Fixed recoverable costs - what the new rules mean for parties in dispute for claims worth £100,000 or less

Parties to claims for £100,000 or less, will soon know exactly how much they can claim in recoverable costs from the losing party if they win their case – because they will be fixed by court rules.

Currently fixed recoverable costs (FRC) only apply to road traffic accident cases up to £10,000 damages. For all other cases, the amount recoverable depends on what the winner’s lawyers charge (which varies depending on the hourly rate and the amount of time spent on the case) and how the court assesses the amount payable by the losing party, and none of this is known at the outset of a dispute.

However the government announced on 6 September 2021 that FRC will be extended to all fast track cases – so all claims for between £10,000 and £25,000. It also announced that a new category of ‘intermediate cases’ of between £25,000 to £100,000 will be allocated to the fast track and will also be subject to (different) FRC.

The attraction of FRC is clear – parties will be able to make a better assessment of the costs and benefits of litigation at the very outset of a dispute. However only the recoverable costs are fixed – what a party’s lawyers charge for the litigation is not fixed. Any shortfall between the recoverable costs and the amount the winner is liable to pay its lawyers will remain the winner’s liability.

Whilst there is currently no implementation date – the next step is for draft rules to be prepared and considered by the Civil Procedure Rules Committee – the new rules could well come into effect during the latter part of 2022.

Intermediate cases

Not all claims for between £25,000 and £100,000 will be an "intermediate case" and so subject to FRC. The criteria for allocating a case to the intermediate track will be as follows:

• The case is not suitable for the small claims track or the fast track.
• The claim is for debt, damages or other monetary relief, no higher than £100,000.
• If the case is managed proportionately, the trial will not last longer than three days.
• There will be no more than two expert witnesses giving oral evidence for each party.
• The case can be justly and proportionately managed under the expedited procedure that will apply to intermediate cases (for example, there will be more limited disclosure in non-personal injury cases – a party will only disclose the documents upon which it relies, and any documents or classes of documents which the court specifically orders). 
• There are no wider factors, such as reputation or public importance, which make the case inappropriate for the intermediate track.
• The claim is not for mesothelioma or other asbestos-related lung diseases, or a clinical negligence claim, an action against the police, a child sexual abuse claim, or an intellectual property case.
• Alternatively, even if none of above criteria are met, there are particular reasons to assign the case to the intermediate track.

There will be four bands of complexity for intermediate cases, and the FRC will vary depending on which band applies, and the stage at which the case concludes. Most intermediate track cases will go into Band 2 or Band 3. The FRC is a mix of a fixed figure plus a percentage of damages - if the claimant succeeds, the specified percentage applies to the sum recovered. If the defendant succeeds, the specified percentage applies to the claim defeated, as valued in the particulars of claim.

So for example, the FRC (on 2017 figures – when introduced, FRC will be updated for inflation in line with SPPI) in the following scenarios would be as follows:

If a party unsuccessfully challenges a band it will incur a penalty of £300. There will be a London weighting of a 12.5% uplift on FRC, and a 25% uplift for additional claimants. If a party rejects an offer of settlement but the fails to do better at trial, the offeror will get an uplift of 35% of FRC from the time it should have accepted the offer. A party who behaves unreasonably during the litigation will incur a penalty of 50% FRC.

Fast track cases

FRC will be extended to all fast track cases, so those cases for damages of between £10,000 and £25,000. Again, each case will be allocated to one of four bands of complexity.

If the case went to trial, then the FRC (on 2017 figures) are £3,250 for band 1 claims, £2,761 + 20% of damages for band 2 claims, £4,451 + 30% of damages for band 3 claims, and £6,800 + 40% of damages (plus £660 for each extra defendant) for band 4 claims. Fixed advocacy fees are additional to these figures, the amount of which depends on the claim value. (Separate FRC will apply to noise-induced hearing loss claims).

As for intermediate cases, there will be a London weighting of a 12.5% uplift on FRC, and a 25% uplift on FRC for additional claimants. If a party rejects an offer of settlement but the fails to do better at trial, the offeror will get an uplift of 35% of FRC from the time it should have accepted the offer. A party who behaves unreasonably during the litigation will incur a penalty of 50% FRC. However if a party unsuccessfully challenges a band it will incur a penalty of £150.

Judicial review cases

The government also intends to introduce costs budgeting to all "heavy" judicial review cases (not subject to costs caps) to allow judicial control of the costs of such litigation.

Comment

It is interesting that some more straightforward lower value commercial disputes with claims up to £100,000 will fall into the fixed recoverable costs regime. The certainty that this brings in terms of potential costs liability and recoverability will be welcome. It also marks a sea change in the approach to recoverable costs in commercial cases. For the first time in commercial cases, costs will be calculated primarily by reference to the value of the damages recovered and not by reference to hourly rates and time spent. It may encourage greater use of Damages Based Agreements where the lawyer charges a percentage of recoveries. It will be interesting to see how this new regime works and whether it will be expanded to include higher value claims in due course.