In the UK — England and Wales specifically — October 2023 saw new changes being implemented. In terms of litigation, fixed recoverable cost extensions will cause ripples, and the series of shifts have real potential to upend the market.
What are fixed recoverable costs?
Fixed recoverable costs (FRCs) are set amounts of legal costs that a winning party can claim back from the losing party in civil litigation. FRCs are not an altogether new concept. They were introduced to the civil claims landscape in 2010, and until now, they’ve already applied in most low-value, non-complex personal injury cases such as traffic accident claims. But following a 2017 comprehensive review of civil costs and a 2019 consultation on extending FRCs in civil cases, the government published its proposals in September 2021 to extend FRCs across more claim categories, including those of higher-value. Additionally, the plan will slim down procedures around witness statements, disclosure of documents, length of trial and more.
The initial intention behind fixed recoverable costs is to solidify predictability, and the ability of the parties to discern cost amounts ahead of time. This should, in practice, level the playing field for claimants and promote access to justice for all. Ironically, parts of the expected changes could instead obstruct that effort.
The new fixed recoverable cost regime implements the following changes:
- Extend FRC ‘fast track’ from low complexity personal injury claims up to £25,000, to most civil claims valued up to £25,000
- In addition to the fast track there will be a new ‘intermediate track’ designed for those higher-value claims (from £25,000 to £100,000)
- Each case within the fast or intermediate tracks will be assigned to a complexity grouping, or ‘band’ ranging from 1 to 4. Higher bands, which in theory represent higher levels of complexity within the case, entail higher fixed costs
- Allocation to both the kind of track and complexity band will shape how much the recoverable and payable costs will be
What could go wrong?
The FRC regime determines cost recoverability, but it does n’t dictate how high a fee legal representatives charge. If a party incurs legal fees which are greater than those which can be recovered under the FRC regime, then that party will have a shortfall to pay their lawyers. This could impact the foundation of that which FRC seeks to ensure, access to justice, as not all parties will be able to afford such a shortfall.
Therefore, because certain claim classes will incur much lower recoverable costs than others, they will be that much less attractive for legal experts to practice. Law firms could find the fixed fee structure too financially challenging, and it provides little incentive for litigators to work such cases. In addition, some legal expenses insurers may re-evaluate their business models and withdraw from the FRC arena. This ripple effect could obstruct access to legal representation, particularly for smaller firms that serve smaller clients.
Additionally, in the previous framework, a party might have spent weeks, months, maybe even years negotiating pre-issue, and they may have incurred a significant amount of costs doing that. Before, the ultimate goal was to avoid litigation completely.
Going forward, once a claimant completes the relevant pre-action protocol, if the claimant thinks they have good prospects, it will be in their interest to issue proceedings as soon as possible, and move into the next stage of FRC, rather than corresponding pre-issue. Logically, this will cause a spike in the flow of cases moving into litigation, at a time when courts are busier than ever, reeling from both court closures and the backlog due to the pandemic. As an industry we must ask ourselves: is the market prepared for such a transformative change?
Moving forward
It seems that the courts have accepted that there’ll be an element of trial and error. Now we’ll see how it works in practice, and certain parts may be unworkable and need to be tweaked. As more people understand this new litigation landscape, some claimants will likely try to adapt their models to maximise the amounts they’re able to recover, which may impact on the intended savings and predictability. As of now, the largest impacts remain to be seen.
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