Fixed Recoverable Costs To Date: What Do We Know?

Those following the procedure for the recoverability of costs in English Court proceedings will be familiar with the fact that from 1 October 2023 costs became fixed in all claims with a value not exceeding £100,000.

The idea behind fixed recoverable costs (‘FRC’) was to bring certainty to the question of costs, at least in claims not exceeding £100,000 (FRC does not apply to claims above £100,000). In English Court proceedings the ‘loser pays’ principle means that the losing party pays the (reasonable) legal costs of the winning party, in addition to damages. Before FRC, the amount of costs was always an uncertainty. If one spent £80,000 preparing a case for trial, would one recover that in full, and if not how much? Equally if one was facing a claim for say £80,000, what might the costs bill be in addition if one failed in defending the claim? Traditionally, assessment of costs was something that followed settlement of or a decision on the claim at trial. What would be recovered in the assessment process was always to some extent uncertain. Costs budgeting helped, but only after budgeting was done (and assuming it was not dispensed with) and incurred costs were never budgeted anyway.

How does it work?

Now, at least in claims not exceeding £100,000, one can more accurately predict what costs will be recoverable, because they are fixed by the Civil Procedure Rules depending on the stage reached in the proceedings at the time the claim settles. So that whether you are bringing or defending a claim there is better certainty around the costs position. By way of example, in a dispute for a sum over £25,000 but not exceeding £100,000 (the ‘intermediate track’) if a claim settles after service of witness evidence, the recoverable costs will be between £5,368 + an amount equivalent to 12% of damages and £20,647 + 18% of damages, depending on ‘complexity’ (there are 4 complexity bands).

How is it going in practice?

The idea of greater certainty appears, at least in part, to have brought even greater uncertainty. Defendants are deploying a long list of arguments why the case should be a lower complexity band rather than a higher one. Because doing so can be a not insignificant saving. If one imagines a claim settled for £80,000, costs in complexity band 1 would be £5,638 + 12% of £80,000 = £15,238.  If it was complexity band 4 at the other end of the complexity bands, costs would be £20,647 + 18% of £80,000 = £35,047.  In other words, complexity band 4 costs can be double the complexity band 1 costs.

The definitions of complexity bands are not enormously detailed or instructive. A band 3 case for example, is essentially defined as one more complex than band 2. A band 4 case is one more complex than band 3. That oversimplifies slightly to make the point, but in practice the lack of guidance in the Rules or caselaw (as yet) is a real problem.

A band one case is defined as one where “only one issue is in dispute”. I have seen cases about the value of the claim (quantum) where 2 experts are involved on either side, where the defence runs to over 15 pages, where the expert reports run to hundreds of pages, and where in essence every single potential point is taken on quantum. And yet, when it comes to costs, the defendant argues that it was a ‘single issue case’. The single issue, they say, was ‘quantum’. Now, in litigation, if the need for resource was disputed, if quantities are disputed, if rates are disputed, if uplifts are disputed, and 6 other issues, one would usually think it is a 10 issue case. A statement of issues would list those issues separately. They would each have to be dealt with by the Court at trial. It is something of a twisting of language to describe such a case as ‘single issue’.

A Claimant might be tempted to say look at your own defence: it raises ten issues. I have seen defendants then say, and with a straight face, well we didn’t mean all of those issues. We only really meant one of them. So it was a single issue case really, even though we pleaded a defence raising ten significant issues. It is tempting to say well only plead what you mean, but the argument becomes rather circular.

It seems to me that a lot of bad points are consuming a lot of time (and additional cost) in costs negotiations and proceedings due to the uncertainty of the complexity bands and other issues arising from the new FRC regime. The sooner they can be dealt with by further guidance in the Rules themselves or caselaw, the sooner the ambition can be achieved of FRC giving greater certainty and avoiding disputes on costs.

FRC impact on ULR claims

Recovering the proper and just FRC is critical to justice being done, and a Claimant being able to pursue a claim. Otherwise a costs shortfall might prohibit the claim being brought and justice being obtained.