Fixed Recoverable Costs in Civil Litigation

Costs are an important consideration for any client, particularly those faced with the prospect of entering litigation. The recent extension of the Fixed Recoverable Costs regime was brought in to bring some clarity for those in this position but what do the changes mean for civil litigation clients?

What are Fixed Recoverable Costs?

Fixed Recoverable Costs (FRC), determined by the Civil Procedure Rules (CPR), are specific amounts of legal costs that are recoverable by one party from another in certain circumstances in litigation.

In other words, they are a fixed amounts of costs that one party can get from the other party. In civil litigation, costs are usually recoverable by the winning party from the losing party.

Where FRC do not apply, there is less certainty, and the amount of costs will be determined by a judge in accordance with assessment principles and guidance.

Extended FRC regime

The Civil Procedure (Amendment No 2) Rules 2023 (SI 2023/572) came into force on 1 October 2023 and extended the Fixed Recoverable Costs regime so that it applied to all civil cases in the fast-track and the new intermediate track.

The changes were brought in to bring clarity on costs for parties entering into litigation and there were also hopes that the new regime would bring down costs generally.

Fast Track

As a result of these changes, FRC were extended to cover all civil cases in the fast track.

The fast track is the usual track for civil claims valued between £10,000-£25,000, where the trial is likely to last no more than one day and where expert evidence is limited to one per party and is in only two fields.

Under the extended regime, fast-track cases are now allocated to one of four complexity bands, set out in Table 1 CPR Part 26:

Complexity Band 1

1. road traffic accident related, non-personal injury claims; and
2. defended debt claims

Complexity Band 2

1. road traffic accident related personal injury claims which are or should have been started under the RTA Protocol; and
2. personal injury claims to which the Pre-action Protocol for Resolution of Package Travel Claims apply

Complexity Band 3

1. road traffic accident related, personal injury claims to which the RTA protocol does not apply
2. employer’s liability (accident) and public liability personal injury claims;
3. possession claims;
4. housing disrepair claims;
5. other claims for a sum of money, whether the sum is specified or unspecified, except claims that fall under complexity band 1(b)

Complexity Band 4

1. employer’s liability disease claims (other than a claim for noise induced hearing loss);
2. complex possession and housing disrepair claims;
3. property and building disputes;
4. professional negligence claims; and
5. any claim which would normally be allocated to the fast track, but is nonetheless complex

The amount of FRC in a fast track case is determined by which complexity band the case is assigned to. This information can be found in Table 12 of CPR Part 45, Practice Direction 45 (relating to rule 45.44).

FRC in a Fast Track claim is a mix of a fixed figure plus a percentage of damages. If the claimant succeeds, the percentage applies to the sum recovered. If the defendant succeeds, the percentage applies to the defeated claim, as stated in the particulars of claim. Additionally, fixed trial advocacy fees can be recovered but will also be dependent on the banding of the claim.

Intermediate Track

The extended regime also created the new intermediate track, designed for simpler cases valued at up to £100,000, that are not suitable for the small-claims or fast track.

Similarly to the fast track, there are four complexity bands, and each case allocated to the intermediate track will also be allocated to one of these four bands, set out in Table 2 CPR Part 26:

Complexity Band 1

Any claim where:

1. only one issue is in dispute; and
2. the trial is not expected to last longer than one day, including-

1. personal injury claims where liability or quantum is in dispute;
2. road traffic accident related, non-personal injury claims; and
3. defended debt claims

Complexity Band 2

Any less complex claim where more than one issue is in dispute, including personal injury accident claims where liability and quantum are in dispute.

Complexity Band 3

Any more complex claim where more than one issue is in dispute but which is unsuitable for assignment to complexity band 2, including noise induced earing loss and other employer’s liability disease claims.

Complexity Band 4

Any claim which would normally be allocated to the intermediate track, but which is unsuitable for assignment to complexity bands 1 to 3, including any personal injury claim where there are serious issues of fact or law.

Much like fast track claims, the amount of FRC in intermediate track claims is determined by which complexity band the claim is assigned to. This information can be found in Table 14 of CPR Part 45, Practice Direction 45 (relating to rule 45.50).

FRC in intermediate track cases are also a mix of a fixed figure and a percentage of damages. The percentage applies to the sum recovered by the claimant if the claim succeeds, or the value of the defeated claim (as per the particulars of claim) if the defendant is successful.

What the changes mean for commercial litigation clients in practice

Overall, FRC undoubtedly bring positives for clients. They create certainty from the outset and allow clients to assess where they stand and weigh up the potential costs and benefits of pursuing litigation.

However, in commercial cases, the costs that are actually incurred over the course of litigation may quickly exceed the amount recoverable under the extended regime. Larger commercial clients may be better equipped to deal with a potential shortfall in recovered legal fees but for smaller commercial clients, to whom this prospect may be of more concern, the possibility of contracting out of FRC may be attractive.

The Civil Procedure (Amendment) Rules (SI 2024/106) that came into force on 6 April 2024 confirmed that parties can expressly agree that FRC take effect subject to CPR 44.5. CPR 44.5 states that where a contractual term requires one party to pay litigation costs to another, the courts generally assess the amount recoverable on an indemnity basis.

In practice, the courts will generally honour the contractual term and award costs on the indemnity basis. This means that the court will assess whether the costs have been incurred reasonably and are reasonable amount and does not guarantee full recovery.

For a successful party who is awarded costs, there are obvious benefits of contracting out of FRC and opening yourself to the possibility of recovering more than you would do under FRC. However, nothing is guaranteed in litigation and the interests of the losing party must also be considered.

Ultimately, it may be more sensible for both parties to agree to FRC so that a larger proportion of costs will be recoverable for whoever is successful in the end.

If you would like to discuss any potential claim you may have but are unsure how to proceed, including the costs and risks of doing so, please contact our Dispute Resolution Team.