Fixed recoverable costs in commercial cases: Proposals and potential implications

8th August 2017

Walker Morris’ Head of Commercial Dispute Resolution Gwendoline Davies explains Lord Justice Jackson’s proposals to extend the fixed recoverable costs regime to commercial cases and comments on potential implications for clients and commercial dispute resolution.

Latest round of Jackson reforms

Anyone who has been involved in commercial litigation and dispute resolution in England and Wales in the last few years will be aware of the wide-ranging reforms to civil procedure and cost and case management that have been implemented as a result of Lord Justice Jackson’s review of civil litigation costs [1].  On 31 July 2017, Jackson LJ published his supplemental report on fixed recoverable costs (FRC) [2], which looks set to shake things up once again.

Jackson’s view is that, so far as possible, to create a clear and predictable cost structure to inform a party’s pre-emptive assessment of whether a legal case is worth pursuing, and therefore to promote access to justice, legal costs should be controlled in advance, either via FRC or via the costs budgeting process that was imposed as part of his 2013 reforms.

FRC – that is, a scheme by which costs at a fixed level only can be recovered from a losing party by a winning party – have been in effect in relation to some limited and specified types of case for many years (for example, small claims, certain road traffic claims, certain low value personal injury claims, and the like). However, Jackson LJ’s most recent report is significant because it proposes that the FRC regime should be extended to a much wider range of cases than ever before – even including commercial claims up to a value of £100,000 (and, for some cases on a voluntary basis, even up to £250,000).

Jackson’s FRC proposals now fall to be considered by the government, and will no doubt form the basis of a public consultation. In all likelihood, though, Jackson’s proposals will be implemented, and potentially soon [3].

What will FRC mean for commercial dispute resolution?

The proposed reforms that are most likely to impact commercial clients and lawyers are the proposals that:

• FRC apply in all fast-track [4] cases, including any particularly complex tracked possession claims or housing disrepair claims, property disputes, professional negligence claims and other claims at the ‘top end’ of the fast track;
• a new ‘intermediate’ track be created for claims for debt, damages or other monetary relief up to a value of £100,000 and that FRC apply in intermediate track cases;
• a new voluntary pilot scheme involving FRC be introduced for multi-track cases where the sum in issue, or the value of the property or rights in dispute, is up to £250,000.
• The report recognises that if recoverable costs are to be limited to a fixed sum, then the work to be done by the parties and their lawyers should also be controlled. To facilitate this, Jackson also proposes the streamlining of certain aspects of case management where relevant.  For instance the report suggests: maximum page limits for statements of case, witness statements and expert reports; that disclosure be restricted to documents or classes of documents specifically ordered at the initial case management conference; and that trials be as short as possible (ideally limited to one day and certainly no more than three).

The numbers of cases that are likely to be caught within these parameters, and which may therefore become subject to FRC, are huge.

As mentioned above, where a case is subject to FRC, the level of costs that a successful party can recover from its opponent at the conclusion of the case is limited. For each of the types of claim caught, Jackson’s proposals specify, by reference to both the level of complexity of the claim and to the different stages involved in bringing the case to trial, the level of costs that can be recovered.  For example, pre-issue or pre-defence costs in the most complex ‘intermediate’ track claims are limited to £8,000 + 8% of damages; and pre-action costs in a multi-track claim progressed under the FRC pilot scheme are limited to £10,000 and there is a maximum overall cap on recoverable costs for pursuing such a case of £80,000.

It is important to note that, regardless of the sums that can be recovered from the other side, the FRC regime has and will continue to have no direct impact on the level of fees that a lawyer can charge to his or her client. More than ever, the key for commercial clients and their lawyers alike will be to get the balance right, so that the right amount of work is done by lawyers with the relevant expertise, ensuring that cases are managed effectively and efficiently.

WM Comment

The driving force behind Jackson’s review and the FRC proposals is to provide increased upfront control and certainty of litigation cost and risk. This, in turn, should improve access to justice, helping clients to decide whether to pursue a case, and then to get the right result at the right price.  To what extent these proposals are implemented, and how successful they turn out to be, remains to be seen.  However, FRC are generally supported by small and medium-sized enterprises and their industry representatives.  It therefore seems possible that if/when implemented, Jackson’s FRC proposals could result in an increase in low to mid-value commercial claims being more readily resolved via streamlined litigation.

Walker Morris will continue to monitor and report on developments.

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[1] https://www.walkermorris.co.uk/publications/costs-compliance-update-jackson-practice/;  https://www.walkermorris.co.uk/publications/jackson-reforms-became-effective-1-april-know-changed/; Review of Civil Litigation Costs Final Report
[2] Review of Civil Litigation Costs Supplemental Report on Fixed Recoverable Costs
[3] The government is on record as supporting the extension to FRC for as many civil litigation cases as possible.  See, for example, the Transforming our justice system vision statement issued on 15 September 2016 jointly by Lord Chancellor Liz Truss, Lord Chief Justice Lord Thomas and the Senior President of Tribunals
[4] i.e. cases up to a value of £25,000 and where trial is likely to last no longer than one day and with limited expert evidence, see CPR 26.6 (4) and (5)