In June 2023, I wrote about the rules that apply to costs recovery in civil litigation in England and Wales, summarising the key principles and some important considerations to bear in mind when bringing or defending a claim (see: https://www.ts-p.co.uk/insights/does-litigation-pay-why-its-important-to-bear-the-costs-recovery-rules-in-mind/).
In this article, I will look at the extension of the fixed recoverable costs (FRC) regime, which changes the costs rules across claims that fall within a Court 'track' with a financial value of between £10,000 and £100,000. The Government plans to introduce the new scheme on 1 October 2023.
What is a 'track'?
Most claims are allocated to one of three systems, or 'tracks', which determine how the case will be dealt with. The tracks each contain their own set of case management and costs rules, which govern how a claim progresses through the litigation process. The Court will provisionally allocate a case to a track at the outset, based primarily on its financial value as follows:
- For claims up to £10,000 – the Small Claims Track
- For claims between £10,000 and £25,000 – the Fast Track
- For claims above £25,000 – the Multi Track.
The financial value of the claim is not the only factor, however. It is open to the parties to ask the Court to allocate a case to a different track (although this is ultimately at the Judge's discretion), based on a range of other factors such as: (1) the complexity of the issues; (2) the level of Judge required to hear the case; (3) the estimated length of the trial; (4) the amount of witness and documentary evidence involved; and (5) the extent of any technical expert evidence required.
How do the costs recovery rules currently apply across the tracks?
Generally, the parties' legal costs cannot be recovered in cases allocated to the Small Claims Track (save in very limited exceptions), whatever the outcome, and therefore parties must bear their own legal costs.
Legal costs are recoverable, in principle, under the Fast Track and the Multi Track. Usually this means that the successful party is able to secure an Order for a proportion of their legal costs to be paid by the losing party. However, there are limitations, more so for cases allocated to the Fast Track, where some FRC limits already apply.
What will be changing?
From 1 October 2023, a revised FRC regime will apply to the Fast Track (i.e. for claims with a value of between £10,000 and £25,000). A new Intermediate Track will be introduced for claims valued between £25,000 and £100,000, with its own FRC regime. This will effectively increase the threshold for the Multi Track to claims above £100,000, where the FRC will not apply.
Change 1: Complexity bands
A major change is the introduction of the so-called 'complexity bands'. These bands will affect the level of FRC for the claim.
The complexity bands to be introduced in the revised Fast Track are as follows:
Complexity Band 1:
- Road traffic accident related, non-personal injury claims
- Defended debt claims.
Complexity Band 2:
- Road traffic accident related, personal injury claims which are or should have been started under the RTA Protocol
- Personal injury claims to which the Pre-action Protocol for Resolution of Package Travel Claims apply.
Complexity Band 3:
- Road traffic accident related, personal injury claims to which the RTA Protocol does not apply
- Employer's liability (accident) and public liability personal injury claims
- Possession claims
- Housing disrepair claims
- Other money claims.
Complexity Band 4:
- Employer's liability disease claims (other than a claim for noise induced hearing loss)
- Complex possession and housing disrepair claims
- Property and building disputes
- Professional negligence claims
- Any claim which would normally be allocated to the Fast Track, but is nonetheless complex.
The complexity bands to be introduced in the new Intermediate Track are as follows:
Complexity Band 1:
Any claim where:
- Only one issue is in dispute
- The trial is not expected to last longer than one day, including:
- Personal injury claims where liability or quantum is in dispute
- Non-personal injury road traffic claims
- Defended debt claims.
Complexity Band 2: Any less complex claim where more than one issue is in dispute, including personal injury accident claims where liability and quantum are in dispute.
Complexity Band 3: Any more complex claim where more than one issue is in dispute, but which is unsuitable for assignment to complexity band 2, including noise induced hearing loss and other employer's liability disease claims.
Complexity Band 4: Any claim which would normally be allocated to the Intermediate Track, but which is unsuitable for assignment to complexity bands 1 to 3, including any personal injury claim where there are serious issues of fact or law.
The parties are able to agree a complexity band by consent, but the decision ultimately rests with the Court, which retains discretion to assign a claim to whichever complexity band it deems the most appropriate. The complexity band directly affects the level of FRC that will be awarded.
Change 2: Calculation of the FRC
The normal principles still apply insofar as the winning party will ordinarily expect to receive an order for a proportion of their costs to be paid by the losing party. However, the costs that a winning party can recover will now be capped at a prescribed level, no matter how has been incurred.
The level of the cap will be determined by several factors including the track and complexity band the claim is assigned to, the stage the claim reaches and the amount of damages the winning party obtains. These values are set out in tables contained in the new Practice Direction 45 of the Civil Procedure Rules (CPR).
The new FRC rules do allow for uplifts (or reductions) on the FRC value set out in the table in situations where, for example, a party has displayed unreasonable behaviour, or by reference to the location of the successful party's legal team.
Why have the Government made these changes?
The changes were initially announced by the Government in September 2021, but there have been delays in implementing the requisite changes to the law in order to underpin the new regime. The changes are a direct result of Lord Justice Jackson's 2017 report on Fixed Recoverable Costs.
The end goal is that the changes will reduce overall costs for litigants, by encouraging efficient working practices. There is also the hope that by streamlining and limiting the amount of work that needs to be done, cases can be dealt with more expediently where their complexity permits.
It is also hoped that by creating a clear, transparent and predictable costs structure, parties considering litigation will have sufficient information as to their potential costs exposure at the outset, thereby allowing them to make an informed decision as to the merits of proceeding with legal action.
How will this impact businesses and individuals involved in disputes?
Depending on your viewpoint, the changes can be seen as a step forwards or backwards. On a positive note, the changes mean that any party whose claim falls within the FRC regime and wishes to commence proceedings against another party after 1 October 2023, will know with a far greater degree of certainty, what their potential adverse costs risk is likely to be.
On the other hand, the FRC regime may well erode a party's success, in financial terms, by the difference between the FRC and the amount of costs that are actually incurred. The legal costs incurred in taking a claim to trial with the assistance of lawyers, are likely to exceed the FRC allowed, and therefore parties to litigation are going to have to be ready to accept that they will have a costs recovery shortfall, requiring a careful cost benefit analysis at the outset.
How we can help
Given the complexity of the new FRC regime and the various exceptions and nuances that arise, any party bringing or defending a claim should take early legal advice, to understand the level of costs that they may recover (if successful) and be liable to pay (if unsuccessful) in order to make an informed decision.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.