From 1 October 2023, fixed recoverable costs will be extended across the fast track and will see the introduction of a new intermediate track for simpler cases valued between £25,000 and up to £100,000.

Seen as the biggest change in civil justice for a decade, Solicitor, Michaela Hannon, tells us what we need to know ahead of then.

What are Fixed Costs?

Fixed costs are set amounts that the winning party in civil litigation is entitled to recover from the losing party at difference stages of the litigation process.

The concept of fixed costs is not new to the arena and claims involving matters such as the recovery of goods, enforcement actions and certain road traffic accidents have historically been governed by fixed cost regimes, which are typically contained in the Part 45 of the CPR.

Fixed costs have been championed as bringing a degree of predictability to costs exposure and to encourage proportionality. Conversely, the sums recoverable have been seen as unrepresentative of the work involved and a bar to instructing legal representatives, who are often unable to viably offer the same fee. This has caused concerns about access to justice.

What is the new FRC regime?

A new Practice Direction to Part 45 will see the implementation of the new Fixed Recoverable Costs (‘FRC’) regime which will extend to a greater scope of claims issued on or after 1 October 2023.

Defended Part 7 claims are allocated to a particular track. There are currently three tracks, the small claims track, the fast track and the multi-track. Allocation is largely dependent on value (up to £10,000, up to £25,000 and above £25,000 respectively) although a list of matters relevant to allocation to a track is contained in CPR 26.8. For example, fast track matters should be capable of determination within one day or less and oral expert evidence limited to two expert fields with one expert per party per field.

Each track has its own unique set of rules and some fixed costs already apply, for example, in small claims matters and in respect of attendance costs in fast track matters.

Subject to certain exceptions, the FRC will see the introduction of a new intermediate track which will govern ‘simpler’ cases with a value between £25,000 and £100,000 which would have previously been allocated to the multi-track. Such claims will be capable of being determined in three days or less and standard directions will apply.

Claims allocated to the fast track and the intermediate track will be assigned a complexity band (ranging from 1 to 4) with the higher bands allowing for higher fixed costs. The recoverable sums can be found here: frc-cpr-pd-45-draft-early-publication.pdf (publishing.service.gov.uk). Allocation will therefore significantly impact what can be recovered and so satellite litigation should be expected in this regard.

When does this change?

The FRC regime will apply to all claims issued on or after 1 October 2023. It is expected that there will be a flurry in claims being issued before this date as a result.

What does this change?

The changes will be brought about by the Civil Procedure (Amendment No. 2) Rules 2023. Amendments will be made to Part 26 (Case Management – Preliminary Stage) and Practice Direction 26, Part 28 (The Fast Track) and Practice Direction 28, Part 36 (Offers to Settle) and, in particular, to Part 45.

How will the changes affect our clients?

Whilst certainly a significant change to the civil arena, we do not consider that the FCR regime will have any sudden or detrimental effect on our clients who already rely on a contractual costs clause.

At all times, the inclusion of “unless the court orders otherwise” in CPR 45.1 affords the court discretion to observe or act outside of any fixed costs regime.

In Chaplair Ltd v Kumari [2015] EWCA Civ 798, it was held that where the terms of a lease include a contractual indemnity in respect of costs, this takes precedence over a fixed costs regime. This principle stems from the decision in Gomba Holdings UK Limited v Minories Finance Limited [1989] 1 All ER 261.

Our confidence in this regard stems from Greenhalgh Kerr having long sought and recovered costs pursuant to our clients’ contractual costs clauses in small claims and certain possession matters (to which fixed costs already apply).

What if there is no contractual clause?

The FCR regime only affects certain civil claims. It will not apply to insolvency actions. In particular, it will not include housing disrepair claims (the implementation of which has been delayed for two years).

The court will consider a claim in excess of the FCR regime where there are exceptional circumstances and claims can be reallocated in certain circumstances (likely to be exceptional). Understandably, there is no such guidance on this point yet.

Takeaway points?

• The FRC regime only applies to claims issued on or after 1 October 2023. Be mindful of any attempt to retrospectively apply the new rules to claims issued before this time.

• A surge in claims before the introduction date is expected. As is dispute and satellite litigation on matters such as allocation and band determination.

• Those receiving parties who are able to rely upon a contractual costs clause should continue to do so. Such clauses have historically been observed in already existing fixed costs matters.

• The FRC regime does not dictate the fees that legal representatives can charge. Legal costs incurred may exceed the recoverable costs leaving a shortfall payable by the receiving party.

• Begin preparations now. It is important to understand the rules and how claims will be dealt with ahead of the implementation date. Consideration should be given to other means of resolution such as mediation and ADR.

Further assistance?

If you require clarification regarding the new FRC regime and/or advice on your contractual paperwork, please contact us at info@greenhalghkerr.com  or 0333 200 5218.

Michaela Hannon