Changes to the fixed recoverable costs regime

24 April 2024

The fixed recoverable costs (FRC) regime, which sets the amount of legal costs the winning party can claim from the losing party in civil litigation, was extended in October 2023. The FRC regime now applies across the fast track and includes a new intermediate track for simpler cases valued up to £100,000.

The FRC regime introduced significant changes and the Civil Procedure Rules Committee together with the Ministry of Justice have made further revisions to those rules (which come into force this month). Anybody providing in-house legal counsel to higher education institutions or involved in civil litigation for their organisation needs to make sure that they understand the FRC regime and these latest changes.

We’ve set out in the table below the main features of the FRC regime and the further revisions.

The changes include increased financial incentives to encourage settlement. This includes where a Claimant obtains a judgment against a Defendant which is at least as advantageous to the Claimant as its Part 36 offer then the Claimant will be entitled to additional costs (being 35% of the difference between the fixed costs for the stage applicable when the relevant period expires and the stage applicable at the date of judgment).

As of 6 April 2024, parties can agree to disapply the FRC as part of a settlement.

The Court may consider costs exceeding FRC where a party or witness is vulnerable or there are “exceptional circumstances”. Currently there is no guidance as to what constitutes “exceptional circumstances”.

Brief fees for cases settled close to trial will be recoverable under the rules from 6 April 2024. Where a fast track or an intermediate track case settles (or trial is vacated) on the day of trial or one clear day before trial 100% of the fee will be recoverable; where a fast track case settles (or trial is vacated) 2 clear days before trial 75% of the fee will be recoverable; in intermediate track cases the 75% will be recoverable 5 clear days before trial.

The rules are being amended (as of April 2024) to clarify that a clinical negligence claim can only be allocated to the intermediate track if the defendant has admitted liability in its letter of response.

As of April 2024, the figures are being increased to reflect inflation.

FRC are the set amounts of legal costs that a winning party in civil litigation can recover from the losing party. The intention is to ensure that legal costs remain certain and proportionate.

The fast track and intermediate tracks each contain four unique bands to which a claim can be assigned by the Court based on its complexity. FRC vary depending on which band a claim is in. Parties may agree the complexity band but the Court may direct otherwise having regard to the factors in CPR 26.13(1). Those factors include the claim’s financial value; the nature of the remedy sought; and the likely complexity of the facts, law or evidence.

Where a party has behaved unreasonably, the Court has the power to order that the costs awarded be reduced/increased by an amount equivalent to 50% of the FRC which would otherwise be payable.

The fast track has remained as it is in terms of claims valued between £10,000 and £25,000 that can be tried in one day or less. It is however also incorporating existing FRC for personal injury claims up to £25,000. The fast track can include claims for non-monetary relief where fixed values have been assigned. It also has four bands for complexity, but with different criteria.

There is a new intermediate track to cover less complex claims valued at more than £25,000 but not more than £100,000 where the trial should last no more than three days. The intermediate track also has four bands for complexity, but with different criteria. Where non-monetary relief is sought, the claim will not usually be allocated to the intermediate track unless the Court considers it to be in the interests of justice.

The Court has discretion to allocate more complex cases valued at under £100,000 to the multi-track to avoid them inappropriately falling within the FRC regime.

It applies to claims where proceedings are issued on or after 1 October 2023 (save for certain exceptions). For personal injury claims, FRC applies where the cause of action accrues on or after 1 October 2023. FRC only applies to disease claims where the letter of claim has not been sent to the defendant before that date. The FRC regime also applies to pre-action costs.

The FRC regime will cover a wide range of claims that higher education institutions face including general commercial claims for breach of contract, property claims (including claims for monetary relief such as claims for commercial rent arrears and terminal dilapidations claims), personal injury and discrimination claims.

The FRC regime should give parties much better visibility as to recoverable costs which in turn will inevitably inform decisions about whether to pursue/defend a claim. However, the courts approach to allocation and assignment of a complexity band currently remains a mystery.

Parties will only have visibility once decisions are reported. Once there is enough case law to predict the court's approach then litigants can expect greater certainty around costs, enabling them to carry out a better cost/benefit analysis at the outset.

Practically speaking, when assessing the impact of the new FRC regime, parties should also consider whether to amend their dispute resolution clauses to include any future disputes being expressly referred to arbitration and/or expert determination rather than to court.