Fixed Recoverable Costs: What is the impact upon the education sector?

Fixed Recoverable Costs (FRC) are to be extended to apply to most claims with a value of up to £100,000. This change is being implemented on 1 October 2023.

What does it mean?

In short, it means that the amount of legal costs that can be recovered from an opponent by the successful party are fixed by law. Only in limited circumstances can the court depart from these limits. Therefore, it provides parties to litigation with a degree of certainty regarding the costs they will be able to recover from the other side. Any shortfall between the costs incurred and the costs recovered from the other side will likely be sought by legal representatives from their clients.

How will it work?

In practice, the way that FRCs will be implemented will depend upon the ‘band’ the claim falls into and at what stage the case was settled or resolved. The existing ‘fast track’ (for claims of £10,000 – £25,000) will be split into four bands and a new ‘intermediate track’ (for claims of £25,000 – £100,000) will be introduced with a further four bands.  The band a claim falls into will be determined by the complexity of the case.

What is the current position?

Presently, for claims of over £10,000, an award of costs is at the court’s discretion, save in limited circumstances. Typically, the losing party pays the winning party’s “reasonable” costs, which are agreed between the parties or, failing any agreement, assessed by the court. These cost assessments are usually quite costly in themselves, due to parties often being in a disagreement about what constitutes “reasonable”.

By fixing the amount of costs the successful party can recover, it will limit the need for the court to assess costs in respect of any claim under £100,000.

What does this mean for the education sector?

On the one hand, it provides certainty. Once a claim is allocated to its ‘band’ the parties will know how much they can recover from the other side, if successful.

The key issue for schools to consider when pursuing or defending litigation is the complexity of the case and the band that the claim is likely to fall into. We anticipate this will be an area of satellite litigation over the coming months.

If confident of success, you will likely argue the claim is more complex and should be in a higher band (to maximise recovery). On the flip side, if there are weaknesses, you will likely argue the claim is not complex and should be in a lower band – so to limit your exposure to the other party’s costs.

Initially, it is anticipated that these changes will increase costs due to the likely satellite litigation. This may discourage some claimants, given they will be unlikely to recover a significant proportion of their costs. It will be more important than ever to consider the commercial viability of pursuing claims.

Furthermore, claimants may issue proceedings more readily, rather than engage in lengthy pre-action correspondence in order to try and reach the later stages of the litigation more quickly, so as to recover a greater proportion of costs.

Practical steps

Consider whether you can add a contractual right to your terms and conditions to recover all your costs of a claim and/or whether you should include arbitration or other dispute resolution clauses.

Consideration should also be given to whether any claims should be issued before 1 October 2023 in order to avoid the costs being caught up the new regime.

If you have any further questions about these changes or advice regarding a claim such as this, please contact Jenny Raymond.