The Rise and Rise of Fixed Costs in Litigation

12 Oct 2021

Covid 19 has brought a number of changes to litigation, including more remote hearings and the sharing of virtual court documents. We will see the extent to which these changes become permanent and what affect the pandemic will have on the litigation landscape, with an anticipated rise in insurance and employment claims and the potential for an insolvency claims tsunami.

There are also changes on the horizon relating to the way litigation claims are run, with a fixed cost regime to be introduced for claims worth less than £100,000. Simon Elcock, Head of Dispute Resolution at DMH Stallard, explains the  growing significance of fixed costs.  

Rationale for change
Litigation can be expensive and unpredictable and this puts off many claimants from taking formal legal action. The government’s intention is to make the law more accessible and encourage early settlement where appropriate, so reducing costs and injecting more certainty into the process. Early settlement, whilst attractive in principle, is not always the 'right' or 'fair' outcome and there is an argument that a fixed recoverable cost regime may penalise both claimants and defendants, by dissuading the former from bringing claims and encouraging the latter to settle irrespective of the merits of the claim. 

The current situation
When a dispute goes to court, the 'losing party' can usually expect to be ordered to pay the majority of the 'winning party’s' legal costs in addition to its own. These potential costs can act as a disincentive to bringing claims and particularly in lower value, 'Fast Track Claims' (currently claims with values between £10,000 and £25,000) - where each party’s costs to trial can easily exceed the sum in dispute, and where the 'losing party' may well face a significant costs liability compared to the value of the claim. Costs can become the dominant and determining factor in this kind of litigation.

Fast Track for cases under £100,000 
The government has recently announced its intention to introduce fixed recoverable costs (FRC) for cases valued at under £100,000. This will determine the level of costs that a successful party can recover from its opponent, thereby giving a measure of costs certainty from the outset. Lord Wolfson of Tredegar QC, Parliamentary Under-Secretary of State for Justice, explained the rationale behind these changes: 

"Without being able to predict what the costs may be, it is difficult for either side to take an informed decision on the appropriate way forward. If cases are to be litigated, then we want them to be resolved as early as possible, with costs as proportionate and as fair to both sides as possible." 

New regime can include an uplift on costs of up to 50%
The proposed new regime will include uplifts of 35% on the FRC where a party has rejected a Part 36 settlement offer (a prescribed type of offer under the relevant rules on civil procedure), which they fail to 'beat' at trial, and a 50% uplift where a court deems that a party has acted unreasonably (the courts will determine what is 'unreasonable' conduct). 

The FRC regime will not be 'one size fits all'. Cases will be allocated to one of four bands depending on complexity. Whilst parties will be entitled to challenge the allocation, it appears that an unsuccessful challenge could itself amount to 'unreasonable conduct' risking a 50% uplift on the FRC.
Parties to be incentivised to make realistic and early settlement offers
The level of FRC will also increase as a matter progresses towards trial and some adjustments will apply for London weighting and for cases involving more than one defendant. The government’s intention appears to be to encourage early settlement, to make lower value litigation more predictable and to free up the courts. 

Certainty on recoverable costs
Whilst it is clear that the new FRC regime will provide some certainty for litigants, it will only extend to recoverable costs - ie. the costs that a successful party is entitled to recover from its 'opponent'. The regime does not limit the costs that a party will incur with its legal advisors in pursuing or defending litigation, although early settlement will naturally serve to limit costs. Neither does the regime differentiate between the parties or take account of the fact that the claimant will usually incur higher costs due to the enhanced weight of its obligations throughout the proceedings.

The conclusion
We do not know when the FRC regime will be implemented nor if it will be applied retrospectively. At this stage, it is not clear that these changes will have the apparently desired effect of increasing access to justice for those with less deep pockets. If you are considering pursuing a claim which may fall within the FRC regime in due course, you may well want to consider committing to that without awaiting their implementation. When the new regime comes into force, you will undoubtedly be best served by working with an experienced litigation team that is flexible in its approach and able to make the most appropriate commercial recommendations. At DMH Stallard, we assess every claim on its merits and always provide objective legal and commercial advice.

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