From the 1st October 2023, the Civil Procedure (Amendment No.2) Rules 2023 came into force extending the scope of fixed recoverable costs (FRC) in a civil claim.
This article will review the implications of these changes for claims, and how the changes drastically limit the amount of recoverable costs, for claims valued up to £100,000.
What is the fixed cost regime in the UK?
The FRC are predetermined amounts that the winning party can recover from the losing party in civil litigation. The changes seek to introduce predictability to costs exposure and also to encourage proportionate handling of cases. The aim of the rule change is to ensure legal costs are more certain and proportionate across a wider range of civil claims.
The FRC applies to claims in the fast track and also applies to pre-action costs.
What is the new intermediate track?
There is an introduction of a new intermediate track to cover less complex claims valued at more than £25,000 but no more than £100,000.
The extension of fixed recoverable costs applies to all civil claims across the fast track and multi-track with more active case management by the courts. The court will fix a case management conference and the parties must endeavour to agree appropriate directions and file them with the court before the hearing.
The new track is mainly designed for damages and money claims where the trial should last no more than three days.
The directions are set out in the revised Part 28, there will be standard disclosure in PI claims, other types of claims the court will also have a menu of other options to keep disclosure manageable.
The directions also limit the mechanics of providing witness statements and expert evidence. Statements will be required to not exceed 30 pages and 20 pages for expert reports.
Which types of cases are subject to the FRC?
The extension of fixed recoverable costs applies to all civil claims across the fast track, with a new process and separate table of costs for noise induced hearing loss claims valued up to £25,000.
FRCs for clinical negligence claims are being considered separately.
How are fixed costs calculated?
Claims will be either allocated to the fast or intermediate track where the court will assign the claim to a complexity band which determines the costs that will be allowed. For each track there are four complexity bands numbered 1 to 4 in ascending order of complexity. Tables 1 to 16 on pages 39 to 56 of the practice direction amendments document provide the breakdown of fixed costs in different tracks and types of claim.
The parties may agree the complexity band that should be assigned; however, the court may direct otherwise considering the factors in CPR 26.13. Factors that are taken into consideration include the claim’s financial value, the nature of the remedy sought, complexity of the facts and evidence.
What are the benefits of the FRC?
One of the main reasons why the FRC’s were introduced was to provide certainty in advance about the maximum amount the losing party will have to pay. However, the amount that can be reclaimed may not cover the actual costs of the case.
What are the drawbacks of the FRC?
The FRC relates only to the recoverability of costs from the unsuccessful party and does not place any restriction or limitation on what the legal representatives can charge for their work. Where the incurred costs exceed what can be recoverable from the other party, the legal representatives may seek to recoup the shortfall from clients directly.
How can you reduce your legal costs in an FRC case?
Parties may wish to consider possible contractual mechanisms to increase costs recovery, and also consider alternative dispute resolution mechanisms (“ADR”) such as mediation and arbitration.
You should discuss the cost implications at the start of the litigation process, an experienced legal expert will be able to provide you with a costs assessment at each stage of the process.
What happens if you win your case but your legal costs are higher than the fixed costs?
As stated above, where incurred costs exceed what can be recoverable from the other party, the legal representatives may seek to recoup the shortfall from clients directly.
What happens if you lose your case?
The consequences of losing your case in the UK usually results in the losing party paying the winning party’s costs. With the introduction of the changes of the FRC, while it may increase the predictability of costs, it is at present difficult to predict the overall impact of such widespread changes.
With parties having the opportunity to have better insight with the likely certainty of the costs, it may encourage the use of ADR procedures such as mediation and earlier more frequent settlements. Although in some circumstances, it may encourage parties to progress to trial, content with the cost risks, rather than being forced into settlement with the fear of unknown cost consequences.