The extension of fixed recoverable costs: what, when, and how?
No5 Barristers' Chambers
Instructing solicitors identify No5 as a “leading set nationally” offering “a high quality of service" (Chambers UK)
On 20 April 2023 the Civil Procedure Rules Committee announced arguably the biggest change to the civil litigation landscape since the Jackson reforms. Fixed recoverable costs will be extended to most claims up to ￡100,000 in value issued from 1 October 2023, a proposal first recommended as long ago as 2017.?
This is a seismic change, which will fundamentally alter the consequences of litigating small and medium value disputes. This article sets out the most important changes for litigators to know.?
Track and band allocation
Fast track cases (usually valued between ￡10,000 and ￡25,000) will be allocated to one of 4 bands of ‘complexity’ which will dictate the costs that can be recovered. The higher the band, the greater the fixed recoverable costs.?The proposals give examples of the likely bands cases will fall into:
For claims usually falling between ￡25,000 and ￡100,000, a new intermediate track will be implemented. A similar banding system of 4 bands will apply:
Each track and corresponding band will be subject to fixed costs for various stages of the claim’s lifecycle, and the final figures will vary depending on how far cases get; cases which run right the way to trial will, inevitably, incur higher fixed costs than those which settle early.?
Exceptions
The extension of fixed costs to housing claims has been postponed by at least 2 years. This includes claims for possession, disrepair and unlawful eviction. Further, personal injury claims will only be subject to these fixed costs if the cause of action accrues on or after 1 October 2023. Clinical negligence cases valued at up to ￡25,000 will also be exempt from fixed costs, unless breach of duty and causation have been admitted.?
Claims which are purely for non-monetary relief (for example, injunctions or declarations) will not usually be covered by the fixed costs rules, given they will not involve a financial value. Claims which are ‘mixed’ of both monetary and non-monetary relief will be assigned values, and thus still fall within the banding system, albeit with a different valuation methodology.?
Finally, cases which are below ￡100,000 may still be allocated to the multi-track at the discretion of the court, where fixed costs do not apply. Parties can also make applications for costs above the fixed amounts in exceptional circumstances.??
Other effects
The reforms will also change the way Part 36 offers work. In some cases, the current Part 36 uplifts will be switched to a 35% increase on fixed costs.?
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VAT
VAT will continue to be recoverable over and above the sums set out in by the new regime, pursuant to CPR 45.2.
Unreasonable behaviour
Unreasonable conduct will continue to have an effect under the new regime. A party who is to receive a payment of costs but who has behaved unreasonably may be subject to an application by the paying party that the costs be reduced by 50%. Likewise, where a paying party has behaved unreasonably, the recipient can apply for an order that those costs be increased by 50%.
Unreasonable behaviour is defined as conduct for which there is no reasonable explanation. This is a lower test, in the authors’ opinion, that that for generally getting indemnity costs. Further, although there is an implied discretion as to whether to make the order, once made the order must be for 50% which can be a more stark outcome than that under a normal summary assessment.
Changing horses midstream
Although some litigants may be tempted to inflate their case at inception to obtain a higher band or track, the new regime censures that tactic. If a case is subsequently reallocated, the costs payable are those for the reallocated track, as if the case had been assigned to that track from the beginning.?
Preliminary Issues
The hearing of preliminary issues is exempt from the new fixed costs regime, pursuant to Rule 45.55. However, Sir Rupert Jackson did envisage that few trials in either the fast track or the intermediate track should involve preliminary issues. For those seeking to oppose the listing of a preliminary issue, paragraph 27 of the MOJ’s note?on the new regime may be of use in persuading a judge that a preliminary issue should not be ordered. For those advising a litigant who has a strong evidential case in a claim where there is only one issue to be determined, consideration should be given to applying for a hearing of a preliminary issue.
Analysis
The extension of fixed costs has been coming for some time, but it still offers a fundamental shift in the way civil litigation is likely to be conducted. Firms will need to set out clearly to clients the likelihood that recoverable costs will fall below the amounts charged in pursuing the litigation, leading to a shortfall the client will have to meet. The change to Part 36 will also lessen the potency of beating one’s offer.??
Equally, while the aim of these reforms is to increase certainty in litigation, we can expect to see significant challenges to decisions on allocation and bands, at least for the near future, with greater levels of satellite litigation regarding costs decisions. As will be obvious to many readers, some of the band definitions are very subjective, and Claimants are unlikely to agree with Defendants as to which band should be applied, requiring the Judge to give the final say. Parties will need to be conscious of the risk of an adverse band allocation and be ready to advise their clients on the likely consequences for costs recovery.?
But, most of all, with only 4 months left until these seismic changes are implemented, lawyers of all types will need to familiarise themselves with the rules, or risk being outmanoeuvred by opponents.??
Harrison Burroughs and Alexander-Pritchard Jones are members of the Business and Property Group.