Line drawn under high costs? Government extends fixed recoverable costs regime

Jeremy Bentham, some-time philosopher and current taxidermied corpse, once opined that “the power of the lawyer is in the uncertainty of the law”. He may have had a point. But while some lawyers may delight in legal grey areas, for businesses they are more often a serious headache. In a bid to address one of the most glaring areas of uncertainty for parties involved in lower value disputes, the Government last month released its plans to extend the so-called “fixed recoverable costs” (“FRC”) regime to a wider number of civil cases.

What is the new regime?

The Government’s proposals promise to create more certainty around the costs of litigation, as well as ensuring those costs remain more proportionate to the amount at issue. In the absence of any certainty, it is difficult for businesses to assess the benefits and risks of pursuing or defending a claim.

The scheme comes in response to a 2019 consultation paper, which noted that litigation in England & Wales can lead to extremely high costs for an unsuccessful party, even in lower-value claims. This, in turn, has tended to serve as a large impediment to access to justice.

A fixed recoverable costs regime, on the other hand, prescribes the amount of legal costs the winning party can recover from the unsuccessful party at different stages of the litigation process. This system has already been implemented with some success for low-value personal injury claims. It will now be extended to a greater range of civil cases.

The Government is proposing to extend FRC to all claims worth up to £25,000 in damages and for most less complex claims worth up to £100,000. These claims will be classified into one of four “bands” according to their complexity and the level of recoverable costs will be calculated by reference to the claim’s band and its value.

The new rules will also include provisions to penalise a party that unreasonably refuses an offer to settle a dispute or engages in unreasonable behaviour more generally.

The pros and cons - at what cost fixed costs?

The intention is that both claimants and defendants will gain from the FRC regime. Claimants facing a more sophisticated defendant will benefit from being on a more level playing field when it comes to costs. Defendants with a good case should become more comfortable defending a case according to its merits, rather than being forced to settle for fear of becoming responsible for disproportionate claimant’s costs.

One risk of such a system is that it will be insufficiently sensitive to the nuances of individual claims. Judging the complexity of a particular case will not always be a straightforward task, especially at the outset of the litigation process, and the decision at that stage will have important implications for costs recovery. It is inevitable that some cases which have values just below the £100,000 threshold will also be on the borderline of the FRC in terms of complexity. For genuinely complex cases which are made subject to FRC, a successful party may well nonetheless face a significant costs bill that it is unable to recover from its opponent.

Looking ahead

On balance the scheme represents a step in the right direction, promising to increase access to justice and making the costs of litigation more predictable. The Government will now draw up draft rules for approval by the Civil Procedure Rule Committee. Current estimates are that it will be around October 2022 before the new regime comes into force. Beyond that, if the extension of the FRC is seen to be a success, it seems likely that ever larger claims will ultimately be made subject to it.

Despite what Jeremy Bentham may have thought, the additional certainty is likely to be welcomed by lawyers and clients alike.

If you require further information about anything covered in this briefing, please contact Ben Longworth, Iain Stewart or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, October 2021