A new era in litigation: Fixed Recoverable Costs

With belts tightening all round, it is not surprising that affordability of legal proceedings remains at the front and centre of the agenda for litigators and their clients alike. The extension to the current Fixed Recoverable Costs (“FRC”) regime is therefore going to be watched with great interest after 1 October 2023 when it comes into force. It will bring with it extensive changes to the way claims valued at up to £100,000 are managed and what costs are paid by the losing party.

What is FRC and what does the new regime have in store?

In brief, FRC is a means by which the courts will:

(a) Allocate disputes valued at less than £100,000 for management

(b) Cap the amounts that a winning party can recover from the losing party in legal proceedings.

The basic proposition is that the level of costs which can be recovered by the winning party will be impacted by the complexity of the case and the stage at which legal proceedings are concluded. A key objective of the FRC is to bring greater visibility, predictability and proportionality to the process of resolving legal disputes.

Any case issued on or after 1 October 2023 which has a value of between £25,000 and £100,000 will generally be allocated to a new “Intermediate Track”. Cases will, however, be allocated again into “complexity bands”. These aim to bring some structure to broad concepts of complexity which have historically been adopted and which will impact on how the case is managed by the court and the parties. It will also impact the amount of costs that can be recovered by party which is ultimately successful. While certain case types automatically fall within specific complexity bands, it will be for the parties to suggest the appropriate banding in many instances, albeit that the final decision will always rest with the court.

There are likely to be some benefits here. It is hoped FRC will drive much-needed efficiencies for the courts, the lawyers and the parties. There is also built-in flexibility for cases which don’t sit comfortably within the Intermediate Track, for example due to likely length of trial, number of experts required or number of defendants involved. These will be allocated to the multi-track where they would historically have fallen in any event. Therefore, there is no expectation that this is a “one size fits all” solution.

As with all changes of this type, there will inevitably be some bumps on the road whilst everyone gets to grips with the new rules. There are also going to be some gaps or discrepancies which will need to be resolved either by revisions to the rules or satellite litigation.

The bedding-in process will therefore be a long one. Critically, however, it remains to be seen whether the FRC actually makes it cheaper for parties to run legal proceedings or otherwise encourages parties to settle their differences more quickly.

The FRC, after all, focuses on what a successful party can recover from its opponent, not on what fees can be charged by lawyers. In reality it is highly likely that even those who win their case are going to see a larger shortfall between what they can recover and what they have spent to get to that end position.

Whilst there will be provision for a successful party to pursue a claim for costs in excess of the applicable FRC cap, that will only be entertained in exceptional circumstances and we anticipate that may be a high bar to get over. Overall, the message is that there is an opportunity to push through efficiencies and a potential cost saving arising from that, but that this will not necessarily make legal proceedings a faster or ultimately cheaper option.