Fixed Recoverable Costs - Questions & Answers
Posted on 4th August 2023 at 09:55
By Sean Linley, Senior Costs Draftsman
The October Fixed Recoverable Costs Reforms move ever closer but despite the proximity narrowing uncertainty endures. We invited questions on the extensive reforms and over the course of this article we will seek to address some of the queries raised.
To aid a speed read the questions answered in order of appearance are as follows:
1. Will accidents abroad now come under the fixed recoverable costs regime or are they still an exception? – Anonymous
2. Will holiday illness claims still carry the same level of fixed costs as PL cases? – Anonymous
3. Do you think the reforms will lead to behavioural challenges? For example, law firms trying to be creative and shoehorn every Claimant into being recognised as a ‘vulnerable’ person to attract higher costs and again being creative with damages to lift the value of a claim? If this does happen, do you think Defendants will more frequently claim the pudding has been over-egged and the reality is we'll see many more defences founded on fundamental dishonesty, more wasted costs challenges and, resultingly, more litigation? In essence, will liability become a secondary issue to vulnerability and FD? – Nick Harris, Travel Lawyer
4. Multiple Defendants or Claimants on cases value up to £100,000.00. Which band or is it complex? – Nicola Milley, Law Lane Solicitors.
5. What happens if in a family or group case one claimant is vulnerable or under 18 - Nicola Milley – Law Lane Solicitors
6. Will you still get standard costs on Clinical Negligence liability admitted cases if they settle pre-allocation? – David K Thomas – Switalskis / Do Sub-£25k Clinical Negligence claims fall out of the scheme? Robert Pettitt – The Dental Law Partnership
7. Which costs band do clinical negligence fall under? – Robert Pettitt – The Dental Law Partnership
8. What complexity band will credit hire fall into? Will this be any different if liability is disputed? - Taymur Khan
9. Will matters be allocated to their relevant band or will we see judges exercising their discretion to allocation to another track i.e. hire in SCT – Taymur Khan
Will accidents abroad now come under the fixed recoverable costs regime or are they still an exception? – Anonymous
Currently claims brought under the Athens Convention or Montreal Convention are excluded from fixed recoverable costs on the basis that they cannot be brought under the low value protocols. Indeed they are expressly excluded from the pre-action-protocol for package travel claims. Essentially what this means in principle under the current rules fixed costs cannot apply to claims for accidents abroad.
Under the October Reforms, broadly speaking claims which are allocated to the Fast Track or Intermediate Track will be subject to fixed recoverable costs and such a claim is not required to have ever been through one of the various portals and protocols. What this means is that to be guaranteed costs on a time basis a claim will need to fall under the Multi-Track.
Exceptions to the Fast & Intermediate Tracks are set out at the new CPR r26.9(10). Crucially there is no exception for claims brought under the Athens Convention or Montreal Convention. As there is no exception, if such a claim was allocated to the Fast or Intermediate Track then it appears that the applicable fixed recoverable costs under Practice Direction 45 will apply.
Therefore, practitioners dealing with accidents abroad will need to look at the allocation factors under CPR r26.9(6) (Fast-Track) and 26.9(7) (Intermediate Track) to ascertain whether either track is suitable. If it is not then arguments should be made for Multi-Track allocation which results in time basis costs. In broad terms the areas for consideration are value, length of trial and the level of expert evidence (to include oral evidence at trial). Any of these factors in isolation will influence what the appropriate track is. If a claim involves a Protected Party (as Claimant or Defendant) then fixed costs do not apply at all.
For clarity our understanding is that there is no change to bring the inclusion of such claims within a low value portal and as such it will be fixed recoverable costs which would apply rather than portal costs. These will vary depending upon what track is allocated and what complexity band is assigned.
Will holiday illness claims still carry the same level of fixed costs as PL cases? – Anonymous
This is a question which requires some exploration. Presently where a claim proceeds on Pre-action protocol for resolution of package travel claims then the appropriate fixed recoverable costs are the Portal costs for EL/PL claims.
The October Reforms will see package travel claims no longer come under portal costs but instead fixed recoverable costs. The reality when you begin to look at the permutations and numbers are that the fixed costs in such claims will go down under the October reforms.
The amount of fixed costs are set out at Tables 12 and 14 of the new Practice Direction 45. The question then shifts to what complexity band is a holiday sickness claim likely to be assigned to? The complexity bands are detailed in Tables 1 and 2 under the new Part 26.
What we can see from this is that Fast Track claims to which the Pre-Action Protocol for Resolution of Package Travel claims will come under complexity band 2. If the claim was on the Fast Track and sat outside the Protocol then you would be able to argue a higher complexity band.
As a comparison under the current portal costs a holiday sickness claim which concludes after a 1-day trial for £10,000.00 would give fixed solicitor costs of £7,250.00 plus VAT. The equivalent claim under the October reforms will see you be entitled to £6,020.00 plus VAT. In real terms that’s a reduction of over 15%. The figures will narrow to an extent when inflation is backdated to January of this year, though this increase won’t be brought in until April 2024 at the earliest.
EL/PL (non-disease) claims will sit on complexity band 3 which means unlike holiday sickness claims they will see an increase. Illustratively taking a claim with £10,000.00 damages which concludes after a 1-day trial and has exited the Portal so comes on to fixed recoverable costs would see a rise from £7,250.00 plus VAT to £8,920.00 plus VAT.
In the clearest terms the October reforms reclassifies Package Travel claims so they are in line with RTAs rather than EL/PL claims and the result is that unlike many other claims where fixed costs already apply which will see an increase in the fixed recoverable costs, Fast-Track Package Travel claims will actually see a decrease!
Where the Intermediate Track is applicable then it is far more uncertain as it will depend upon the number of issues in dispute and how complex the claim is. Until we have some cases before the court it is difficult to predict what will be viewed as ‘less complex’ (complexity band 2), ‘more complex claim’ (complexity band 3) or ‘any claim which is unsuitable for assignment to complexity bands 1 to 3’. In short it’s a question of looking at those relevant factors under new Part 26.13 and applying them to the specific facts of your case.
Do you think the reforms will lead to behavioural challenges? For example, law firms trying to be creative and shoehorn every Claimant into being recognised as a ‘vulnerable’ person to attract higher costs and again being creative with damages to lift the value of a claim? If this does happen, do you think Defendants will more frequently claim the pudding has been over-egged and the reality is we'll see many more defences founded on fundamental dishonesty, more wasted costs challenges and, resultingly, more litigation? In essence, will liability become a secondary issue to vulnerability and FD? – Nick Harris, Travel Lawyer
One could adopt a cynical view of how practitioners will respond to the October reforms. There will inevitably be some behavioural challenges but it’s important not to fall into the trap of generalisations.
It is worth saying at the head of this that any case where the Claimant or Defendant is a Protected Party they will be exempt from fixed costs. A Protected Party is a vulnerable party but not every vulnerable party is a Protected Party. The arguments on vulnerability are likely to fall in the camp of those who are vulnerable but not a Protected Party, given the latter are exempt.
Looking at vulnerability, the reforms bring in a very onerous procedure to seek additional costs. Firstly, the practitioner has to prove that a party or witness is vulnerable, secondly that vulnerability caused additional work to be undertaken and by reason of that work alone, the claim is for an amount 20% greater than fixed recoverable costs. For clarity this tests pertains to solicitor time only so disbursements would not form part of the 20% and are arguable separately as reasonable and proportionate in any event. Why is this relevant to the question? To put it bluntly even where a practitioner establishes vulnerability it is far from straight forward to translate it into higher time costs, bearing in mind this is a test which can only be invoked at the end of a claim. On vulnerability specifically there are legitimate questions around whether practitioners will make use of the test under CPR r45.10 or if cases become less (or not) profitable vulnerable parties will find it harder to get legal representation. There will be real fears about potentially higher shortfalls for vulnerable parties.
Vulnerability and access to justice may be a pertinent argument at allocation and assignment and one parties will look to draw upon but such decisions will have to be made at the allocation/assignment stage. It remains to be seen how the courts will respond to vulnerability when making allocation/assignment decisions. We know from the Court of Appeal decision in Santiago that some decisions have to be viewed through the “prism of access to justice.”
The latter example given concerning creative damages claims is something which can be reflected upon in light of the current fixed costs scheme. Presently, a claim will be restricted to fixed costs where a case was unreasonably valued over £25,000.00 (the current upper limit). In the case of Plaktevicius v Etills Ltd (County Court at Derby) the appropriate test was whether the Claimant’s valuation at the outset was within an objectively reasonable range, hindsight could not be applied. If it was within a reasonable range then it followed fixed costs would not apply. What Plaktevicius shows is that any practitioners who cannot justify the valuation given will be penalised. There are also mechanisms in the rules for a paying party to apply for unreasonable behaviour which would see the applicable fixed recoverable costs reduced by 50%.
Moreover, PD 26.14(7) allows the court to make an order under CPR r26.4(7) directing a Claimant to justify the claim valuation. What can be gleamed is that there are checks and balances in place which will curtail a parties ability to be overly creative in relation to value.
The other point to flag on valuations is that where adverse costs kick in then Defendant costs are calculated by reference to a percentage of the value (for Claimants it is a percentage of the damages) so any creativity in valuation could result in a higher adverse costs risk for any issued cases.
Parties will look inevitably challenge behaviour on all sides. Where margins are squeezed, the fine lines matter more and practitioners will not want reputations as soft touches. Conceding an issue on one case may be commercial but that issue soon adds up across multiple cases. The limited costs of bringing challenges will likely see swathes of satellite litigation in the early stages, though the guidance given will in all likelihood help to reduce some elements of this.
From the Defendant perspective if the cost of a challenge is low and it could create a precedent or give guidance then it’s a good investment. The reality of the fixed costs landscape is that much of it will be fact specific. Though it’s fair to expect challenges in pre-allocation/assignment cases, challenges around the reasonableness of a valuation across the FT, IT and MT and to disbursements (which broadly speaking are not fixed, save for some specifics).
The Fundamental Dishonesty point is an interesting one. Where an FD argument is successful QOCs is disapplied and a Defendant could enforce its costs unfettered. Back in May, I raised a question to the CPRC about concerns around the fact that FD could be raised, fail and there be no punitive effect. I expressed concern that this creates a landscape where a party could raise arguments with impunity and that it was causing great stress to Claimants who were facing reputational risks. The unreasonable behaviour test can be applied for by a receiving party and if successful it would give rise to a 50% increase on the applicable fixed recoverable costs. However, the question here is whether alleging FD where it is not proven would equate to unreasonable behaviour. The fact the CPRC are looking at this at all demonstrates that it is perceived as an issue. FD is a behaviour challenge, however, that exists already in the context of many QOCs cases, the extension of fixed costs will not alter this landscape.
Costs arguments are going to become more prominent and prevalent as they will have significant consequence in the claim (allocation/assignment stage) and at the end when the implications of those earlier case decisions are borne out. Unless and until there is clear guidance parties will look to exploit the uncertainties which will drive behaviour challenges, this is an inevitably where money is involved.
In short, I fully expect a rise in satellite litigation as a direct consequence of these reforms.
Multiple Defendants or Claimants on cases value up to £100,000.00. Which band or is it complex? – Nicola Milley, Law Lane Solicitors.
This question gives me an opportunity to remind practitioners of how important Part 26 is going to be in determining track and thus what level of fixed costs are relevant and indeed whether they are relevant at all.
For multiple party cases 26.9(7)(d) sets out that the Intermediate Track is for claims brought by one Claimant against one or two Defendants or is brought by two Claimants against one Defendant. In effect, any claim involving four or more parties will not be suitable for the Intermediate Track. If this is the case then it follows allocation should be to the Multi-Track and this would be time basis costs.
For those claims involving up to three parties then it’s time to become familiar with Tables 1 and 2 in Part 26. For Fast Track claims the complexity band will broadly depend upon the kind of action. For example, RTA claims started under the Protocol will be Band 2, RTA claims outside the Portal will be Band 3. There is not much wiggle room on Fast Track (though there is some).
The Intermediate Track is far more less defined. Complexity Band 1 is for claims where there is only one issue in dispute and trial will not exceed 1-day. Band 2 is for less complex claims, Band 3 is for more complex claims whilst Band 4 is in essence for the most complex claims. Until we hit the ground running at allocation and assignment hearings it’s difficult to predict how the court will define complexity. This is where allocation and assignment hearings will become elongated and increasingly fraught. Generally, the difference between Bands 2 and 3 under the Intermediate Track are not that significant but the difference between Band 1 and Band 2 is, as is the difference between Band 3 and Band 4. There is a cogent argument to say that a claim involving multiple parties will naturally be more complex. In short where a multiple party case is subject to fixed costs we do not know which band it will reside in as it will be fact specific. Making sure you armour yourself with applicable evidence having regard to the factors set out under CPR r26.13 will be the most effective way to maximise recoverable costs, be that fixed or non-fixed.
What happens if in a family or group case one claimant is vulnerable or under 18 - Nicola Milley – Law Lane Solicitors
Vulnerability can be interpreted widely so the answer. Firstly for any case where a Claimant or Defendant is a Protected Party, it will be exempt from fixed recoverable costs.
Other vulnerabilities such as age (young & old), language, disabilities etc remain within fixed costs. Practitioners may look to place reliance on vulnerability when the court considers allocation and assignment though ultimately there is no specific exclusion for vulnerable parties.
For Fixed Recoverable Costs matters (to which the Q&A relates) there is a provision for receiving parties to seek an enhancement upon the applicable fixed recoverable costs. The test, however, is extremely onerous. Firstly, the party must prove that a party or witness was vulnerable, they then have to prove by virtue of that vulnerability alone that costs exceed 20% of the fixed recoverable costs. For clarity we are talking solicitor costs only here, not disbursements. Disbursements will, in principle, be allowed so long as they are reasonable and necessary. The Court of Appeal judgment in Santiago is extremely helpful in establishing the approach that the Court must view costs through the prism of access to justice. Translation fees for instance are necessary for access to justice so should in principle be recoverable in FRC cases.
The approach to vulnerable parties remains problematic. Firstly, you have to identify the vulnerability, secondly you would need to know the additional time spent as a result of that vulnerability (which will ultimately be at the discretion of the court) and if after these steps are undertaken it is over 20% then you’d have to make an application, to which there would be no guarantee of success.
If you were successful then the costs would either be subject to some form of assessment.
It’s clearly worth knowing that there is a mechanism to seek costs outside the fixed recoverable costs where there is a vulnerable party, though unlike a Multi-Track allocation, this approach offers parties little certainty.
Will you still get standard costs on Clinical Negligence liability admitted cases if they settle pre-allocation? – David K Thomas – Switalskis / Do Sub-£25k Clinical Negligence claims fall out of the scheme? Robert Pettitt – The Dental Law Partnership
You’d expect these to be a yes or no question but it is far from it. I’ve sought to address both in one response as they do cross-over.
Firstly we have to establish where fixed costs apply in Clinical Negligence cases and this is subject to consultation.
The rules currently provide that clinical negligence cases are exempt from fixed recoverable costs save for where breach of duty and causation is admitted.
The first hurdle is whether this means full admissions or partial admissions. This is an issued I raised with a member of the judiciary who candidly admitted they did not know! This will be one of many in a series of satellite litigation. I flag this as potentially partial admissions may be outside fixed recoverable costs.
Leaving this aside, the consultation proposes amending when fixed costs apply to Clinical Negligence cases to clarify that admissions must be made in the Letter of Response. Assuming this change is adopted then the landscape alters again. In these circumstances unless admissions are made up until the Letter of Response then the claim would fall outside fixed costs.
Ignoring these two caveats, we will see lots of costs litigation on those claims which settle pre-allocation and pre-assignment. Clinical Negligence is no exception. Where a claim is valued at less than a £100,000.00 and admissions are made pre-allocation/assignment then prospectively it could be fixed costs. The court will take into account the track the claim would have been allocated to as well as the complexity band it would have been assigned to. What this means is that we will have arguments about whether fixed costs apply and then following on from that at what level.
There is another caveat to throw in (and this is where Robert’s question is addressed), namely that for the moment the MoJ have stated that fixed recoverable costs will not apply to Fast Track clinical negligence claims as these will be captured by a separate Department of Health scheme which remains to be confirmed. In those cases admissions will be irrelevant as, for the moment at least, they will remain as time basis costs. That said there is still confusion in the rules, as whilst the MoJ explicitly say this is the case, it’s not defined as an exception in the actual rules (que more satellite litigation!). In any event, this is likely to be only a temporary reprieve though there is no current intimation that the Department of Health scheme will be implemented any time soon. It should also be stated a sub £25,000.00 claim could be Intermediate Track and if so and if the applicable admissions were made it could be fixed recoverable costs. Que more satellite litigation.
Which costs band do clinical negligence fall under? – Robert Pettitt – The Dental Law Partnership
Firstly, as per the answer to the previous question, the MoJ have said that Fast Track Clinical Negligence cases will not, in principle, be subject to fixed costs yet. As such we can likely ignore the bandings under Fast Track though if the Fast Track fixed costs were found to apply whilst satellite litigation works it way through then the expectation would be any Clinical Negligence claim would fall under Complexity Band 4 as “any claim which would normally be allocated to the fast track, but is nonetheless complex.” It simply would not fit anywhere else within the complexity band criteria in Table 1 under Part 26.
Moving to the Intermediate Track which we know will be applicable to some Clinical Negligence claims then the complexity bands get more interesting. In principle a Clinical Negligence claim could be any of the bands. This is where allocation & assignment hearings are going to be fought. As the first cases go through this is when we might start to get some clarity on what ‘less complex’, ‘more complex’ and ‘claims unsuitable for assignment to complex bands 1 to 3’ will be. Complexity Band 1 will only be relevant where is “only one issue in dispute [and] the trial is not expected to last longer than one day.” The question for band one is what is an issue? Is quantum one issue or many issues? This is where we need clarification from the court.
The second issue will be around who is doing the assignment of complexity band? We already see many inconsistencies in judicial decisions are given and it’s hard not to see the same issues rearing their head. Will we have enough specialist Judges when the new scheme is likely to require more judicial time? The recipe for inconsistent decisions is patently there.
In short, it’s a case of wait and see and be prepared for arguments from all sides.
What complexity band will credit hire fall into? Will this be any different if liability is disputed? - Taymur Khan
For Fast-Track credit hire cases then then Table 1 in Part 26 appears to indicate that credit hire will generally be Complexity Band 1. The Civil Procedure Rules (Amendment No. 3) Rules 2023 amends the definitions under Complexity Band 1 to include "road traffic accident related, non-personal injury claims." Presumably this is designed to capture credit hire cases. What this means is that for non-Protocol cases the lowest rung of fixed recoverable costs will apply.
With the Intermediate Track we are back in the realms of the answer to the previous question in that it could theoretically fall within any of the complexity bands and will ultimately be discretionary. Until we see how the Court interprets and applies assignment it’s unlikely we will have much certainty on this particular issue.
A denial of liability is ultimately an ordinary course of litigation. If you could prove that the denial fit the criteria of unreasonable behaviour then there would be a vehicle to seek an uplift on the applicable fixed recoverable costs of 50%. Where there is exceptionality parties can apply for costs exceeding fixed recoverable costs. Generally, however, a liability dispute will not necessarily interfere with the complexity bands, though note that part of the relevant factors for the court to consider when assigning a complexity band include complexity and it is arguable that there is a correlation between liability denials and complexity (to an extent).
That said for Fast Track cases it’s hard to see the court having any discretion to move complexity band given the way they are defined. Intermediate Track affords much more flexibility.
The assignment position will be complicated where there is a mixed claim for both injury and credit hire and such cases are likely to be assigned to a higher complexity band.
Will matters be allocated to their relevant band or will we see judges exercising their discretion to allocation to another track i.e. hire in SCT – Taymur Khan
The first thing just to clarify with this question is that allocation relates to track whilst assignment refers to complexity band.
Ultimately the court retains full discretion over matters of allocation and assignment, even where the parties have agreed one or both of these. Where a claim settles pre-allocation/assignment then the court will have regard to the likely track and band when determining the applicable costs. Case law shows that the court can restrict costs to the prospective track. The reforms do not alter this principle.
On the matter of allocation to Small Claims Track, broadly the normal scope of the Small Claims Track with respect to credit hire is where the claim has a value of less than £10,000.00. Consequently where the value exceeds £10,000.00 then the parties should be identifying to the court that as per CPR r26.9 the claim is not suitable for SCT.
That said if we look at PD 26 there is an aspect of the rules to be aware of. When the court assesses the financial value of a claim it will not take into account any amount not in dispute (i.e. an amount for which judgment has been entered or a specific sum which the Defendant admits they are liable to pay or any specific sum accepted by the Claimant in satisfaction of any item which forms a distinct part of the claim). PD 26.14(8) provides that where a claim value exceeds £10,000.00 but the Defendant makes, before allocation, an admission that reduces the amount in dispute to below £10,000.00 then the normal track will be SCT. There may well be tactical decisions made by parties to secure such an allocation.
The upshot of all of this is that parties are deprived of certainty up and until a matter is allocated or assigned. Except it’s not even that simple! CPR r26.18 allows parties (or the court of its own initiative) to reallocate and/or reassign. Where a claim is allocated to Intermediate Track the rules provide any reallocation or reassignment requires exceptional reasons. Notably the rules do not require this for Fast Track claims, suggesting the bar is lower for such matters.
Whether we see reallocation/reassignment regularly remains to be seen. It’s hard to foresee the judiciary wanting significant numbers of such applications so on this basis it is likely that it is not something which will happen recurrently. That said the fact that such a provision exists highlights how uncertain fixed costs are up and until they are either agreed or determined in finality by the court. The costs of such applications will be fixed and this may incentivise the testing of such applications, at least in the short term.
So to the question at hand, the rules allow judges to exercise their discretion and whilst we won’t know the approach for definite until post-implementation, it’s clear that there is scope for issues to arise.
A big thank you to all of those who sent in questions. We are always available for a chat (and not just about costs!) so if you do have any queries either arising from this article or beyond it then do get in touch!
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