Extension of Fixed Recoverable Costs - phase two

Phase one of the Jackson Reforms brought in fixed costs for low value personal injury claims (road traffic accidents, employers’ liability (EL) and public liability (PL)). Sir Rupert Jackson had always in mind to extend fixed costs into other areas of civil litigation. It seems that we are now entering phase two of his plan.  

The road to expansion of the FRC regime has been a rather long one. Originally recommended by Sir Rupert Jackson in 2017, it was not until September 2021 that the MoJ would announce its intention to follow through with the Civil Procedure Rules Committee (CPRC) swiftly following suit a couple of months later.

Intentions were to have the new rules in place by October 2022 but it would not be until 24 May 2023 that the new rules were laid before Parliament and we knew what the transformation would look like.

A point to remember is that FRC apply to recoverable costs between the parties. They do not automatically apply between client and solicitor, unless of course the solicitor’s retainer incorporates an agreement to limit costs to those recovered under the FRC regime.

The current regime

At present the key areas subject to limited or fixed costs recovery in one form or another are:

1. Small claims:

• Most money claims under £10,000
• Road traffic personal injury claims valued up to £5,000 (some exceptions)
• EL & PL personal injuries where general damages are below £1,000

2. Fast track EL & PL personal injury claims valued up to £25,000.

All other claims are subject to standard costs rules under CPR 44 which presume that the unsuccessful party will pay the successful one’s reasonable and proportionate costs. As those routinely involved in such claims will know, this means that at the moment parties can and frequently do end up incurring and recovering costs disproportionate to a claim’s value.

The new FRC regime seeks to change that for a significant number of claims and to usher in more efficient, proportional management of claims.

Fixing the new goal posts

The new regime itself kicks in from 1 October 2023 and will apply to:

1. Claims issued on or after 1 October 2023 (excluding personal injury)
2. Personal injury cases where the cause of action accrues on or after 1 October 2023
3. Disease claims where letter of claim is sent on or after 1 October 2023
4. Medical malpractice claims where breach and causation have been admitted

It operates by allocating claims to either the modified fast or new intermediate track, each of which bring with them their own fixed recoverable costs.

Allocation

The allocation criteria of the fast track remain unchanged (generally matters worth £10,000 to £25,000). Criteria for allocation to the intermediate track are as follows:

• Unsuitability for the small claims or fast tracks (eg complex personal injury, professional negligence claims and medical malpractice claims where breach and causation have not been admitted)
• Valuation between £25,000 and £100,000
• A three-day trial being sufficient if the matter is managed proportionally
• No more than two experts per party will be required to give oral evidence
• The matter can be “justly and proportionately managed” under the intermediate track
• There are no wider reasons (eg reputation or public interest) that make the intermediate track unsuitable
• There are at most three parties (eg one claimant and two defendants or vice versa)
• It is not a mesothelioma or asbestos related lung disease claim

Whether a claim fits into that £25,000 to £100,000 bracket will be determined in the usual way, meaning any undisputed sum, interest, costs and contributory negligence will be disregarded.

Those criteria notwithstanding, the court will have power to allocate claims to intermediate track where they consider it to be necessary to “promote access to justice”.

Excluded claims

The new rules also confirm the following should ordinarily be allocated to the multi, rather than intermediate, track:

• A mesothelioma or asbestos related lung disease claim
• One including a claim for clinical negligence, unless breach of duty and causation have been admitted (the Department of Health and Social Care is currently considering reform to costs in clinical negligence cases valued under £25,000).
• A claim for damages in relation to harm, abuse or neglect of or by children or vulnerable adults
• A claim that the court could order to be tried by jury if satisfied there is in issue a matter relating to fraud against a party seeking civil trial by jury or a claim relating to malicious prosecution or false imprisonment.
• Claims against the police involving an intentional or reckless tort, or relief or remedy in relation to the Human Rights Act 1998 (excluding a road accident claim arising from negligent police driving, an employer’s liability claim, or any claim for an accidental fall on police premises).

Non-monetary claims will also ordinarily be excluded, but the court can pull such claims into the intermediate track where it considers it “necessary to save the parties from ruinous litigation”. Where the court does so, it has the powers to assign a notional value to the claim, determined by its track and complexity banding.

The trolley problem (changing track)

It will be all the more important to ensure you secure the appropriate track and complexity banding for your matter, because once you are there you could have an awful lot of sunk cost trying to argue the “exceptional circumstances” required to change tracks applies. After all, only £300 of the costs of any application to change will be recoverable.

However, all is not quite as it seems at first glance. Should you get your claim reallocated it is unclear whether:

1. The new CPR 45.14(1) and (2) apply, meaning the new track and/or band is treated as having applied all along
2. The existing and unamended CPR 46.13 does, meaning the original track’s costs apply up to the date of reallocation and the new track’s thereafter (absent an order from the Court otherwise)

Clarification from the MoJ is awaited but until it arrives that conflict only reinforces the importance of doing all you can to ensure it is right first time.

Complexity banding

The new rules will introduce four bands to calculate the applicable fixed costs for fast and intermediate tracks. In the simplest terms, cases that are not complex and appear straightforward to resolve, are likely to fit in band one. This will attract the lower end of the fixed fee scale. The more complex the case, the higher band scale will apply, which attracts a higher fixed fee.  

Fast track banding:

Intermediate track banding:

These are relatively straightforward when cross-read. For example, complexity band 4 in the fast track includes professional negligence claims but band 4 in the intermediate track is simply for “any claim which would normally be allocated to the intermediate track, but which is unsuitable for assignment to complexity bands 1 to 3…”.

It will be for the parties to seek to agree ahead of any case management hearing precisely where they feel the claim should fall. However, as always, should the court disagree with the parties the court can band the matter as it sees fit.

Disbursements

Fast track disbursements remain unchanged and in the intermediate track they are unfixed, instead being determined based on what is reasonable and proportionate. The MoJ has indicated that this discrepancy is only temporary and fixed disbursements will be coming to the intermediate track (suspected October 2024 based on the time taken to implement them to the fast track).

Penalties

Lastly but by no means least, a new regime brings with it new penalties, or uplifts if you are on the preferable side of them. The most straight forward is the London weighting, which will continue to apply to the fast track and will apply in the intermediate track.

The Part 36 landscape will change significantly for those in the intermediate track. A claimant who matches or beats its own offer at trial will receive a 35% uplift on fixed recoverable costs from the stage in which the relevant period (minimum of 21 days) expired onwards.

There is some debate as to whether a defendant would get that same benefit where they beat their offer at trial but the precise wording of the new rules suggests not. What is certain, is that a defendant will be entitled to the fixed recoverable costs from the stage in which the relevant period (minimum of 21 days) expired onwards if they end up beating it, subject to other limitations like QOCS.

Whether the usual penalties under CPR 36.17 apply is also unclear, and clarification on the interplay between those and the new regime is awaited from the MoJ.

More generally, if a paying party has conducted themselves unreasonably (defined as actions having “no reasonable explanation”) then they can expect a 50% uplift in the FRCs they are required to pay. If a receiving party has behaved unreasonably then they can expect a 50% reduction.

Finally, where a party has difficulty giving instructions owing to a verified mental impairment, they will be entitled to 25% uplift on their fixed recoverable costs to accommodate. That same uplift will also apply to a matter with more than one claimant at a rate of 25% per additional claimant.

The immediate impact – a litigation spike

The first claims caught by the new regime will be non-personal injury claims issued after 1 October 2023. As such, we anticipate an influx of proceedings being issued in the preceding months, particularly September, as parties seek to avoid losing out on the opportunity to recover costs already incurred beyond the new fixed sums that will start to apply. For those of us involved in personal injury litigation, it would be fair to say it seems set to be rather like the influx earlier this year with QOCS rule changes.

Broadly, those issuing early are likely to be claimants who feel they have good prospects but they must be careful doing so. Issuing too soon could trigger arguments about abuse of process or unreasonable conduct, particularly where it has meant non-compliance with protocols.

It will generally be in defendants’ and their insurers’ interests to ensure parties comply with the protocols and to use their provisions to ensure claims are not unreasonably issued until after 1 October 2023. This will be all the more the case where the other party is likely or known to have already incurred costs beyond the new fixed sums before October. In those situations, settlement sums are likely to come down.

We expect there to be increased number of arguments were premature issue and abuse of process is raised by defendants.

Reduced recoveries and relationship management

The motivation behind these changes is clear; to improve access to justice and prompt a shift towards equality of arms by way of greater certainty when it comes to costs liabilities. However, it's inevitable that there will be some teething problems as the sector adjusts and, in the longer term, that some more complex claims in the new regime will require investigations costing more than the new fixed recoverable sums.

In non-QOCS matters such scenarios will mean that a successful party is left with a larger bill to pay their own lawyer, who will have been unable to recover as much of their costs from the unsuccessful party as they otherwise would have done.

This means two things:

1. Clients will need to be certain about the liability to make up that shortfall they are taking on
2. Legal representatives will need to be sure that clients have given sufficiently informed consent to that liability, otherwise you end up in a situation similar to that in the recent case of JXC v NIS.

It is essential that the legal representatives have a clear retainer with the client and that the client understands its liability for costs.

Lawyers’ liability

Clearly all practitioners will need time to ensure they are aware of these changes (which may be hard not to do based on current legal press coverage) and that they advise their clients on them sooner rather than later – some steps will be necessary before 1 October 2023, not after.

Owing to those issues and the novelty of the new regime, we expect to see an uptick in professional negligence claims against legal representatives and their insurers over the longer term primarily based on:

1. Failures to advise on the expansion of FRCs
2. A client recovering less costs than they anticipated and therefore being liable to pay their representative a large portion of their damages to make up any shortfall

New strategies

Finally, for the purposes of this headline summary at least, the fixed recoverable costs at day one of a particular stage are the same as at the last day. This will incentivise parties to be very tactical about when and how they pitch their offers, particularly when there is a defined deadline filing a defence.

For example:

• Both parties seem likely to time offers to expire just before the end of a stage to maximise any uplift and/or penalty
• Despite one of the MoJ’s aims being to encourage early resolution, as a defendant or defendant’s insurer with a matter likely to fall into the intermediate track it is likely better to await a more fully particularised claim before engaging in any concerted way (subject to avoiding that unreasonable behaviour penalty) as fixed recoverable costs are the same regardless of whether a matter resolves pre-action or post-issue but pre-defence.

The law of unintended consequences

It will take some time for claimants and defendants to adjust to the new FRC and associated rule changes. We saw with the changes brought by the Jackson Reforms in 2013 a whole raft of cases which required the court’s intervention.

We expect there to be increased satellite litigation (at least for the first few years’ bedding-in period) where parties will be in dispute over premature issue, abuse of process, allocation, case complexity, case value and instruction of experts.

Defendants can expect an increased number of claims that will exceed £100,000 and claims which apparently need more than two experts on each side.

Claimants can expect robust challenges from defendants to ensure cases are being properly allocated to fast and intermediate tracks.

While parties are encouraged to narrow issues, we expect allocation and case management hearings to become battlegrounds where claimants are arguing multi-track allocation and the defendants suggesting intermediate. 

As we saw with the 2013 CPR changes, the benefits of civil litigation reform take time to materialise despite the endeavours of the rule makers.

Closing thoughts

All told, the expansion of FRCs will be a large practical and cultural shift to the litigation landscape for those claims up to £100,000 and will require a significant shift in approach if such claims are to remain workable for firms while maintaining the standard clients expect.

However, it is one we all need to get to grips with as the wind seems to be blowing towards their expansion to even larger claims in the name of access to justice, costs certainty and equality of arms.

Whether those aims are actually achieved remains to be seen…