From 1 October 2023 new rules apply which extend the scope of fixed recoverable costs (FRC) and introduce a new ‘intermediate’ track applicable to non-personal injury (non-PI) claims valued at up to £100,000. The extended FRC has the potential to drastically limit the amount of recoverable costs which will soon apply to certain property damage related claims.
This article will survey the central changes to FRC that will soon be applicable to property damage claims under a value of £100,000, and provide practical guidance immediately before and after implementation.
What are the changes?
In addition to the existing ‘track' allocations, being the small, fast and multi tracks, a new ‘intermediate’ track has been introduced. This will become the new ‘normal’ track applicable to claims valued at more than £25,000 up to £100,000. The intermediate track will apply to claims where, for example, trial is not expected to last longer than three days, oral expert evidence is likely to be limited to two experts per party, and the litigation is limited to three parties (either one claimant and two defendants or two claimants and one defendant).
The courts do however have discretion to allocate more complex claims that may fall under the £100,000 value. The courts also have the discretion to reallocate a claim to a different track either on application or by its own initiative. However, where a claim has already been allocated and a directions order has been made, it may only reallocate where there are “exceptional” reasons for doing so. Exceptional is not defined but we would expect the bar to be high, and as such, anticipate that it will be challenging to reallocate a claim from the intermediate track once directions have been made.
There are also a number of listed exceptions to the intermediate track allocation, as set out in CPR 26.9(10) of the new draft rules.
Once the court allocates a matter to the intermediate track, it will then assign a complexity band which details the level of costs allowed. There are four complexity bands in ascending scale of allowable costs commensurate with the complexity of the claim.
The parties can agree to the level of complexity, however, the court will have regard to matters at CPR 26.13 which include (but are not limited to) the financial value of the claim, the nature of the remedy sought, the complexity of the facts, law or evidence, and the views expressed by the parties. The Rules explicitly state that it is for the court to assess the financial value of a claim, and in doing so shall disregard any contributory negligence.
It is worth noting that in addition to reallocation of track, the court has the power to reassign a claim to a different complexity banding, either by application or of its own initiative (CPR 26.18(1)). However, the court may only reassign a claim to a different complexity band where there has been a change in circumstances that justify reassignment (CPR 26.18(3)).
Once the court has determined the allocation to the intermediate track and the complexity banding, fixed costs will apply depending on the stage at which settlement is reached in the proceedings. These range from pre-issue up to and including the date of service, to alternative dispute resolution where a mediation or joint settlement meeting takes place. These stages are listed at sections 1 – 15 in Table 14 to Rule 45.50.
A “London weighting” provision allows recovery of an additional 12.5% of fixed costs (excluding disbursements) where the receiving party and their legal representatives are based in one of the London boroughs specified in Section II of Practice Direction 45.
In addition to FRC, the court may also allow a claim for reasonable and proportionate disbursements as well as VAT (where appropriate).
Even though the FRC provides certainty of costs exposure and recoverability, it has the scope to significantly limit the level of costs that would otherwise be recoverable for non-PI claims.
We suspect that there are likely to be two immediate impacts of the FRC regime before implementation on 1 October 2023 insofar as they relate to property damage-related claims:
- In respect of subrogated recoveries in property damaged-related claims, prior to implementation on 1 October 2023, there is likely to be an increase in parties taking steps to protect their position and issue proceedings before implementation in order to avoid FRC applying.
- Conversely, potential defendants may seek to defer settlement negotiations where the value of the claim is under the £100,000 threshold to take advantage of the FRC.
Disagreements regarding allocation
In light of the cost implications on the track allocation and complexity banding, we anticipate that agreeing to an allocation will continue to be highly contentious following implementation. As the multi-track is not subject to fixed costs, parties will likely dispute the allocation of cases to the intermediate track where the multi-track may be justified e.g. arguing that the claim is particularly complex to take it outside the intermediate track.
We suspect that further costs and time will likely be incurred for satellite applications dealing with reallocating claims where agreement cannot be reached. Parties should therefore prepare to fully justify their reasoning behind the preferred allocation.
Impact on stage of settlement
We anticipate that the FRC will also have an impact on the likely stage of settlement given the differences in costs recoverable under the various stage bandings (see Table 14, Rule 45.50). Given that a different level of costs will be recoverable depending on the timing of settlement, parties will need to consider whether an earlier / later settlement will be more advantageous compared to the work required to get to the next stage.
Importantly, in non-PI cases, the pre-issue costs are not actually fixed, they are capped, which is somewhat of an anomaly in an FRC system. We can therefore expect claimants to seek the total fixed amount in these cases and consideration will need to be given as to whether costs sought in those circumstances are challenged.
A final word of warning
Where an order for costs has been made in favour of a party that has behaved unreasonably, the other party may apply for an order that those costs be reduced by an amount equivalent to 50% of the FRC which would otherwise be payable. Unreasonable behaviour is widely defined as “conduct for which there is no reasonable explanation”. Unreasonable behaviour may therefore result in a costs penalty for paying parties or indeed additional costs awarded to a receiving party.