What will the upcoming extension of fixed recoverable costs mean for disputes?

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Significant changes to the costs rules in court proceedings will be introduced on 1 October 2023, with claims up to £100,000 set to be subject to fixed recoverable costs (FRCs). We explore the changes in more detail and examine the disputes they are likely to affect.

In court proceedings, the unsuccessful party generally pays the successful party’s costs, although this rule is sometimes displaced by other factors. The court usually assesses the amount of costs payable by taking into account how they were incurred and the extent to which this was reasonable and proportionate. As such, parties can expect a shortfall between the amount recovered from an opponent and the costs that they paid to their legal advisers.

This Autumn, however, such shortfalls are likely to increase. Under new costs rules, a greater number of disputes will soon fall within the remit of FRCs, thus limiting the amount of costs successful parties will be able to recover.

What is the current approach?

Under current court rules, a claim is allocated one of three tracks, depending on its nature and value.

What are the three existing tracks for allocating claims?

  1. Small claims track. This is for claims valued at no more than £10,000. It has limited costs recovery and a simplified procedure.
  2. Fast track. This is for claims valued between £10,000 and £25,000. The trial must be estimated to last no more than one day, with limits on the amount of evidence. All costs, except fixed trial costs, are assessed by the court.
  3. Multi track. This is for any claims that are not suitable for either the small claims track or the fast track due to their complexity. Costs are assessed by the court.

Under the current regime, some fast-track claims, such as low value personal injury claims, are subject to FRCs.

How are the track system and FRCs changing?

The court rules are creating a new track – the intermediate track. This is for less complex claims valued between £25,000 and £100,000. Trials for these claims will be estimated to last no more than three days, with a limit on the amount of expert evidence.

FRCs will extend to all claims in the fast track and intermediate track. Therefore, claims for monetary relief valued at not more than £100,000 will be caught by the fixed costs rules.

Proceedings issued on or after 1 October will be subject to FRCs, except for personal injury and disease claims where different transitional arrangements apply.

There are some limited exceptions, including housing claims. FRCs have been delayed for two years for claims relating to possession, disrepair, or unlawful eviction.

How will FRCs be calculated?

When allocating a claim to a track, the court will decide on one of four complexity bands. These bands, occurring in ascending order of complexity, will determine the amount of allowable fixed costs for a claim.

Each stage of a claim, from pre-action to trial, is assigned FRCs. The court rules prescribe tables of fixed costs. Costs will be recovered by the successful party based on the stage the case reaches and the allocated complexity band.

Can I claim more than the FRCs?

This is only possible in very limited circumstances, with the rules providing that the court has discretion to award costs greater than those allocated in the FRC tables in exceptional circumstances.

At present, no guidance exists on how this will operate in practice. It will therefore be necessary to see how the courts interpret this provision.

Are there any other situations in which FRCs could be modified?

Where a party behaves unreasonably, costs may either be reduced or increased as appropriate by an amount equivalent to 50% of the FRCs that were otherwise payable.

Successful claimants could also see a higher costs award where they have made a Part 36 offer – or offer to settle – which is more advantageous than the judgment by the court. In this case, the claimant will be entitled to additional costs that are equivalent to 35% of the difference between the fixed costs for the stage at which the offer could have been accepted and the date of the judgment.

What do the upcoming changes mean for disputes?

The extension of FRCs mark an important change for claims valued up to £100,000. For the party receiving the costs award, it will increase the shortfall between the costs recovered, and those paid to legal advisers, making it highly important to evaluate current disputes strategies.

On the other hand, FRCs will provide a greater level of certainty over costs liabilities for a wider range of disputes. Legal teams and their clients will have to engage with these new rules to, ultimately, achieve the best result.

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