Extension of Fixed Recoverable Costs - 5 Key Takeaways

Sir Geoffrey Vos, Master of the Rolls, speaking to the House of Commons justice committee last said that Fixed Recoverable Costs ("FRC") was going to "change the landscape" of civil justice. But what are FRCs and why is the extension of these so important? Here are our 5 key takeaways.

Background

On 31 March 2023, the Civil Procedure Rules Committee approved draft amendments to the Civil Procedure Rules ("CPR") that will extend FRC to most civil proceedings with a value of up to £100,000. The draft amendments were released on 20 April 2023, so that those most impacted by the changes could start to familiarise themselves with the new FRC regime.

FRCs are not new. They have existed for several years in most personal injury claims for damages up to £25,000. The extension of the FRC regime has not been without controversy. However, its proponents argue that FRC will restrict recoverable costs to those which are proportionate, result in costs being more certain, increase access to justice and facilitate earlier resolution of disputes.

The Civil Procedure (Amendment No 2) Rules 2023 (SI 2023/572)(the "Rules") that will bring into effect the changes to the FRC regime were laid before the UK Parliament on 24 May 2023 (together with a helpful explanatory memorandum). The changes to the CPR are extensive. The purpose of this blog is to highlight the main changes.

1.   New Intermediate Track

Currently cases are generally allocated to the small claims track (for claims of £10,000 or less), the fast-track (for claims between £10,000 and £25,000) or the multi-track (for claims in excess of £25,000).

In addition to applying FRCs to all civil claims across the fast-track, the changes will apply FRC across a newly created "intermediate" track. This will be for claims worth between £25,000 and £100,000, where the case can be tried in three days or less, with no more than two expert witnesses giving evidence on each side.

Judges will retain the discretion to allocate more complex cases valued at under £100,000 to the multi-track, so that complex cases will not be inappropriately captured by the extended FRC regime. 

2.   Complexity Bands

On both the fast track and the intermediate track, cases will now be allocated to one of four complexity bands (1 to 4 in ascending order of complexity). The complexity band assigned will determine the recoverable costs for each stage of the claim. The parties may agree the complexity band between them, but ultimately it is the court which determines the band to which the claim will be assigned. The matters relevant to allocation to a track will also be relevant to assigning a claim to a complexity band within a track.

The CPR provides some general guidance on assignation. For example, in the intermediate track, band 1 will be for any claim (a) where only one issue is in dispute; and (b) the trial is not expected to last longer than one day, including (i) personal injury claims where liability or quantum is in dispute; (ii) non-personal injury road traffic claims; and (iii) defended debt claims. However, in making a decision the court will also have regard to factors such as the financial value of the claim, the nature of the remedy sought and the importance of the claim to persons who are not parties to the proceedings.

Obviously, the higher the complexity band the higher the recoverable/payable costs and so it is likely that assignment of complexity bands as well as allocation of track will become a battleground early in proceedings.

3.   Tables of Costs

The amounts parties will be able to recover under the RFC regime are found in tables contained in a new Practice Direction 45. The tables set out the fixed costs that apply to the various stages of a claim. The stages of intermediate track claims have been revised from those originally recommended by Sir Rupert Jackson in 2017, with a view to providing greater clarity and to better reflect the stages that a claim goes through. In the intermediate track there is generally a fixed sum plus an amount equivalent to a percentage of the damages awarded.

The Ministry of Justice proposes to review the tables of costs in three years' time and the expectation is that there will be uprating for inflation at that time.

The court will consider a claim for costs which is greater than the FRCs in the tables where there are exceptional circumstances. There is no guidance on what might constitute exceptional circumstances but it is likely that the court will approach this exception strictly.

4.   Exemptions from FRC

There is a recognition that FRC is not appropriate for all cases that fall within the fast and intermediate tracks. In particular:

• The implementation of FRC for housing claims is being delayed for two years from October 2023. This will cover any claim relating to a residential property or dwelling and which includes a claim for: (a) possession; (b) disrepair; or (c) unlawful eviction.
• Other claims that might normally be allocated to the intermediate track have been identified as being unsuitable for FRC because of their complexity. These include mesothelioma and other asbestos lung disease claims, clinical negligence claims (unless breach of duty and causation have been admitted), and claims for damages in relation to harm, abuse or neglect of or by children or vulnerable adults. Such cases will be allocated to the multi-track.
• FRC in low value clinical negligence claims is being taken forward separately by the Department of Health and Social Care and therefore for the moment is outside the scope of FRC.

It is also important to note that a court may, in certain prescribed situations, permit recovery of more than the FRC (excluding disbursements) where a party or witness is vulnerable and the vulnerability has required additional work on the part of the solicitor.

5.   Transitional Provisions

FRC will apply to claims where proceedings are issued on or after 1 October 2023, except for personal injury actions. With regard to personal injury actions, FRC will apply where the cause of action accrues on or after 1 October 2023 and will only apply to disease claims where the letter of claim has not been sent to the defendant before 1 October 2023.

A claim will be subject to the same table of costs that is in place on the date when the claim issued for the duration of that case.

It will be interesting to see whether there is a flurry of proceedings issued, or letters of claim being sent, prior to 1 October 2023 in order to avoid the implications of FRC.

Conclusion

The extension of FRC to most cases with a value under £100,000 is going to have a significant impact for those involved in such litigation. The predictability regarding costs will be welcomed by many. However, it is generally acknowledged that costs recovery will likely be lower than under the current regime, leaving litigants with a higher level of irrecoverable costs. It is therefore questionable whether FRC will in fact deliver greater access to justice.

What is clear is that everyone involved in either bringing or defending civil litigation, whether as a client or as a lawyer, needs to be ready for the changes come 1 October 2023 and the impact these will have with regard to costs exposure and recoverability.