In 2021, the Ministry of Justice (MoJ) stated that there will be an extension of fixed recoverable costs (FRCs) for most civil cases across the fast-track and in the majority of money cases valued up to £100,000 in damages.
Additionally, as part of the extension, all fast track cases will be allocated to a band of complexity (there will be four bands). This already applies to some personal injury cases.
Initially, reports seemed to indicate that the extension would be rolled out as soon as October this year but reports in May indicated that the extension will come into effect in April 2023, subject to Civil Procedure Rule Committee approval.
What are FRCs?
FRCs are the set amount of legal costs which a winning party can claim from a losing party at different stages of the litigation, from pre-issue up to trial. According to The Law Society:
“FRCs give certainty in advance about the maximum amount that the losing party will have to pay. However, they mean that the amount that can be reclaimed may not cover the actual costs of the case, which can be hard to predict.”
The aim of FRCs is to ensure that legal costs remain certain and proportionate, providing access to justice for parties involved in litigation.
What changes are being made to fixed recoverable costs?
The reforms to the current fixed recoverable costs regime will largely mirror those recommended by Sir Rupert Jackson in 2017, and will most likely include revised rules with regards to penalising parties who delay the resolution of a case, with:
- A 35% uplift where a Part 36 offer is rejected; or
- A 50% uplift in the circumstances where a party has engaged in ‘unreasonable behaviour’.
Additionally, for each additional claimant in claims arising from the same set of facts, there would be a 25% uplift, with a weighting of 12.5% for London cases.
In May 2022, the MoJ issued consultations on two issues that have cropped up in respect of fixed recoverable costs:
- How to ensure appropriate provisions are provided for vulnerable parties and witnesses so that they are not disadvantaged; and
- Following the Supreme Court’s 2021 decision in Ho v Adelekun, there needs to be a reconsideration of the rules on qualified one-way cost shifting (QOCS – in such cases, a losing claimant does not have to pay a defendant’s costs, except in a small number of circumstances).
In relation to point one above, this issue was highlighted in 2020 by the Civil Justice Council and subsequently led to updates in the Civil Procedure Rules (CPR) which permitted additional protections for those deemed to be vulnerable parties and witnesses.
The MoJ commented that it was:
“…keen to ensure that those who are vulnerable (either as parties or witnesses) are not disadvantaged in bringing or defending claims which are within the scope of FRC”.
The MoJ’s position remains the same as in the past, being that it is not necessary to define vulnerability further. However, Ministers feel that there can be a more transparent explanation of the instances within which it could lead to an increase in fixed costs.
The MoJ’s consultation document states:
“FRC are not intended to reflect the precise costs of every case, and there is an inevitable element of “swings and roundabouts”. While there will be many cases where vulnerability is an issue and may require extra work compared with an average case, the vulnerability in itself does not automatically generate exceptional extra work to require an uplift.
“It will depend in part on the vulnerable person (the extent of vulnerability) and in part on the claim and the extent to which the vulnerability affects the pursuit or defence of that claim.”
The MoJ has suggested leaving it to the relevant Judge to decide whether a vulnerability gives rise to additional work to justify additional costs. This would be done retrospectively, instead of prospectively, and in the circumstances where a vulnerability has caused at least 20% of additional costs. There wouldn’t be an upper cap limit.
The issue in respect of the Supreme Court’s 2021 ruling in Ho v Adelekun was whether legal costs set-off should be possible in a QOCS case. The Supreme Court ruled that the CPR prevented a defendant from the ability to offset the costs awarded to them against the damages the claimant is awarded.
This had a subsequent impact on the earlier Court of Appeal decision in Cartwright v Venduct Engineering Limited. In this case, the Court of Appeal found that accepting a Part 36 offer didn’t specifically generate an enforceable order for the purposes of a QOCS. The MoJ commented that this ruling was “manageable in practice” as parties, at that point time (prior to the Supreme Court’s ruling in Ho v Adelekun), could agree on an offset against costs.
The MoJ consultation paper states:
“Thus, the combined outcome of both of these cases is to undermine the effectiveness of QOCS and part 36 in resolving disputes.”
The MoJ is proposing to update Section II of CPR 44 so that a claimant’s entitlement to costs would be considered to be part of the total fund against which set-off could then be applied. Further, the MoJ has stated that it will extend costs orders to deemed orders so that a defendant could enforce a deemed order for costs (especially following acceptance of a part 36 offer) without requiring Court permission.
How can Nelsons help?
Daniel Brumpton is a Partner in our Dispute Resolution team, specialising in commercial litigation.
For more information on the subjects discussed in this article, please contact Daniel or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or contact us via our online enquiry form.
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