Extended fixed recoverable costs regime: what is it and how will it affect you?

The general rule in court proceedings is that the unsuccessful party will be ordered to pay the majority of the successful party’s costs (including costs incurred in the pre-action stage). Those costs include solicitor’s fees, court fees, expert fees and other expenses. The successful party’s costs are usually assessed on the “standard basis”, meaning that it should recover between 50% and 70% of its costs.

In October 2023, the court rules will be amended to extend the scope of fixed recoverable costs (“FRCs”) for most claims of over £10,000 and up to £100,000. The changes aim to make the costs of litigation proportionate to the amounts in dispute and will affect parties’ costs versus benefit analyses before and strategy during claims. 

Further details about the extended FRCs can be found here and here

This article sets out the changes to the FRC regime and how it will affect parties to applicable claims. This article focuses on the FRC regime to the extent that it affects commercial claims.

Extension to the RFCs regime

The FRCs extension will apply to claims issued on or after 1 October 2023. A claim issued on 28 September 2023 will therefore be subject to the current (and arguably more generous) costs rules noted above.

The FRCs extension will bite when a claim is allocated to a particular “track” by the court after the parties have exchanged statements of the case. The FRCs extension will apply to most claims allocated to the fast track (for claims over £10,000 and up to £25,000) and a new intermediate track (for claims over £25,000 and up to £100,000). The court will also allocate claims to the intermediate track where: the claim can be tried in three days or less; where each party has no more than two expert witnesses giving oral evidence; and where there are no more than two claimants or two defendants. The court will retain the discretion to allocate complex claims for less than £100,000 to the multi-track. An example might include a complex residential construction dispute involving many expert disciplines.

There are some exceptions to the extended FRCs regime and it will not apply to: housing claims (until at least October 2025); claims involving children or vulnerable adults; or claims against the police for intentional or reckless torts (for example, claims for unlawful detention).

Once a claim is allocated to the fast track or intermediate track, the court will assign the claim to a complexity band. The complexity bands range from band 1 to band 4, with band 1 being for the least complex claim types. For example:

  • in the fast track, defended debt claims will be assigned to band 1 and a professional negligence claim will be assigned to band 4; and

  • in the intermediate track, complex claims with multiple issues and serious factual or legal disputes will be assigned to band 4. An example might be a claim for damages under an oral construction contract where there are multiple factual witnesses for both parties.

In the fast track and intermediate track, the complexity bands allow a party to recover FRCs and, in many cases, a percentage of damages claimed. For example, for claims assigned to band 4 in the intermediate rack, a party can recover £9,300 plus 8% of damages claimed for work from pre-issue up to and including service of a defence. The damages percentages increase as the claim proceeds, presumably to encourage parties to settle claims early where possible. One benefit of the extended FRCs regime is that it will allow parties to accurately analyse the costs versus benefits of litigation before issuing proceedings.

The parties can challenge the court’s complexity band assignment. Claimants will likely seek the highest possible band to maximise their cost recovery and the opposite applies to defendants.

As with the existing fast track, costs budgeting will not be required in the intermediate track and costs will be assessed after trial. The extended FRCs regime will therefore streamline the negotiation and/or assessment of costs.

The court will have the power to order costs in excess of the FRCs if there are “exceptional circumstances” although the rules do not explain what that means. We expect that case law or guidance will follow on that point and other wrinkles in the new FRCs regime.

The extended FRCs regime will also apply to Part 36 offers: if a Part 36 offer is accepted by either party, costs will be assessed by reference to the FRCs; and if a claimant beats its Part 36 offer at trial, the defendant will be ordered to pay the FRCs plus a 35% uplift. Where a party has acted unreasonably, the court can order a 50% uplift. Again, these changes encourage early settlement of claims where possible.

Summary and practical tips

In summary, the extended FRCs regime could simplify and clarify cost rules in court proceedings although will probably result in parties incurring more unrecoverable costs than under the current rules.

Parties who want to maximise their cost recovery in claims subject to the extended FRCs regime could consider the following:

  • Amending their standard terms of business to permit recovery of costs on the standard or indemnity bases (both of which are more generous than the extended FRCs regime);

  • subject to compliance with any pre-action protocol, issue any existing claims before 1 October 2023 to avoid the extended FRC’s regime applying; and

  • making an early Part 36 offer to protect their cost position and potentially increase cost recovery.

Parties might also consider utilising alternative dispute resolution, including adjudication, arbitration and mediation.

Prettys can assist with any or all of the above and advise on the extended FRCs generally.

Expert
Liam Hendry
Solicitor