Fixed Recoverable Costs – What do they mean for commercial disputes?
What do the new Fixed Recoverable Costs (FRC) rules mean for commercial litigation practitioners?
The first thing to note is that, for claims that do not include a personal injury or disease element, the new FRC rules can be retrospective!! The Civil Procedure (Amendment No. 2) Rules 2023 provide that the new FRC rules, implemented on 1 October 2023, apply to all such claims where proceedings are issued on or after that date. So, even if a non-PI/disease claim has been in a pre-action stage for months, and perhaps even years, where proceedings are issued on or after 1 October 2023, those claims will be subject to the new FRC rules right back to the commencement of the claim.
In addition, as we know, parties involved in disputes are generally concerned about the proportionality of the legal costs. The MOJ’s objective for the new FRC regime was to provide some certainty as to the recoverable costs. In an attempt to achieve such an objective, the scheme introduced a new intermediate track, covering most civil claims with a value between £25,000 and £100,000. The more complex commercial litigation claims are unlikely to be allocated to the intermediate track. But most commercial litigation claims with a value between £25,000 and £100,000 are likely to be caught. Case value is not the only factor in determining case track allocation and the complexity bands (there are four) also play a part.
The intermediate track will apply to cases where they can be tried in three days or less; where no more than two expert witnesses are required to give oral evidence on each side; and where the claim is brought by one claimant against one or two defendants, or by two claimants against one defendant.
Claims with no monetary value, such as claims for injunctive relief, are also not immune. The FRC rules apply and a notional monetary value to the claim depending on which of the four complexity bands the case is allocated to.
CPR.r.45.45 states:
Fixed costs
45.45.—(1) In Table 12—
(a)unless stated otherwise, “damages”—
(i)means any form of monetary relief;
(ii)in a claim which has no monetary value, shall be taken to mean an amount equivalent to—
(aa)£10,000 in a claim assigned to complexity band 2;
(bb)£15,000 in a claim assigned to complexity band 3; and
(cc)£20,000 in a claim assigned to complexity band 4;
Commercial litigators also need to continue to be mindful of the shortfall between the actual costs and the fixed recoverable costs. Legal practitioners have always been alert to this shortfall, but where a claim is caught by the new FRC regime, the recoverable costs are likely to be a significantly lower contribution to solicitor/client costs. In turn, any shortfall is likely to be much higher.
So, moving forward, commercial litigation practitioners should not ignore, and indeed become au fait with the FRC reforms to ensure they know when they will, and will not apply, and should also ensure their solicitor/client costs advice is tightened to account for the likely greater shortfall between solicitor/client costs and fixed recoverable costs so that their clients are fully informed of their liabilities and exposures.
