A dramatic change to much of civil litigation – a new fixed recovery costs regime (FRC) begins on Sunday (1 October). Intended to control costs in advance, the changes seek to enable parties to predict their costs exposure and recoverable costs at each specific stage of litigation.
Although well-intentioned, the scheme carries potential pitfalls. To maximise costs recovery and minimise adverse costs exposure, parties involved in relevant litigation should give careful thought to these new rules, with expert help, at the very outset of the claim and at each stage of the litigation.
When will the FRC apply?
FRC will apply to proceedings valued less than £100,000 which are issued on or after 1 October 2023. Particularly complex cases, or those valued above £100,000, will be allocated to the multi-track and not subject to FRC.
Exemptions from the FRC
- FRC will not apply if any party is a protected party: r. 45.1(6).
- Personal injury claims will only apply FRC where the cause of action accrues on or after 1 October 2023.
- Residential housing claims are exempt, although may apply from 2025 once other relevant legislation has been implemented.
- Other types of case generally suitable for the multi-track irrespective of value are: mesothelioma, clinical negligence, abuse of/by children or vulnerable adults, trials by jury, and some Human Rights Act claims against the police: CPR 26.9(10).
- Costs greater than FRC can be applied for where vulnerable parties or witnesses have resulted in additional work leading to costs 20% above FRC: r. 45.10.
A new CPR Part 45 and Practice Direction 45
A new CPR Part 45 will set out the rules that take effect on Sunday.
A new PD 45 will contain tables of fixed costs relevant to various rules.
A new intermediate track
Updates to CPR Part 26 include an intermediate track for claims valued between £25,000 and £100,000: r. 26.9(7)-(11).
It is the normal track where trials will be 3 days or less, and expert evidence is likely to be limited to 2 experts per party. The usual factors (set out at CPR 26.13) to consider on allocation, such as complexity, importance, and the parties’ views, will continue to play a role.
Stages and complexity bands
FRC are determined by Tables 12 and 14 in PD45.
- In the fast track, this is by reference to the complexity band of the claim.
- In the intermediate track, the band is combined with the stage of the claim to determine the FRC.
Defining the stages of a case
The stages should cause relatively fewer issues, as they mostly refer to costs accruing between fixed dates: service of the defence, CMC, inspection of documents, and so on.
However, some stages reference “specialist legal advice” provided in writing or conference post-issue or following the defence.
Parties will need to pay particular attention to precisely which stage their case is in, and when exactly their costs accrue.
Case complexity bands
On allocation, the court must now also assign claims to 1 of 4 complexity bands (in an ascending scale): CPR 26.14 – 26.17.
Parties can agree the band, but if they or the court disagree, the court will have regard to the same factors as considered on allocation.
The guidance provided for the bands is relatively minimal. In the intermediate track, for example, band 1 is suitable where only one issue is disputed and the trial will last no longer than a day.
This may cause contests at CMCs over assignment: claimants will usually argue for higher bands and defendants for lower, unless they are confident of dismissal. It is possible that claimants may include more disputed issues to avoid band 1, though this may be balanced out by defendants conceding issues to restrict their costs exposure.
The Ministry of Justice has been clear that care has been taken to avoid being excessively prescriptive.
Therefore the FRC will need time to ‘bed in’ so that parties can more easily predict the appropriate banding.
By combining the stage and the band, parties can easily calculate recoverable costs. In most scenarios, this is with reference to a fixed cost and a percentage of the damages. Non-monetary relief will usually be dealt with in the multi-track, but there is provision for fixed values assigned to non-monetary relief for FRC purposes, relative to track and complexity band: r. 45.45(1)(a)(ii); 45.49(2)(b)(ii).
Where costs are awarded to defendants, fixed costs will also apply, with reference to the value of the claim in the claim form: r. 45.6. This poses costs risks for claimants who fail to take adequate care to ensure the claim form is an accurate reflection of their case.
Within a case subject to FRC, any disbursements “reasonably incurred” are allowable outside FRC: CPR 45.59(b) and 45.60.
There is also general provision for costs greater than FRC in “exceptional circumstances”: r. 45.9(1).
Cost consequences of settling
The stages approach in PD45 clearly enables parties to determine the costs consequences of settling at each stage. There are associated changes to Part 36 offers in a new Section 2 to Part 36.
This provides more predictability than at present and may incentivise more attractive offers, although it does not prevent parties making non-Part 36 lump sum offers covering damages and costs.
Likely impact of the fixed recoverable costs regime
While FRC may increase the predictability of costs, it is difficult to predict the overall impact of such widespread changes.
Greater certainty may enable earlier and more frequent settlements. Conversely, it may encourage parties to have their day in court, content to risk costs when they are fully aware of them, rather than being forced into settlement by fear of unknown costs consequences.
If you require further assistance with these new rules, please contact our clerks on 020 7405 6114.
Pupil barrister Harrison Engler co-wrote this article.