After a very long consultation period, fixed recoverable costs in civil claims are looking likely to be introduced in October 2023.
The detail is still subject to formal confirmation but what has been set out is likely to be approved by and large. The drafts are available to read at the link at the end of this article but we break down the key detail below.
The general position relating to recoverability of legal costs
For claims outside the small claims track, the legal costs the parties incur have always created a huge element of risk.
The usual order in civil claims (excluding small claims and excluding personal injury) is that the successful party can expect the court to order the unsuccessful party to pay its reasonable legal costs. This usual order can be affected by the offers made by the parties during the litigation, budgeting, proportionality and conduct.
The level of costs is assessed and determined by the courts, if the parties cannot agree on the specific amount.
Wooever loses at trial, faces having incurred their own legal costs and being ordered to pay a decent proportion of the costs incurred by their opponent. On occasion, the costs could exceed the sum in dispute.
The court introduced costs “budgeting” to get the Judges involved at an earlier stage in the claim’s life, to look at the range of costs the parties expected could be incurred. The Judges can impose caps on the costs recoverable in a claim. In the writer’s experience, the Judges can be fairly generous when it came to approving budgets.
It was good however, to get Judges involved in the costs at an earlier stage, rather than solely at trial after judgment had been given.
Fixed recoverable costs in civil claims
Things are changing however, as the court rules are to be amended so that fixed amounts of costs, set out within the rules themselves, can be recovered during the life of a civil litigation claim. The rules are to apply to claims of a value exceeding £10,000 (the small claims threshold) but not exceeding £100,000.
Any claims over £100,000 are likely to remain within the general costs position explained above and subject to budgeting (and technically be dealt with, in the multi-track).
Claims of a value between £10,000 and £25,000 are likely to be dealt with, within the existing “fast track”. Fast track matters have limitations imposed on the evidence, in particular that the trial cannot exceed one day and the expert witness evidence is limited, usually to a single joint expert.
Claims of a value between £25,000 and £100,000 will be dealt with in a newly created “intermediate track”. This is to deal with lower value and lower complexity claims that otherwise would be dealt with in the multi track. The intermediate track will also impose limits on the extent of the evidence, most notably that the trial must be completed within 3 days.
Both the fast track and intermediate tracks will be subject to the proposed fixed recoverable costs. The level of recoverable costs will depend upon what the court deems the complexity of the case to be. Each will be given a complexity rating of 1-4, with 4 being the more complex.
It appears that the complexity rating will be determined early on, at the allocation stage (so after the defence has been filed and directions questions filed at court by the parties).
The level of the fixed recoverable costs
The level of costs recoverable, will depend upon the value of the claim, its complexity and the stage the litigation reaches.
In the fast track, level 1 claims will include defended debt claims and the amount of recoverable legal costs will be capped at £3,800 (excluding court fees and the advocate fee (which is also fixed)).
By contrast, in the intermediate track, level 1 claims disposed at, at trial, could have costs of £6,600 plus an amount equivalent to 15% of the damages awarded (therefore and additional amount between £3,750-£15,000 depending on the amount awarded), plus court fees and the advocate fees.
The percentage element could prove problematic.
More complex claims have larger fixed costs and varying percentage elements, again depending upon what stage the claim reaches before it is either settled or determined.
Offers to settle will also continue have an effect on the sum recoverable.
So what does this mean for businesses involved in claims of a value between £25,000 and £100,000?
In short, once the rules are introduced, litigants will have greater certainty of the potential extent of the costs that they may be able to recover or be ordered to pay in civil litigation claims. In our view, this should be a good thing.
What might be a problem is however, that the level of costs recoverable might not be what the solicitors actually charge. Just because the recoverable amounts are set, it doesn’t mean that solicitors are obliged to cap their charges to their client to that amount. It might cost £10,000 to get a fast track claim to trial and in a level 1 claim, that might mean the client has to stand the irrecoverable shortfall of £6,200.
Those firms of solicitors that agree to work within the fixed recoverable costs, may use less experienced staff to carry out the work. It makes economic sense for cheaper labour to be used on fixed cost work. Whether this is good for the client is another issue.
It will need to be seen as to whether the fixed costs encourage parties to push claims to trial, having a better idea of the worst case scenario, or whether the apparently low level of recoverable costs encourages parties to settle claims early.
Why businesses should be looking at carrying out simple litigation work in house
Each year, we teach a broad range of businesses how to take a customer to court for an unpaid invoice.
In all likelihood we see solicitors charging their clients more than the fixed costs indicated and the client suffering the shortfall, which could be considerable. It is all the more reason to carry out basic debt recovery litigation in house.
You can read the draft documentation here.