Fixed costs are costs that are awarded to a party in a civil case, regardless of the amount of work that their legal representatives have done. At present this applies to many cases with damages worth up to £25,000, with several exceptions.
The Civil Procedure Rules Committee has confirmed that from 1 October 2023, fixed recoverable costs (FRC) will be extended to cover cases with under £100,000 damages that are not particularly complex. The fast track will remain with several changes, and a new intermediate track will be created for matters worth £25,000 to £100,000.
The extension to FRC is the government’s response to Sir Rupert Jackson’s 2017 report which set how fixed costs could apply to higher-value claims.
There are several key issues to consider in relation to the extension of FRC in light of the draft rules published on 20 April 2023. These rules are still in draft form, and it is possible that some of the potential issues raised will be addressed before the rules come into force.
When will the new rules apply?
The new FRC will apply to all cases issued on or after 1 October 2023, save for personal injury and housing claims.
The new FRC will apply to personal injury claims where the cause of action accrues on or after 1 October 2023; and will only apply to disease claims where the letter of claim has not been sent to the defendant before 1 October 2023.
HMCTS court forms will be amended as appropriate for implementation in October 2023.
Proposals on introducing FRC for clinical negligence cases up to £25,000 are being taken forward separately by the Department of Health and Social Care (DHSC) and are not being introduced as part of this package of reforms.
It has been decided to delay the application of FRC for housing claims for two years.
Cases that are allocated to the small claims track will continue to be governed by the small claims track rules.
Rule 26.9(10) confirms that the following case types will be allocated to the multi-track rather than the new intermediate track, and will thereby be excluded from FRC:
- A mesothelioma claim or asbestos lung disease claim.
- One which includes a claim for clinical negligence, unless both breach of duty and causation have been admitted.
- A claim for damages in relation to harm, abuse or neglect of or by children or vulnerable adults.
- A claim that the court could order to be tried by jury if satisfied there is in issue a matter set out in section 66(3) of the County Courts Act 1984 or section 69(1) of the Senior Courts Act 1981.
- Claims against the police involving an intentional or reckless tort, or relief or remedy in relation to the Human Rights Act 1998. This exclusion does not apply to a road accident claim arising from negligent police driving, an employer’s liability claim, or any claim for an accidental fall on police premises.
It is worth noting that the new rules will not apply to cases allocated to the fast track or the intermediate track, when the court orders otherwise. Judges will retain the discretion to reallocate more complex cases valued at under £100,000 to the multi-track, so that complex cases will not be inappropriately captured by the extended FRC regime.
Changes to the CPR Provisions
In drafting the new rules, a generic approach has been taken so far as possible such that all categories of case are covered by the same rules. An exception to this is noise induced hearing loss (NIHL) claims, the rules for which are included in section VIII of Part 45.
There have been substantial changes to Part 45 (Fixed Costs), which has been largely re-written. A new Practice Direction for Part 45 sets out the relevant tables of fixed costs.
Changes have also been made to Part 26 (Case Management – Preliminary Stage) and PD 26, as well as Part 28 (The Fast Track and Intermediate Track) and PD 28. Changes have also been made to Part 36 (Offers to Settle).
Consequential changes have been made to other Parts.
New bands of complexity will come into force on 1 October 2023. The court will allocate a case to a complexity band based on the factors set out in CPR 26.12-26.14.
The complexity bands provide an ascending scale of allowable costs commensurate with the complexity of the claim. These bands can be summarised as:
Band 1: Cases that are relatively straightforward and can be dealt with quickly and efficiently.
Band 2: Cases that are more complex and will require more time and resources to resolve.
Band 3: Cases that are very complex and will require a significant amount of time and resources to resolve.
Band 4: Cases that are exceptional in their complexity and will require a very significant amount of time and resources to resolve.
The actual tables with specific examples are reproduced at the end of this article.
The proposed changes to CPR 45 are substantial.
The new FRC fees in the fast track and the intermediate track are confirmed in 45.44 and 45.50, which are reproduced partially below.
CPR 45.44For so long as the claim is allocated neither to the small claims track, the intermediate track or the multi-track, the only costs allowed in any claim which would normally be or is allocated to the fast track are—
(a) the fixed costs in Table 12; and
(b) the disbursements as set out in Section IX of this Part.
45.50(1) For as long as the case is not allocated to the multi-track, the only costs allowed in any claim which would normally be or is allocated to the intermediate track are—
(a) the fixed costs in Table 14; and
(b) the disbursements as set out in Section IX of this Part.
The proposed new FRC fees are set out in tables 12 and 14 of PD 45.
Progression through the FRC stages is unchanged from the existing fast track FRC:
- Post-issue but pre-allocation.
- Post-allocation but pre-listing.
- Listed for trial.
Section IX of Part 45 consists of rules 45.57–45.62 and details the disbursements that will be recoverable in various scenarios.
The Table of HMRC Fixed Commencement Costs, which were previously located in Table 7 of Part 45, has been simplified. The new Table is found at Table 11 in Part 45.
CPR 45.1 confirms that the court will have more flexibility to vary the fixed costs that are awarded in each case. This will help to ensure that the fixed costs regime is fair and proportionate in each case. For example, the court may vary the fixed costs if there are exceptional circumstances, such as the complexity of the case or the resources of the parties.
The court will be able to award fixed costs more quickly and efficiently, for example, at the end of a trial.
It is worth noting that the figures for FRC costs (which had previously been fixed at July 2016) have been uprated for inflation using the January 2023 Services Producer Price Index. The figures have been rounded so that the extended FRC regime starts off with a clearer set of figures. This is a positive development for claimants, as it was not expected that the rates would be uprated.
The proposed changes to CPR 36 are designed to make Part 36 offers more attractive to parties and to encourage more settlements before trial:
Increased financial incentives: the amount of costs that a party can recover if they accept a Part 36 offer will be increased. Under the current rules, a party can recover their costs up to the amount of their Part 36 offer, plus 10%. The proposed changes to CPR 36 include a new 35% additional amount to be awarded where the claimant obtains judgment against the defendant which is at least as advantageous to the claimant as the proposals contained in their Part 36 offer. This means that if a claimant makes a Part 36 offer and the defendant does not accept it, and the claimant then goes on to win the case at trial, they will be entitled to recover their costs from the defendant, plus an additional 35%. The purpose of this new 35% additional amount is therefore to encourage defendants to accept Part 36 offers.
Reduced time limits: the time limits for making and accepting Part 36 offers will be reduced. Under the current rules, a party must make a Part 36 offer at least 21 days before the trial date. Under the proposed rules, a party will have to make a Part 36 offer at least 14 days before the trial date.
Improved flexibility: the court will have more flexibility to vary the terms of a Part 36 offer. Under the current rules, the court can only vary the terms of a Part 36 offer if it is satisfied that it is in the interests of justice to do so. Under the proposed rules, the court will be able to vary the terms of a Part 36 offer if it is satisfied that it is just and equitable to do so.
Mass issuing of non-PI cases
One potential issue with the extension of FRC is that it could lead to a mass issuing of non-personal injury (non-PI) cases prior to October 2023 in order to avoid the fixed costs regime. This is because non-PI cases are generally more expensive to litigate than PI cases, and the fixed costs regime could make them uneconomical for claimants to pursue.
This could lead to a situation where claimants are discouraged from bringing legitimate claims, simply because they are afraid of the costs involved. This would be a negative development for the justice system, as it would mean that fewer people would be able to access the courts to seek justice.
Alternatively, a claimant who is considering bringing a claim for damages for breach of contract may decide to issue the claim in the small claims track in order to avoid the fixed costs regime. However, if the claim is found to be outside the scope of the small claims track, the claimant may be ordered to pay the defendant’s costs, which could be significant.
Allocating and Banding Arguments
Another potential issue with the extension of FRC is that the allocating and banding arguments could become more complex and time-consuming. This is because the court will need to consider a number of factors in order to allocate a case to a complexity band, and this could lead to delays in the litigation process.
For example, the court will need to consider the following factors when allocating a case to a complexity band:
- The nature of the claim
- The amount of money in dispute
- The complexity of the legal issues involved
- The number of parties involved
- The likely length of the litigation process
This could lead to a situation where the court is required to hold a hearing to determine the complexity band of a case. This could add to the cost and delay of the litigation process.
There is a risk that the new provisions could lead to an increase in unreasonable behaviour.
They could encourage parties to make unreasonable demands in the hope that the other party will settle rather than face the risk of having to pay the additional costs.
They could encourage parties to take unreasonable steps to delay or obstruct the litigation process, in the hope that the other party will give up or make a settlement offer.
They could encourage parties to engage in aggressive or abusive behaviour, in the hope that the other party will be intimidated or discouraged from continuing with the litigation.
However, new CPR 45.13 is intended to deter parties from engaging in unreasonable behaviour during litigation. The court will be able to award additional costs if it finds that a party has acted unreasonably in any of the ways described above. The court will have discretion to award additional costs, and the amount of the additional costs will be determined by the court on a case-by-case basis.
CPR 45.13 will apply to all cases, regardless of the track on which the case is allocated. The provision is intended to encourage parties to act reasonably because of the very real risk of having to pay additional costs if they are found to have acted unreasonably.
Why are the new rules being introduced?
Sir Rupert Jackson’s 2017 report had the following stated aims for the extension of FRC:
Fairness: the new rules are intended to make the costs regime fairer and more transparent. The amount of recoverable costs is based on the complexity of the case, rather than the amount of money in dispute. The new rules require the court to take into account the resources of the parties when making costs orders. This can help to ensure that costs are not awarded in a way that is unfair or disproportionate.
Speed and efficiency: they are also intended to make the litigation process more efficient, which can lead to cost savings for both parties. For example, the new rules encourage parties to engage in early settlement discussions, which can help to avoid the need for a full trial. The parties know in advance how much they will be able to recover in costs, which can help to reduce the need for protracted negotiations and disputes.
Certainty and predictability of costs: FRC provides certainty and predictability of costs for both parties to a litigation. This is because the amount of recoverable costs is fixed in advance, based on the complexity of the case. This can help to reduce the risk of unexpected costs.
It remains to be seen whether these stated aims will be achieved.
It is worth noting that the Law Society does not support the current proposals, either across the existing fast track or to intermediate cases. The Law Society is concerned that the proposals pose a substantial risk to access to justice and that they are based on out-of-date data. They believe that the actual costs of civil litigation must be reduced by streamlining processes before FRCs are extended.
The new rules make a number of changes to the CPR provisions relating to costs. These factors will need to be considered by parties when bringing a claim, and there are several potential issues that could arise as a result of the changes.
It is unknown how effectively the new rules will be implemented in practice, but they will undoubtedly have a significant impact on the way that civil litigation is conducted in England and Wales.
The MoJ propose to review the tables of costs and the extended FRC regime more generally in 3 years’ time. Anything that is particularly egregious should be resolvable by way of case law in the interim.
Extending FRC is not a panacea for all the problems with the civil litigation system, but it may be a valuable tool for improving the efficiency and fairness of the civil litigation system, at the substantial risk of reducing access to justice.
If you have any queries or concerns regarding these changes, please contact us for a more in depth discussion.
Andrew Crisp is a Costs Lawyer in the Costs and Litigation Funding Department at Clarion Solicitors.