The new fixed costs regime

From 1 October 2023 the fixed costs regime in civil litigation has been extended to cover most claims issued on or after this date with a value up to £100,000 (although there are certain specified exceptions).

This note summarises some of the key changes under the new regime.

A New Intermediate Track
The rules have created a new ‘intermediate track’ to which claims can be assigned. There are now a total of four tracks which generally apply as follows (although the Court retains its discretion to allocate claims as it deems appropriate taking account of factors including complexity):

• Small Claims Track: for claims of a value up to £10,000.
• Fast Track: for claims of a value between £10,000 to £25,000 where (i) the trial is likely to last for no longer than one day (ii) oral expert evidence is likely to be limited to one expert per party per field and (iii) expert evidence is likely to be limited to two fields.
• Intermediate Track: for claims of a value between £25,000 to £100,000 where (i) the trial is not likely to exceed three days (ii) oral expert evidence is likely to be limited to two experts per party and (iii) the claim is brought by one claimant against up to two defendants or up two claimants against one defendant.
• Multi-track: for claims in excess of £100,000 and generally, this will mean that multi-track claims are now the preserve of the High Court. 

The Implementation of ‘Complexity Bands’
Claims allocated to the fast track or intermediate track will also be assigned to a specific complexity band, ranging from 1 to 4. The complexity band will determine the level of recoverable costs, by reference to various tables set out in Practice Direction 45 of the Civil Procedure Rules (CPR) (Cost Tables). The parties can seek to agree a complexity band but the Court retains discretion to assign a claim as it sees fit.

In assigning a complexity band the Court is to have regard to the factors set out at CPR 26.13 these include, amongst others (i) the financial value of the claim (ii) the nature of the remedy sought (iii) the complexity of the facts, law or evidence and (iv) the number of parties. CPR 26.15 and 26.16 provide examples of the claims that may be properly allocated to each complexity band.

General Principles that Apply to Recoverable Costs under the Fixed Costs Regime  
The fixed recoverable costs applicable will depend on the stage at which a claim is settled/discontinued or whether it proceeds to trial.

Each of the Cost Tables provides for a set fixed fee for each stage for cases assigned to complexity band 1. For cases assigned to complexity bands 2 to 4, generally the Cost Tables provide for a fixed fee plus a specified percentage of damages recovered.

For non-money claims, or claims including non-monetary relief, the ‘non-money’ element of the claim will be assigned a specified value for the purpose of calculating fixed costs.

VAT and disbursements are recoverable in addition to the fixed costs specified in the Cost Tables. In the intermediate track a disbursement is recoverable where it is ‘reasonably incurred’.  However, it should be highlighted that disbursements for the instruction of Counsel are included within the fixed costs provided for in the Costs Tables. 

There is provision within the CPR for London weighing which entitles a party to recover an additional 12.5%.

The Cost Tables limit the amount of fees that a successful party may recover from its opponent but it is important to note that they do not restrict the fees that a legal representative may charge. It therefore remains the case that for many cases there will be a significant proportion of unrecoverable cost (and indeed this may in fact increase as a result of the extended fixed cost regime) and this will need to be considered before proceedings are commenced and as litigation progresses.

Cost Budgeting
A significant impact of the extended fixed costs regime is the removal of the requirement for parties to cost budget in claims which are subject to fixed recoverable costs.

Circumstances in which Parties can Claim for Costs Exceeding Fixed Recoverable Costs
CPR 45 confers discretion on the Court and there are limited exceptions in which the Court may depart from the fixed costs regime, including:-

• CPR 49.5 provides that the Court may consider a claim for an amount of costs which is greater than fixed recoverable costs where there are ‘exceptional circumstances’ making it appropriate to do so.
• CPR 45.10 provides that the Court may consider a claim for costs which is greater than fixed recoverable costs where a party or witness is vulnerable, that vulnerability has required additional work to be undertaken and by reason of that additional work alone, the claim is for an amount that is at least 20% greater than the amount of fixed recoverable costs.
• CPR 45.13 where an order for costs is made in favour of/against a party whom the Court considers has behaved unreasonably, the other party may apply for an order that those costs be reduced or increased, respectively, by an amount equal to 50% of the fixed recoverable costs which would otherwise be payable (excluding VAT and disbursements). Unreasonable behaviour is conduct for which there is no reasonable explanation.

Given that the fixed cost regime would apply in the event of an unsuccessful claim for costs exceeding fixed recoverable costs, there are a number of commentators who expect claims of this nature to be made frequently, given that many may view there being limited risk in pursuing such a claim.

Part 36 Offers
A significant impact of the extended fixed costs regime, is the consequences that will flow from offers made pursuant to Part 36 of the CPR. Claimants may be able to recover a 35% uplift on the fixed costs payable from expiry of  the relevant period and the fixed costs payable at the date of judgment, if they obtain a judgment which a Defendant fails to beat. Interestingly, this only applies to Claimants and not a Defendant to a claim.

Contracting Out of the Fixed Costs Regime, Alternative Dispute Resolution (ADR) and Settlement
It will always be open to the parties to agree contractual mechanisms which seek to increase cost recovery beyond the scope of the fixed cost regime. Making appropriate provision for cost recovery in contractual agreements, prior to the commencement of any dispute, is going to be of critical importance. Parties may also want to consider including mandatory ADR clauses, including arbitration clauses.

As part of any settlement, it will remain open to the parties to agree costs and attempts may be made to agree settlement terms that provide for costs in excess of those provided for under the fixed costs regime.

It is of particular interest to note that the extended fixed recoverable costs regime provides for costs to be payable even if a matter is not issued and parties reach a settlement prior to a claim being issued.

Commentary
The extended fixed costs regime is intended to provide more certainty for parties embarking on litigation. The model is more comparable with the regime implemented in a number of European countries, in particular the German system of fixed recoverable costs.

It is anticipated that generally parties will be able to recover less from an opponent than under the previous system and this will need to be borne in mind as part of the prospects of pursuing any claim and/or defence. It will undoubtedly have an impact on the strategy employed in claims subject to the regime given that costs payable will be triggered at set stages. 

The rules are ripe for satellite litigation to arise on many issues, not least of all track allocation and the assignment of complexity bands. We expect to see a spate of case law over the coming months which will provide further guidance on the application of the new regime.