The extension of the fixed recoverable costs regime: what it means for you

For anyone caught up in a legal dispute, understanding the potential costs risk is key. The world of litigation practitioners has been abuzz recently with discussion around fixed recoverable costs (“FRC”) and the upcoming extension of these across a wider range of cases from 1 October 2023.

The intention is that there will be greater certainty on the potential costs exposure of a dispute but, in the short term, there is likely to be some uncertainty ahead until the rules are finalised, interpreted and applied.

The details are still being examined with a fine-toothed comb by those working in the industry, but potential parties to litigation will want to know how this might affect them if and when a dispute arises (or if one exists already). In particular, what can parties do to attempt to ensure that as much of their legal spend in a dispute as possible in recoverable?

Track allocation and application of the FRC regime

All claims are allocated to a “track” which determines the procedure and likely timescale for the claim to reach a trial. In brief, the existing “tracks” that a claim can be assigned to are being altered, with the introduction of a new “intermediate track”.

This track, broadly speaking, is designed to accommodate claims of a value between £25,000 to £100,000 (though other factors such as factual and legal complexity will also likely affect allocation – for example, the intermediate track is said to only be appropriate for cases with a final hearing of three days or less, with no more than two expert witnesses giving oral evidence on each side).

The regime will apply to most civil cases on the “fast track” (the track below the intermediate track, generally for claims of a value between £10,000 and £25,000) and the intermediate track, where proceedings are issued on or after 1 October 2023.

Under the new rules, both the fast track and the intermediate track will be divided into four bands by complexity, with differing levels of costs that are recoverable depending on the band.

Levels of costs

There is a comprehensive and detailed table that has been published in draft form for illustrative purposes which sets out the level of costs which parties may seek to recover at different stages. The table is available here.

The effect, however, is that in the majority of cases, parties can expect a significantly lower portion of their costs to be recoverable than under the current regime.

A frequently advised step in approaching a low value (or any) claim is for a claimant to make an offer of settlement under Part 36 of the Civil Procedure Rules (a “Part 36 Offer”). Under the current regime, such an offer, if the amount offered is beaten at trial, can reap significant costs benefits for the offeror and add a level of costs protection which can sometimes mean the difference between issuing a claim or deciding not to continue pursuing a matter.

Under the upcoming FRC changes, the effect of a Part 36 Offer is less beneficial to a claimant – still providing an uplift on FRC, but to nowhere near the same level.

What now?

Consider any potential disputes and whether to issue to avoid the new rules

In the vast majority of cases, parties are required to comply with relevant steps (mostly attempting to resolve or adequately discuss the relevant issues in correspondence) before issuing a claim, lest they risk an unfavourable court order regarding the recovery of costs.

Those who have disputes that may fall within the new regime may, therefore, wish to undertake these steps (if they have not already) as soon as possible to enable the issue of a claim before 1 October 2023.

Alternatively, parties may wish to issue a claim before the deadline and “reserve service” of the claim form for up to four months, or attempt to stay the claim for a period to allow for these steps to be accommodated before the claim is resumed.

It is worth noting that, even if a claim is never issued, there is potential for the new regime to apply. Parties will need to carefully consider any pre-action correspondence that could lead to settlement as the current drafting of the rules suggests that parties could be bound to pay a set amount of FRC even in circumstances where the dispute settles before the claim is issued.

Consider ways to avoid the new rules where appropriate

It is, as yet, unclear whether parties can “contract out” of the upcoming FRC regime, and so for parties for whom issuing a claim before 1 October 2023 is an absolute impossibility, it may be pertinent to attempt to agree such a contract with the other party to the dispute. In all likelihood, a potential defendant to a claim may resist such attempts – a lower level of recoverable costs could act as a significant deterrent to a claimant issuing a claim at all. If it is apparent that a claim will be issued regardless, however, then it may well be within both parties’ interests to ensure that whichever party ends up on top, a larger portion of its costs will be recoverable.

When entering new agreements, parties may want to consider “contracting out” of the upcoming regime, to pre-empt the costs position in any future disputes. As noted above, it is currently uncertain whether this would be effective, but there may be benefit in incorporating such a clause as a just-in-case measure.