Following a substantial review of the Civil Procedure Rules, fixed recoverable costs (FRC) will apply to most civil litigation claims with a value of up to £100,000 from 1 October 2023, including those within the fast track and the new intermediate track.

Whilst it is anticipated that recoverable costs under the new regime are likely to be less than currently available, the rationale is to keep litigation costs proportionate to the sums claimed and to provide the parties with a clearer indication of their potential exposure to costs when entering into litigation.

What are FRC?

FRC are the amount of legal costs the ‘winning’ party (the receiving party) can recover from the ‘losing’ party (the paying party) at different stages of litigation. They apply to pre-action costs as well as to the costs running up to trial and the trial itself.

It is important to note that the new FRC relate only to those costs, which can be recovered from the paying party.  It does not put any restrictions on the fees and costs that lawyers can charge for their work, so where a lawyer’s recorded fees exceed what may be recoverable from the paying party, solicitors and clients will need to reach agreement over the shortfall.

What’s changing under the new regime?

There are several key changes that have implications for commercial clients, which we have summarised below.

The new intermediate track

Currently there are three ‘tracks’ to which the court will allocate a claim: the small claims track; the fast track; and the multi-track.

The fast track will be the normal track for claims up to £25,000 where the trial is likely to last for no longer than one day and oral expert evidence is likely to be limited to one expert per party in relation to any expert field, and expert evidence in two expert fields.

The intermediate track is a new track to cover claims between £25,000 and £100,000, which would have previously considered less complex matters within the multi-track.

This will be the normal track where the trial will last no longer than three days; oral expert evidence is likely to be limited to two experts per party; and the claim is brought by one claimant against either one or two defendants, or is brought by two claimants against one defendant.

Where the relief sought includes a claim for non-monetary relief, for example, an injunction, the claim will not be allocated to the intermediate track unless the court also considers it to be in the interests of justice to do so.

The multi track will remain the track for more complex claims over £100,000, for which the new fixed costs regime will not apply.

Complexity bands

When a claim is allocated to the fast or intermediate track, the court will also assign the claim to a complexity band.  There are four bands of increasing complexity with band 1 covering the least complex cases (such as defended debt claims) and Band 4 for cases involving complex issues of law or fact (such as professional negligence claims).  These bands will impact the level of FRC claimable, with more complex claims having the highest rate of recoverable costs.  Costs will escalate in defined stages as a matter progresses with the aim of incentivising early settlement.

As there will be higher FRC for more complex cases it is expected that allocation to the complexity bands will lead to parties quibbling over which complexity band the matter ought to be assigned.  Whilst the parties may agree, the court may decide otherwise, having regard to such matters as the financial value of the claim, the nature of remedy sought and the likely complexity of the facts, law, or evidence.

Once assigned to a complexity band, the amount of FRC is set out in fixed costs tables, which outline what may be recovered for each complexity band at various stages of the litigation.

In claims for, or including, non-monetary relief (such as an injunction or transfer of property) there are fixed assigned values for individual complexity bands.  For instance, in the intermediate track, the fixed assigned value for complexity band 1 is £25,000, rising to £100,000 for cases assigned to complexity band 4.  Where claims include both monetary and non-monetary relief, the FRC will be calculated by reference to both the damages awarded and the assigned value for non-monetary relief.

A claim will be subject to the same table of costs that is in place on the date the claim is issued for the duration of that case, even if following a review by the Ministry of Justice the figures are later revised.  It should also be noted that the rate of FRC are subject to a ‘London weighting’ whereby the receiving party will be entitled to recover an additional 12.5%.  In addition, where the receiving party is an unrepresented litigant in person, the new fixed costs regime is applied differently with, broadly, the recoverable costs being reduced by one third.

Exceeding FRC

The court may consider a claim for an amount of costs exceeding FRC where a party or witness is vulnerable, or there are “exceptional circumstances”, although at present there is no guidance on what may be classed as “exceptional circumstances”.

In this situation the court will permit an uplift if the vulnerability has caused additional work to be undertaken and by reason of that additional work alone, the claim is for an amount that is at least 20% greater than the amount of FRC.  However, there is a sting in the tail: where the court assesses the costs as being less than 20% greater than the amount of FRC, it shall make an order for the party who made the claim to be paid the lesser of the FRC and the assessed costs.

Unreasonable behaviour

Where a party has acted ‘unreasonably’ during the course of the litigation, the court has the power to reduce or increase the FRC awarded by 50%.  As a rule of thumb, conduct considered by the court as being ‘out of the norm’ for parties to litigation is likely be considered as ‘unreasonable’.

Part 36 offers to settle.

Some changes have been made to Part 36 of the Civil Procedure Rules, which is the provision aimed at encouraging parties towards early settlement.  For instance, where a party fails to beat an opponent’s Part 36 offer fixed costs will be increased by 35%.

Comment

While all parties are expected to try and settle as soon as possible, the introduction of fixed costs increasing through the various stages of the litigation means that there is an incentive on defendants to make early offers of settlement before the litigation moves on to the next stage, and for claimants to wait until the next phase starts to make their offer in order to maximise their costs recovery.

For further help and advice on the new FRC and how it may impact you and your business, please do not hesitate to contact Paul Newbon or Sarah Pether in our litigation team on 01482 325242 or email paul.newbon@andrewjackson.co.uk / sarah.pether@andrewjackson.co.uk