200.