Determining how much a successful party will recover for its legal costs in litigation can be a time consuming, costly and uncertain business. Once an order is made, costs assessment proceedings follow where a costs judge reviews all of the work done, the time incurred, and disbursements spent and determines the amount due in the legal proceedings taking into account factors such as proportionality of the costs.
The costs judge also decides who pays the costs incurred in the costs assessment proceedings and the amount of those costs in a similar way. The question arises: how to provide greater certainty at the outset of proceedings about what legal costs a successful party might recover and what an unsuccessful party might be liable for?
The courts’ answer is to introduce a fixed costs regime for claims for £100,000 and under. Under this regime, which applies to claims issued from 1 October 2023, the amount of recoverable costs will not depend on the work carried out by lawyers, but the stage at which the case is resolved plus a percentage of the claim value. This should give greater certainty over the recoverable costs that a party may have to pay if it loses the case.
Which cases are affected?
Claims for monetary relief for up to a maximum of £100,000 (excluding interest) will be subject to the new FRC regime (no legal costs are recoverable for small claims for £10,000 or under).
Claims for non-monetary relief (and mixed claims for both monetary and non-monetary relief) are excluded from the FRC regime. However the courts could order FRC to apply to such a claim if it is “in the interests of justice to do so”. It will be interesting to see how often the courts will order this where there are concerns about the proportionality of the costs of such claims.
Other exclusions include housing claims other than boundary disputes (although the government expects to include these in a couple of years’ time), claims where a party is a protected party (i.e. lacks capacity in relation to a matter) and a few specified non-commercial claims (involving personal injury, children, vulnerable adults, the police and potential jury claims).
Personal injury claims are included in the FRC regime but they are not considered in detail in this article.
What amount can be recovered?
The amount recoverable depends on the following factors:
Is the case a fast track or intermediate case
There is one table of FRC figures for fast track claims (the normal track for claims £10,000 - £25,000) and another higher table of FRC figures for intermediate track claims (the normal track for claims £25,000 - £100,000).
Value of claim is the main factor in track allocation, but other factors can affect this (e.g. number of parties, potential trial length, how much oral expert evidence is required; also some specialist claims will not be allocated to either track).
Claims will then be assigned a complexity band, from band 1 for the most simple cases, to band 4 for the most complex. The higher the complexity band, the higher the FRC figures. There is relatively little guidance on which types of cases should be assigned to which bands (other than for personal injury claims), but factors include the number of issues to be resolved and the likely length of trial.
When claim was resolved
Different FRC figures are given for each stage of a case as it progresses towards trial. The FRC will be that specified for the stage the case had reached when the claim is resolved.
In addition the FRC allows for a percentage of the damages won (or successfully defended against). The percentage increases the nearer the case gets to trial.
Whether additional claimable work is carried out
Additional FRC can be claimed for certain specialist legal input, trial advocacy fees, legal representation at a mediation and at trial, and if judgment is reserved to a later date.
For example, the FRC for an intermediate track claim assigned to band 4 that goes to trial is £29,000 plus 22% of damages. If damages were £80,000 the percentage sum would be £17,600, making a total of £46,600. On top of this would come any additional claimable work, perhaps a mediation (£1,200), advocacy at a three day trial (£8,700), solicitor attendance at trial (£4,200) and a reserved judgment (£580). This would increase the FRC to £61,280 (excluding VAT). The successful party would also be able to claim any disbursements reasonably incurred, such as any court fees, expert fees or travel costs.
The intention is for the FRC figures to be uprated for inflation using SPPI.
More than the above FRC may be recovered from the losing party
The FRC could be more (or less) depending on the following further factors:
Parties can claim additional FRC if they are successful on an interim court application that is made during the course of the case.
Each claimant is entitled to its own FRC, unless claiming a joint remedy or the court otherwise orders, in which case additional claimants can only recover 25% of the FRC figures.
There is an 12.5% uplift to FRC if both the party and its legal representative are based in London.
If the court considers that a party should be penalised for unreasonable behaviour, it can increase (or reduce, as appropriate) FRC by up to 50%.
Part 36 offers of settlement
The potential costs consequences of Part 36 offers apply to FRC cases, save that instead of the costs being calculated from or to a certain date, the figures for the different FRC stages are used instead.
The big advantage of FRC is that a party will have a much better idea of what costs they may recover from (or have to pay to) their opponent if they win or lose the case. The new rules do not eliminate uncertainty altogether because of the factors that can affect the amount of FRC, in particular which complexity band will the claim to assigned to (this factor can have a significant effect on the FRC). However recoverable costs for money claims for £100,000 and under will become more predictable at the outset of the claim and this should help a party to assess the commerciality of bringing or defending a claim.
The FRC regime however only controls the amount of costs that a successful party can recover from its losing opponent - it does not affect the fees that a party has to pay to its own lawyers. The lower the FRC figures are compared to these fees then the more uneconomic it will be for a party to bring or defend a claim. It may be that some cases will become more uneconomic to bring or defend.
This article also features in the October 2023 issue of the Expert Witness Journal and can be accessed here.