The current position in respect of the recovery of costs in debt claims valued at £10,000 or more is that parties are able to recover their actual cost (i.e. the actual amount they have paid to their lawyer in order to conduct the claim) from each other, subject to rules on reasonableness and proportionality. For better or for worse, that position is set to change by the end of this year.
The expansion of fixed recoverable costs (FRC) in litigation in England and Wales has been mooted since Lord Jackson’s 2017 report on the issue, and the subsequent 2019 consultation paper implementing those proposals. Under a FRC regime, the amount of legal costs that the winning litigant can recover from the losing opponent is fixed in advance by Court rules rather than being assessed by the Court at the end of the case. Currently, FRC mainly applies to personal injury claims and those claims with a value of less than £10,000 (which are typically allocated to the Court’s Small Claims Track). However, following consultation, in September 2021 the government issued a response which announced a significant expansion to the FRC regime so that it applies to all Fast-Track claims (claims which usually have a value of between £10,000 to £25,000). In addition, the regime will apply to a new intermediate category of simpler claims with a value of up to £100,000. These changes may come into effect as early as October 2022.
The key outcomes from the response are:
- The extension of FRC to all cases in the existing Fast Track.
- The expansion of the Fast Track to include certain types of intermediate civil cases valued between £25,000 to £100,000.
- Cases involving mesothelioma/asbestos, complex PI and professional negligence, actions against the police, child sexual abuse, and intellectual property will be excluded from the ‘intermediate’ classification
Under the new FRC regime, every Fast Track case will be allocated to one of four bands. Defended debt claims up to a value of £25,000 in damages can generally expect to be allocated to the fast track as a ‘band 1’ case (four bands will be created with band 1 being the most straightforward type of claim). The amounts recoverable are set by way of specified sums allocated to stages of the litigation process. In bands 2-4 these amounts are also subject to an additional fixed amount calculated based on the level of damages.
Subject to an uprating to account for inflation, the maximum proposed fixed recoverable costs available in a band 1 case which proceeds to trial is expected to be £3,250 plus VAT plus a trial advocacy fee of between £500 and £1,705 plus VAT – depending on the value of the claim. Where a successful Part 36 offer is made (being an offer which is not accepted and then beaten by the offering party at trial), an uplift of 35% is proposed. Further, a 50% uplift is expected to apply as a penalty for unreasonable behaviour during litigation. A 12.5% uplift is also proposed on fixed costs payable to a party who lives in the London area and instructs a legal representative who practices in the London area. It is worth noting that the ‘escape clause’ contained within CPR 45.29J (enabling a party to exit FRC in exceptional circumstances) will continue to apply.
The government has stated that it is for the Court to exercise its discretion as to the appropriate allocation of cases to the new “intermediate” category. Whether a claim is an intermediate case will depend on certain criteria to include (1) the case not being suitable for the Small Claims track or the Fast Track; (2) the claim being for debt, damages or other monetary relief with a value of no more than £100,000; and (3) the trial lasting no longer than 3 days. The government has also stated that no intermediate case should be allowed to exit the FRC regime, unless exceptional circumstances apply. Hence, the weighting, penalties and uplift which apply to Fast Track cases will apply to most intermediate cases.
If a claim is classed as an intermediate case, it will be allocated to one of 4 bands:
- Band 1: the simplest claims that are just over the current fast track limit, where there is only one issue and the trial will likely take a day or less, e.g. debt claims.
- Band 2: will be the ‘normal’ band for intermediate cases, with more complex claims going into Band 3.
- Band 3: will be the ‘normal’ band for those complex intermediate cases.
- Band 4: the most complex claims, with claims such as business disputes where the trial is likely to last three days and there are serious issues of fact/law to be considered.
An unsuccessful challenge to the allocation of a band will incur a costs liability of £150 for Fast Track cases and £300 for intermediate cases. However, a challenge to band allocation without sufficient basis could amount to unreasonable behaviour, incurring further costs penalties.
My view is that the reaction to the expansion of FRC will likely be mixed. On the one hand, litigants will have greater certainty as they will know in advance the amount of costs that a winning party will recover. Therefore, they will be in a better position to assess whether it is worth pursuing or defending a claim. On the other hand, litigation may become uneconomic for a number of cases if a party’s actual costs far outweigh FRC amounts. In addition, whilst the penalties for unreasonable behaviour seek to prevent such, a scenario whereby a defendant puts a claimant under additional procedural pressure in order to increase the claimant’s actual costs so that the claim becomes less economic may easily arise. In order to circumvent this, I anticipate that law firms will need to be more creative in how and what they charge clients to pursue mid-value litigation.
Written by : Richard David, Legal Executive
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