Fixed Recoverable Costs – so what’s been fixed?

The introduction of fixed recoverable costs (FRC) has been described as the biggest change to civil litigation for a decade.  The FRC regime will attempt to fix the amount of legal costs that the successful party can claim from the unsuccessful party in litigation.  The aim of the reform is to provide certainty to parties in dispute about their maximum costs liability, which in turn should make commercial decisions on the cost/risk analysis of disputes clearer.

Previously, parties to a dispute would face the uncertainty of not knowing whether pursuing or defending a claim at court would be commercially viable.  Claimants being awarded damages that did not cover their legal bill or Defendants incurring legal costs that exceeded the sum in dispute were not uncommon, meaning at the end of often lengthy litigation the successful party was left with a hollow victory.  There had been reform of costs management in court proceedings in April 2013, including the introduction of costs budgeting, aimed at reducing what were considered unreasonable and disproportionate legal costs, but the introduction of FRC is a further sea change regarding litigation costs and one likely to be welcomed by parties seeking certainty as to their potential exposure.

From 1 October 2023, most civil claims up to the value of £100,000 will be dealt with under FRC and the amount of costs payable by one party to the other at the conclusion of proceedings will be calculated by reference to the value of the claim and the point at which the claim concluded.  It is hoped that the costs of litigation will become more certain and FRC will lead to an increase in earlier resolution to disputes, as well as improving access to justice and preventing parties being priced out of litigation.

The vast majority of fast-track claims (being those claims with a value of up to £25,000) will be dealt with under FRC.  A new ‘intermediate track’ has been introduced, within which less complex cases valued between £25,000 and £100,000 will be dealt with and which should also deal with claims more efficiently by implementing a streamlined procedure.  FRC will not be applied to those claims in excess of £100,000 and the most complex cases.  Having been allocated to either the fast track or intermediate track, claims will be banded according to complexity, band 1 being the simplest claims and band 4 being the most complex.

The exact amount of costs payable by one party to the other under FRC will be calculated by reference to the complexity of the claim and the point at which the claim concluded.  More complex cases and a conclusion later in the proceedings will lead to higher costs being recovered, whilst simpler cases or earlier settlement will lead to lower costs being recovered.

By way of example, a defended debt claim of £20,000 would likely be assigned to the fast track and be given a complexity banding of 1.  If the claim was settled on or after the date that the court lists the claim for trial but before trial takes place, a costs award of £3,800 would be made.  However, if the defended debt claim was for £50,000 then the claim would be assigned to the intermediate track, with the same complexity banding of 1.  If the matter were to settle at a similar stage (stage 6, up to and including the date set for the pre-trial review or up to 14 days before the trial date, whichever is earlier) then the costs awarded would total £13,400 (£5,900 plus an amount equivalent to 15% of the damages).

In practice, the introduction of FRC should mean that from the outset of a dispute parties can assess with greater certainty their exposure in relation to costs.  The FRC regime addresses only the costs that will be recoverable from the unsuccessful party: it does not impact upon the costs that will be charged by legal representatives.  However, having an exact figure for the costs that will be recovered or payable to the other side should assist in the commercial decision of whether to proceed with or defend a claim.

The significant impact of the listing of claims on the different tracks and the complexity banding to be applied will impact on how disputes are dealt with from the outset; it is likely that a party’s position on these key issues will now be set out in pre-action correspondence, with lengthy negotiation and argument to follow.  There will also be great interest in how the exemptions to FRC will be applied by the Courts.  No doubt there will be updates in the coming months as to how the new rules are being applied in practice.  However, as a first step in offering certainty to the question of whether litigation is worthwhile, the FRC is likely to be welcomed from a commercial point of view.