The principle is 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. There are several exceptions to the principle including the statutory exceptions concerning legal aid, conditional fee agreements and damages based agreements. The following principles apply:

(i) A party in whose favour an order for costs has been made may not recover more than he is liable to pay his own legal representative: Harold v Smith [1865] H&N 381 at 385 and Gundry v Sainsbury [1910] 1KB 645 CA.

(ii) Where a party puts a statement of costs before the court for summary assessment that statement must be signed by the party or a legal representative. The form states: “The costs stated above do not exceed the costs which the [party] is liable to pay in respect of the work which this statement covers.”

(iii) The signature of a statement of costs or a bill for detailed assessment by a solicitor is in normal circumstances sufficient to enable the court to be satisfied that the indemnity principle has not been breached in respect of costs payable under a conventional bill: Bailey v IBC Vehicles Ltd [1998] 3 All ER 570 CA. However, the same may not be true in respect of costs payable under a conditional fee agreement: Hollins v Russell [2003] 1 WLR 2487.