Extension of the Fixed Recoverable Costs (FRC) regime in civil litigation

Summary and practical advice

The FRC regime will extend to apply to most claims with a value up to £100,000 (there are some limited exceptions, including certain housing claims being excluded for now). The extension will take effect through changes to the Civil Procedure Rules (CPR).

The planned implementation date is 1 October 2023, which means that all in-scope proceedings issued on or after that date will be subject to the FRC regime.

While costs recovery in most cases is likely to be lower than it is now, the extension of the FRC regime provides all parties with an element of predictability, which will help inform strategy.

Parties intending to bring or defend claims up to a value of £100,000 should therefore be aware of the extension to the FRC regime and its impact on the costs they may recover or have to pay.

The 1 October 2023 deadline may result in a rush to issue proceedings before the new regime comes into force to try and keep costs recovery above the new fixed amounts. The regime applies to pre-action costs, so where work has already started thought should be given to issuing by the deadline to avoid those costs being caught by the new regime.

The FRC regime relates only to recoverability of costs from the unsuccessful party and does not place any restrictions or limitations on what legal representatives can charge for their work. Where the incurred costs exceed those which may be recoverable from the other party, legal representatives may seek to recoup the shortfall from clients directly, absent any specific fee arrangements.

Parties may wish to consider possible contractual mechanisms to increase costs recovery and/or the inclusion of mandatory arbitration or other alternative dispute resolution clauses. Walker Morris can assist with drafting as required.

New fixed costs regime: What is changing?

A new intermediate track

There are currently three different ‘tracks’ to which the court will allocate a claim: the small claims track; the fast track; and the multi-track.

The fast track will stay as it is. It will be the normal track for claims up to £25,000 where the trial is likely to last for no longer than one day and oral expert evidence is likely to be limited to one expert per party in relation to any expert field, and expert evidence in two expert fields.

The intermediate track is a new track to cover claims valued at more than £25,000 but not more than £100,000, which would previously have been considered less complex matters within the multi-track.

The intermediate track will be the normal track where the trial will not last longer than three days, oral expert evidence is likely to be limited to two experts per party, and the claim is brought by one claimant against either one or two defendants or is brought by two claimants against one defendant.

Where non-monetary relief is sought, the claim will not be allocated to the intermediate track unless the court considers it to be in the interests of justice.

The court will retain a discretion to allocate more complex cases valued at under £100,000 to the multi-track in order to avoid them inappropriately falling within the FRC regime.

‘Complexity bands’ determine the level of FRC

When a claim is allocated to the fast track or the intermediate track the court also has to assign the claim to a complexity band which determines the costs that will be allowed. For each track there will be four complexity bands numbered 1 to 4 in ascending order of complexity, with associated grids of costs for the stages of a claim. See Tables 12 and 14 on pages 47 to 54 of this document. (The CPR and accompanying Practice Directions will be updated online in due course.)

The parties may agree the complexity band to which a claim should be assigned, but the court may direct otherwise having regard to the factors in CPR 26.13(1). These include, among others: the claim’s financial value; the nature of the remedy sought; and the likely complexity of the facts, law or evidence.

Table 1 in CPR 26.15 (fast track) and Table 2 in CPR 26.16 (intermediate track) contain examples of the types of claims falling within each of the complexity bands. Those tables can be viewed here.

Most FRC claims will be for damages. The tables recognise this by incorporating a percentage of damages recovered. In claims for or including non-monetary relief, there will be fixed assigned values for individual bands. Where claims include both monetary and non-monetary relief, the FRC will be calculated by reference to both the damages awarded and the assigned value for non-monetary relief.

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

There is a ‘London weighting’ provision where the receiving party will be entitled to recover an additional 12.5%.

In addition to the FRC figures being reviewed generally every three years, the Ministry of Justice is proposing to increase the figures in April 2024 to cover inflation.

There are some differences in the costs allowed where the receiving party is a litigant in person.

The court may consider a claim for an amount of costs exceeding FRC where a party or witness is vulnerable or there are “exceptional circumstances”, although there is no guidance on that threshold.

The court may also allow a claim for certain reasonable and proportionate disbursements.

Where appropriate, VAT may be recovered in addition to the FRC and any allowable disbursements.

Unreasonable behaviour

Where an order for costs is made in favour of/against a party who the court considers has behaved unreasonably, the other party may apply for an order that those costs be reduced/increased by an amount equivalent to 50% of the FRC which would otherwise be payable.

Part 36 offers to settle

Some changes are being made to Part 36 as a result of the extension of the FRC regime to encourage settlement. These include that where judgment against the defendant is at least as advantageous to the claimant as the proposals contained in a claimant’s Part 36 offer, instead of costs being awarded on the indemnity basis from the date of expiry of the ‘relevant period’, the claimant is entitled to additional costs in an amount equivalent to 35% of the difference between the fixed costs for the stage applicable when the relevant period expires and the stage applicable at the date of judgment.

New fixed costs regime – how we can support you

For further advice, assistance and/or staff training on the new FRC regime and the impact this may have on your business, and/or for tailored advice on strategy, contractual protections and other options, please do not hesitate to contact Gwendoline Davies, Nick Lees, Nick McQueen or any member of Walker Morris’ Commercial Dispute Resolution team.