Changes to the Fixed Recoverable Costs Regime: What do they mean for business disputes?

Costs are a big consideration for companies when it comes to business disputes that need to go to court to get resolved, so keeping abreast of any changes to the court’s rules in relation to this topic is very important. One major change which will be implemented from 1 October 2023 relates to Fixed Recoverable Costs (FRC), which previously only applied to claims worth up to a value of £10,000 on the small claims track, but will extend to those with a value of up to £100,000 if they’re ‘issued’ (formally started at court) on or after 1 October 2023 – with some exceptions.

The changes have involved some significant changes to the Civil Procedure Rules (CPR) and are detail-heavy because of the fact they’re so extensive, but in this update, our business dispute lawyers will cover the main areas that are relevant to you as a business owner.

What are Fixed Recoverable Costs and what’s changing?

As suggested by the name, the FRC sets the amounts that the party who wins a civil claim can recover from the losing party for various stages in the litigation process.

As mentioned above, the scope of the value of claims that will fall into the FRC bracket is widening to include claims up to the value of £100,000, there are various bands – formally known as tracks – within this limit. It’s worth highlighting here that as well as the longstanding small claims track, fast track and multi-track, a new intermediate track has been created to deal with claims in the £25,000-£100,000 range.

Which types of cases will the FRC cover?

Business disputes with a claim value of up to £100,000 (excluding interest) will be covered, along with defended debt claims, professional negligence claims and property disputes, as well as commercial claims – unless the court decides that any of these types of claims are complex enough to justify being allocated to the multi-track instead.

How the fixed recoverable costs regime relates to the new bands within the fast and intermediate tracks

Each of these two tracks now have now been split into four bands and every case will be assigned to a particular band by the court once it’s been allocated to the relevant track, depending on the complexity of the case, with Band 1 being suitable for more straightforward cases and Band 4 being reserved for those that are more complex. This track and band allocation will in turn determine how much by way of FRC are recoverable by the winning party for each stage of the litigation process, and there are detailed tables within the CPR that set out how much is recoverable at each stage which will be finalised and updated online in due course.

How are the changes to FRC likely to affect litigation tactics?

Whilst it’s undoubtedly a positive thing that parties to a dispute will have a clearer idea upfront about what costs they might recover or have to pay out if their claim is successful or not, there are important commercial considerations to bear in mind. It could well be that a party decides not to bring or defend a claim if it’s not financially viable to do so based upon the FRC, i.e. whether or not the actual costs they’re likely to incur will be covered by the FRC. If not, where a prospective claimant is assessing the risks, how much of their estimated damages will be eaten into by the difference between what they have to pay their lawyer and how much they get back from the other party under the FRC rules.

Tactically speaking, it’s highly likely that there will be a flurry of parties to a dispute looking to issue their claims where possible before 1 October to avoid their case falling into the remit of FRC with a view to hopefully avoiding the scenario mentioned above.

Another trend that’s anticipated is an increase in claimants issuing court proceedings at an earlier stage than they might otherwise have done in order to effectively enter the realms of FRC so as to be eligible to recover more by way of costs; this being in light of the fact that there is very little to be recovered by way of pre-action costs and therefore there are potentially monetary advantages to litigating sooner. The flip side to this, of course, is the commercial reality that it could lead to higher levels of irrecoverable costs if further stages of litigation are reached than might have otherwise been the case if the dispute had possibly been capable of resolution at an earlier stage.

Clearly, when assessing the economics of pursuing or defending a claim up to £100,000, the lower the hourly rate charged by your solicitor, the better the chance of recovering a higher proportion of your legal costs if you win, given the recovery limits under the FRC. The cost effective rates available under Harper James’ pricing plans are likely to become even more attractive to litigants concerned about high legal costs eroding their net gain from a successful outcome at trial.