The future has been locked in! The implication of the Fixed Recoverable Costs regime

Following the consultation on Sir Rupert Jackson's report in 2017, substantial changes have been made to what costs can now be recovered from the unsuccessful party in litigation. These changes kicked in on 1 October 2023.

Whilst most smaller claims with a value of up to £100,000 will be subject to this new regime, helpfully the Court has discretion to allocate more complex cases valued at under £100,000 to the multi-track to avoid them being caught: the extent to which it will do so, however, has yet to be seen.

What are Fixed Recoverable Costs?

As the name indicates, fixed recoverable costs or FRCs are set amounts that a successful party in litigation can recover. 'Costs' include solicitor’s fees, court fees, expert witness fees and certain other disbursements. All amounts are exclusive of VAT.

Who does it apply to?

The new FRC will apply to most civil claims for monetary remedies under £100,000 which are issued on or after 1 October 2023.

Exceptions from the FRC

There are exceptions from the FRC including complex matters and some probate claims under £100,000 but claims relating to and associated with estates will still be caught including professional negligence claims which can be key to protecting charitable beneficiaries where they have been let down by advisors.

What are the changes?

A new track

Currently, there are three tracks: small claims track, fast track, and multi-track. The new regime has introduced a new track called the 'intermediate track' (a claim valued between £25,000-£100,000).

Previously, FRC usually only applied to the small claims track. From 1 October 2023, the FRC will be extended to claims where proceedings are issued on or after 1 October 2023 and are allocated to the fast track and new intermediate track. Track allocation will continue to be determined by the amount in dispute and the complexity of the case.

New bands

The regime has introduced four new bands, with band 1 being the most straightforward type of case and band 4 being complex. The amount recoverable are set by way of specified sums allocated to stages of the litigation process. In bands 2-4, certain amounts are also subject to an additional fixed amount calculated based on the level of damages.

Other key points to note

Charities will be pleased to note that where there is unreasonable behaviour during litigation a 50% increase (or reduction) of fixed recoverable costs (depending on who the paying party is and who the unreasonably behaved party is) may be applied as a penalty.

Further, a claimant who at trial matches or beats its own Part 36 settlement offer (a special form of offer which carries clear consequences) may receive a 35% uplift on the fixed recoverable costs.

What does this mean for the future?

Relevant civil claims issued after 1 October 2023 will be caught by the FRC, limiting the amount which a successful party can now recover. Costs exposure has always been an influential factor when considering whether to issue proceedings. Whilst the new FRC regime gives parties much better visibility as to recoverable costs, and the changes include increased financial incentives to encourage settlement, it is difficult to say if this change will make the process easier or more cumbersome for all those involved in the litigation.

What can charities do?

It is important that charities are aware of these changes and take careful advice. It is always key to ensure proportionality of costs. The FRC regime brings an additional factor which will be important to consider in this respect.

For more guidance, please contact Shifa Begum and Anna Phillips.