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What is likely to be the first FRC costs war?

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Nick McDonnell, Director and Costs Lawyer with Kain Knight and FRCConnect discusses what is likely to be the first, of many, costs wars arising from the new fixed recoverable costs regime.

Picture the scene, you are a firm of solicitors acting for a Claimant who brings a non-PI claim (and it could be any non-PI) with a value of £100,000 or less. The letter of claim was sent well before the implementation of ‘new’ FRC regime (which commenced on 1 October 2023). The substantive claim (whatever it might be) settles after 1 October 2023 without the need for proceedings, and under the settle agreement, the Defendant is to pay the Claimant’s costs. The Defendant pays the damages, and the Claimant sends across its claim for conventional costs (i.e. on an hourly rate/time spent basis).

But the Defendant does not respond…at all…what do you do?

Well, the first thing a Claimant might do, is what Claimants have done for many years in such situations…which is to issue Part 8 costs-only proceedings seeking an order that the Defendant pay the Claimant’s costs to be assessed and, thereafter, detailed assessment proceedings take place.

Let’s assume such proceedings are issued, but you then receive a letter from the Defendant saying “Ah-hah !! Fixed recoverable costs now apply because the ‘new’ regime applies to any non-PI claim where proceedings are issued on, or after 1 October 2023.”

This is a very real Defendant/paying party tactic which is gathering momentum and legal practitioners acting for receiving parties need to be prepared to respond to such a challenge.

So, in summary, the question is, do Part 8 costs-only proceedings, issued after 1 October 2023, for costs relating to a sub-£100,000 non-PI claim, settled without the need for substantive proceedings, convert that claim for costs from a claim for conventional costs to a claim for fixed recoverable costs? Many Defendants are saying, yes, it does.

In order to fully understand the challenge and subsequently respond, it is first important to first know what the transitional provisions set out at s.2 of the Civil Procedure (Amendment No. 2) Rules 2023 say:

“Transitional provisions

2.—(1) Subject to paragraphs (2) and (3), in so far as any amendment made by these Rules applies to—

(a) allocation;

(b) assignment to a complexity band;

(c) directions in the fast track or the intermediate track; or

(d) costs,

those amendments only apply to a claim where proceedings are issued on or after 1st October 2023.

(2) The amendments referred to in paragraph (1) only apply—

(a) to a claim which includes a claim for personal injuries, other than a disease claim, where the cause of action accrues on or after 1st October 2023; or

(b) to a claim for personal injuries, which includes a disease claim, in respect of which no letter of claim has been sent before 1st October 2023.”

It can be seen, therefore, that s.2(1) of the transitional provisions apply to non-PI/Disease claims and state that the ‘new’ FRC regime applies “…where proceedings are issued on or after 1st October 2023.” But what is meant by “proceedings”?

To shed more light on what this might mean in practice, we can look to paragraph 26 of the Civil Procedure Rules Committee minutes from the 3 November 2023 meeting. That paragraph says:

“It was NOTED that a recent article had given rise to a concern in relation to the transitional provisions within the amending statutory instrument (SI) and the application of FRC in (i) nonpersonal injury (PI) cases (ii) which arise before 1st October 2023, (iii) where proceedings are never issued but (iv) which settle after 1st October 2023. The Chair made some initial comments and the matter was discussed. HHJ Bird emphasised the importance of costs only proceedings, in contrast to a costs application, namely that, for costs only, an application is considered proceedings and this was AGREED. The CPRC further observed that:

  • the new FRC regime comes into force on 1st October 2023;
  • absent transitional provisions, the FRC regime would apply from 1st October to any proceedings within its scope;
  • for non-PI claims, the transitional provision in rule 2, paragraph (1) of the SI, provides that the new FRC regime does not apply where proceedings have been issued before 1st October;
  • parties may expressly agree to costs on a non-FRC basis and there will be an amendment to rule 45.1(3) to clarify this;
  • where proceedings have not already been issued on or after 1st October and the parties do not expressly agree to costs on a non-FRC basis, but they agree on the incidence, but not the amount, of costs, then they may issue costs only proceedings for the determination of those costs (in respect of FRC, costs only proceedings under rule 46.14 amount to proceedings);
  • if those proceedings are issued on or after 1st October, FRC would apply to all costs in respect of that claim, irrespective of whether they were incurred before or after 1st October.

So, what does this mean? Well, it seems to mean that, if Defendant/paying parties force a Claimant/receiving party to issue Part 8 costs-only proceedings for a non-PI claim commenced before 1 October 2023, but settled after that date, without substantive proceedings being issued, that those costs-only proceedings are ‘proceedings’ for the purpose of s.2(1) of the transitional provisions and have the effect of retrospectively rendering the Claimant’s claim for costs subject to the post 1 October 2023 fixed recoverable costs regime.

I say, that whilst costs-only proceedings might be ‘proceedings’ for the purpose of s.2(1), it does no such thing…for these reasons:

What is “the claim” in Part 8 costs-only proceedings?

Section 2 of the transitional provisions makes it very clear that “..[the FRC]..amendments only apply to a claim where proceedings are issued on or after 1st October 2023.” So, the fixed recoverable costs regime only applies to the costs of “the claim.”

That can only be the costs of “the claim” that is the subject of the proceedings. Since “the claim” which is the subject of costs-only proceedings, is the claim for costs not the substantive claim, it follows that the costs of “the claim” can only be the costs of the costs-only proceedings not the costs of the substantive claim.

To put it another way, if the Defendant/paying party’s argument is right, it would mean the issuing of Part 8 costs-only proceedings for a ’claim for costs’ renders that very claim for costs subject to the fixed recoverable costs regime, as opposed to the ‘costs of the claim.’

Taking the absurdity of such an argument further, if that were correct; i.e. that the issuing of proceedings post 1 October 2023 converts “the claim” into fixed recoverable costs as opposed to the ‘costs of the claim,’ this would mean that if a Claimant issues a claim for, say, property damage, in the sum of £80,000, after 1 October 2023, by the Defendant’s logic, the quantum of that £80,000 claim itself would fall to be automatically recalculated to the value of the fixed recoverable costs sums, as opposed to the ‘costs of that claim’ being subject to fixed recoverable costs. That obviously is not and cannot be the case.

So, it must, therefore, be the costs of the claim, not the claim itself that attracts the fixed recoverable costs and where Part 8 costs-only proceedings are issued, the costs of the claim means the costs of the claim for costs…which of course are the costs of the costs only proceedings.

That, in fact, is great news for Claimant/receiving parties…in that the costs of costs only proceedings would attract the Fast Track or Intermediate Track fixed recoverable costs. Otherwise, on a time spent/hourly rate basis, they may only amount to a few hundred pounds.

There can only be two outcomes that flow from this Defendant/paying party argument; either the quantum of the subject of the substantive claim itself is converted from the sum claimed to the fixed recoverable costs sums (see the property example above) or the fixed recoverable costs regime applies to the ‘costs of the claim’ where “the claim” is the claim for costs and the ‘costs of the claim’ are the costs of the costs-only proceedings.

Either way it’s a mess !

How did it settle?

It is also important to consider how the case settles. The above, I say, would apply if the substantive claim settled by way of a Part 36 offer and acceptance. But, if the substantive claimed settled by a non-Part 36 offer and acceptance and the Defendant agreed to pay, for example, the Claimant’s costs ‘to be subject to detailed assessment if not agreed’ then that agreement would constitute a contracting out of the FRC, pursuant to Doyle v M&D Foundations & Building Services Ltd [2022] EWCA Civ 927. If there was any doubt that it is the CPRC’s intention that Doyle is to remains good law, paragraph 20 of the 3 November 2023 CPRC minutes is helpful:

“An amended rule 45.1(3)(b) regarding the contracting out of fixed recoverable costs was AGREED subject to replacing the last proposed word “otherwise” with “that this Part should not apply”. The inclusion of the text “each” [“unless the paying party and the receiving party have each expressly agreed that this Part should not apply’] has been incorporated in light of the Court of Appeal judgment in Doyle. The intention being to make it clear that when a contract allows for it, the CPR Part can be disapplied.”

“…where proceedings are issued on or after 1st October 2023” is not the whole story !

But, “…where proceedings are issued on or after 1st October 2023” is not the whole story, that is just the start of an argument about whether FRC apply or not. Assuming proceedings are issued after 1 October 2023 for a sub-£100k non-PI claim, fixed recoverable costs only apply where the case is, or would have been, allocated to either the Fast Track or the Intermediate Track (or course we know that if a claim is, or would have been, allocated to the Multi-Track, fixed recoverable costs do not apply). But, Part 8 costs-only proceedings are a different beast !

CPR.r.8.9(c) plainly says:

“8.9 Where the Part 8 procedure is followed –

(a) …

(c) the claim shall be treated as allocated to the multi-track and therefore Part 26 does not apply.

Therefore, even if Part 8 costs-only proceedings are issued after 1 October 2023, and given they “…shall be treated as allocated to the multi-track and therefore Part 26 does not apply” such proceedings will never actually be allocated to the Fast Track/Intermediate Track (given CPR Part 26, and allocation, does not apply to part 8 proceedings), nor will they ever be treated as having been allocated to the Fast Track/Intermediate Track (as CPR.r.8.9(c) expressly says such proceedings shall be treated as being allocated to the Multi-Track), thereby rendering any relevance of fixed recoverable costs irrelevant.

Public Policy/Abuse of Process

Finally, notwithstanding all of the above, if a Defendant/paying party’s argument such as this is correct (and I say it is not), it would mean a Defendant, in these circumstances, can deliberately choose to not engage with a Claimant on costs, forcing them to issue Part 8 costs-only proceedings and then benefit from that deliberate lack of engagement by ensuring fixed recoverable costs come into existence when they previously did not exist and would not had done so were it not for the Defendant’s conduct. Can that really have been the intention of MOJ and the CPRC? I think not.

Whilst we can all hope for peace, sadly I think we must all prepare for war.

Nick McDonnell is a Director and Costs Lawyer with Kain Knight and the founder of FRCConnect (www.frcconnet.co.uk), a platform designed to assist legal practitioners navigate their way through the chaos that is the new fixed recoverable costs reforms.