Government to introduce fixed costs for civil litigation cases up to £100,000

Fixed recoverable legal costs for civil claims up to £100,000 are on the way. Each party will know in advance their maximum exposure if they lose, and equally what they will recover if they win. This knowledge may encourage an otherwise hesitant claimant to proceed and will provide certainty for defendants, who are usually paying costs rather than recovering them.

Background

In civil litigation in England and Wales, the winning party is generally entitled to recover their legal costs from the losing party. For the majority of claims, there is currently no certainty as to how much those costs will be. If the parties do not know in advance how much the costs will be, it is difficult for them to make a fully informed decision about whether to pursue or defend a claim. This is particularly so in relation to lower value disputes which individuals and businesses are most likely to face, either as claimants or defendants. With lower value disputes, there is a greater risk that the costs will be disproportionate to the amount claimed, so if such disputes do end up in court, they should ideally be resolved as early as possible, with costs as certain, proportionate and fair to both sides as possible.

A fixed recoverable costs (FRC) regime sets out the amount of costs that can be recovered by the winning party at different stages of the litigation, from pre-action up to trial.  FRC currently apply to low-value road traffic accident, employers’ liability and public liability personal injury claims. In 2019, the government consulted on extending FRC more widely. After a lengthy delay, the government published its response to that consultation on 6 September 2021, confirming its intention to extend FRC to claims up to £100,000.

Pending reforms

It is not yet known when the extended FRC regime will come into force, although we anticipate that it will be October 2022 or later. The key changes are likely to be as follows:

• Claims up to £25,000 – FRC will be extended to all fast track cases up to a value of £25,000 in the County Court.
• Claims £25,000 – £100,000 – FRC will be introduced for the majority of claims valued between £25,000 and £100,000, referred to as “intermediate” cases, which will be assigned to an extended fast track in the County Court, subject to exceptions for e.g. intellectual property claims, medical negligence personal injury claims and mesothelioma/asbestos personal injury claims.

Various uplifts will be built into the new FRC regime. For example, where a party succeeds on a Part 36 offer to settle, an uplift of 35% on FRC will apply. Unreasonable behaviour will be penalised by a 50% uplift. There will also be a 25% uplift for each additional claimant in claims arising from the same set of facts and a London weighting of 12.5%.

Practical implications

The reforms, when implemented, will mark a sea change in the approach to recoverable costs in lower value litigation, particularly in relation to commercial disputes. However, it is important to note that they will only fix the amount of costs that the winning party will recover, or the losing party will be obliged to pay – what a party’s own lawyers may charge for dealing with the litigation will not be fixed but can be negotiated in the usual way.

The reforms will mean that each party will know at the outset their maximum exposure if they lose, and equally what they will recover if they win.  This knowledge may encourage an otherwise hesitant claimant to proceed, and it will enable defendants to defend a case according to the merits, rather than settle out of court for fear of high costs.

We will provide updates on these reforms in due course. If the reforms work, they may be expanded to higher value claims in future.