On 1 October 2023, the Fixed Recoverable Costs (FRC) regime was extended.
The new track
With the FRC changes, a further track has been created, known as the intermediate track. Claims valued between £25,000 - £100,000 will now usually be allocated to the Intermediate Track, provided that their complexity makes them unsuitable for the Fast Track. In the event the claim is particularly complex, the Court are able to allocate the claim to the Multi-Track, which means the FRC regime will not apply.
When a matter is allocated to either the Fast or Intermediate track, it will now be allocated with a complexity band. These bands are from 1-4, with 4 being the most complex. These bands will dictate the amount of costs recoverable dependant on the value of the claim and the stage the claim reaches proceedings. Parties are able to agree a complexity band before the CCMC however, the Court do have discretion to order otherwise if they consider an alternate complexity band to be appropriate, having regard to the factors in CPR 26.13 (1).
Complexity is not the only factor taken into consideration when identifying the level of fixed costs payable. The monetary value of the claim will also dictate the level of fixed recoverable costs when the claim concludes. This is based on either the amount that has been claimed or awarded, depending on the stage of proceedings. This means that should a £90,000 claim be discontinued; the value of the claim will be £90,000. Whereas should the same claim settle for £30,000 during litigation, the claim will be valued at £30,000. A wise Claimant would take care not to over-value their claim as it may result in additional sums being payable should the claim be discontinued or it may result in the claim being ran in a disproportionate manner which will result in fewer costs being recovered than first anticipated.
In relation to claims which do not have a clear monetary value, a value will be assigned to any non-monetary relief sought. This will be considered in addition to any monetary relief sought. The amount of fixed recoverable costs recoverable will typically include a percentage of the damages payable, encouraging litigators to manage the claim proportionate to the value of the matter.
In addition to the above, there is a ‘London Weighting’ which will enable a receiving party based in London to recover an additional 12.5%. London is referred to as the areas served by the following Court Courts: Barnet, Brentford, Central London, Clerkenwell and Shoreditch, Edmonton, Ilford, Mayors and City of London, Romford, Wandsworth and Willesden and (outside London) the County Court hearing centres at Bromley, Croydon, Dartford, Gravesend and Uxbridge.
What claims will be subject to FRC?
The new regime now includes all civil litigation valued at £100,000 or less, save for mesothelioma or asbestos lung disease claims, a claim that includes clinical negligence unless the claim would normally be allocated to the intermediate track and both breach of duty and causation have been admitted, a claim for damages in relation to harm, abuse or neglect of or by vulnerable adults or children, claims that could be tried by jury or claims against the police involving international or reckless tort or in relation to the human rights act 1998. CPR 26.8(1) lists the types of claim that will be allocated to the Multi-Track.
The date of importance will be the 1 October 2023. All claims issued after this date will fall under the FRC regime save for personal injury claims, where it will apply if the cause of action accrues on or after 1 October 2023.
In addition, the implementation of housing claims will be delayed for 2 years from October 2023, in response to the various recent developments in the housing sector. Housing claims will be allocated to the appropriate track but will not be subject to FRC for a period of 2 years.
How are fixed costs applied to more than one Claimant?
Rule 45.5 stipulates that each claimant will be entitled to the costs of their own claim. However, some exemptions apply. For instance, of both Claimants are jointly entitled to a remedy and they are joined to proceedings to comply with CPR 19.3, only one instances of FRC will be recoverable. The Court may also order that additional claimants are only entitled to 25% of the principal Claimant’s FRC, if the Court consider it of the interests of justice to do so.
Do FRC apply to counterclaims?
If a Claimant is successful in both their claim and in successfully defending against a counterclaim, they are entitled to two sets of FRC. However, exemptions will apply, including instances where the remedy to the counterclaim is a defence to the claim or in claims where the Pre-Action Protocol for Personal Injury Claims in Road Traffic Accidents applies.
What FRC still apply in exceptional circumstances?
CPR 45.9 permits the Court to make an award other than FRC but only in exceptional circumstances. No guidance has been provided as to what may be considered an exceptional circumstance, so it is not clear how difficult this will be to achieve in practice. CPR 45.9(2) permits the Court to either summarily assess costs or to make an order for costs to be subject to a detailed assessment.
However, CPR 45.11 includes a caveat that may require caution to be taken before seeking a departure from the FRC regime during exceptional circumstances. Should the Receiving Party’s costs be assessed at a figure lower than 20% higher than the FRC regime, the Court will award the lesser of either the assessed sum of the payable FRC. This may result as a consequence of either a greatly inflated bill or an opportunistic Receiving Party ultimately being awarded less than FRC.
In addition, CPR 45.12 states that should the outcome of an assessment result in either the Receiving Party being found to not meet the criteria for the assessment, or that the Receiving Party failed to achieve higher than 20% above fixed costs, the Court will either make no order as to the costs of either the costs only proceedings or detailed assessment or may make an order for some or all of the costs of the costs only proceedings or detailed assessment to be met by the Receiving Party.
What happens if a party or witness is considered vulnerable?
Should a party or witness be considered vulnerable, the Court have authority to award costs greater than permitted under the FRC regime.
The eligibility criteria for this uplift is defined in CPR 45.10. CPR 45.10 allows the Court to award greater than the fixed recoverable costs if a party or witness for that party is vulnerable, that vulnerability has required additional work and by reason of that additional work alone, costs are at least 20% greater than the applicable amount of fixed recoverable costs.
In the event the Court consider that the above provisions apply, they have the authority to either summarily assess the costs or make an order for costs to be subject to a detailed assessment.
However, similarly to the exceptional circumstances, should the costs be assessed at a sum less that 20% above the FRC, the Court will order that the lesser of either FRC or the assessed costs will be payable. CPR 45.12 also applies to this type of assessment also.
Are there any mechanisms to penalise unreasonable behaviour?
CPR 45.13 contains a provision for unreasonable behaviour. It permits either Fixed Recoverable Costs to either be reduced by up to 50% should the Receiving Party act unreasonably or to be increased by up to 50% should the Paying Party act unreasonably. This 50% uplift does not include VAT, any additional amounts allowed under Part 36 or any disbursements, meaning it is simply the profit costs that can be increased or reduced by 50%.
Guidance has been provided at CPR 45.13(3) for what is considered unreasonable behaviour however, the definition is vague and only states that it is behaviour with no reasonable explanation.
What happens to Part 36 offers?
Traditionally, when the Claimant beat a Part 36 offer, they were entitled to an additional 10% uplift, enhanced interest and entitlement to their costs on the indemnity basis from the expiry of the relevant period.
Under the FRC regime, the Claimant in these circumstances will now be entitled to additional costs equivalent to 35% of the difference between the stage the relevant period of a Part 36 offer expired and the stage the claim reaches at judgement.
This will still reward the Claimant for making a reasonable Part 36 offer at the outset of the claim. However, without the threat of indemnity costs, it may not dissuade the Defendant from pushing the claim towards trial if they consider they have reasonable prospects of beating the Part 36 offer.
Can you contract out of FRC?
When considering whether you can contract out of Fixed Recoverable Costs, it will depend on whether the parties are looking to contract out of Fixed Recoverable Costs or whether the Solicitor and Client are looking to contract out.
In terms of with the client, there is no mechanism in place to prevent the Solicitor and Client from contracting out of Fixed Recoverable Costs. While this may be good news at first flush, it may give rise to solicitor-client challenges in the future.
In terms of contracting out with the other side, this used to be the case however, CPR 45.1(3), the Court are limited to only allow costs that equal the fixed recoverable costs allowed by the applicable subsection. This means, in theory, the Court are unable to make any award outside of the fixed recoverable scheme however, it remains to be seen whether this is the approach taken in practice.
What about fees that have been incurred prior to the FRC?
The Fixed Recoverable Costs regime is retrospective. This means that costs that have been incurred prior to the Fixed Recoverable Costs regime will fall under this scheme if proceedings are issued after 1 October 2023.
This may have an impact to fees that have already been incurred before this date that are now limited to the amount recovered, such as fees for Counsel. In the event that Counsel’s fees incurred exceed the amount recoverable under the FRC regime, the Receiving Party will be limited to only the sums allowed under the FRC if the claim is issues after 1 October 2023. The shortfall in the
further fee will either need to be met by the Receiving Party, taken from the FRC the Receiving Party’s Solicitor has received or a compromise is agreed with Counsel to reduce their fee in line with the FRC regime.
In addition specifically to Counsel’s fees, CPR 45.10 states that unless a claim is allocated to the Multi-Track, the only costs allowed in claims that are or would normally be allocated to the intermediate track are those allowed under the FRC regime. The FRC regime only had an allowance for input from Counsel at two stages: for post-issue advice in writing or in conference or drafting a statement of case and for advice in writing or in conference following the filing of the Defence. Any other advice sought from Counsel would not be recoverable. This may cause issues on complex claims where further advice from Counsel may be beneficial but the cost of the same will need to be met by the client. It may also become a greater issue should any significant issues arise following the filing of the Defence and advise has already been sought from Counsel.