On 1st October the foreshadowed extension of the Fixed Recoverable Costs regime came into effect, ushered in with a significant overhaul of the Civil Procedure Rules. The rules have introduced the concept of Fixed Recoverable Costs (FRC) into a significantly wider range of cases, with the amounts to be recoverable set out in tables in CPR PD 45.
Throughout the numerous consultations there were concerns that the amounts being proposed were not enough to cover the actual costs that would be incurred in running these cases. The riposte from the supporters of the FRC extension was that the amounts were the sums that should be ‘reasonably recoverable from the paying party’ and not necessarily the total cost of completing the work. This approach advocates that the receiving party’s legal representative should seek the shortfall from their client in circumstances where the FRC allowed will not cover the actual costs incurred.
Seeking such shortfalls is a path littered with many pitfalls and traps. The number of solicitor/own client disputes has risen following introduction of the recovery of success fees from damages. The new FRC extension will open the floodgates for further disputes to arise and the 50 year old Solicitors Act does not assist with managing these types of disputes in a reasonable nor proportionate way.
As such, in an attempt to avoid the need to seek shortfalls where the new FRC regime applies it will be necessary to maximise the amount of FRC allowed. There are a number of options that the new rules provide for an increase in the amount recoverable as set out in the tables contained within CPR PD 45.
The benefits of beating a Part 36 offer have been tempered for matters that now fall within the extended FRC regime. Previously, beating a Part 36 offer provided for the reward of obtaining an indemnity costs order and the additional bonus in respect of the recoverability of costs that follows.
Unfortunately, the benefits under the new rules for Part 36 offers are restrictive for a Claimant beating their own Part 36 offer. When a Claimant’s Part 36 offer is accepted outside of the relevant period then the rules only allow for the FRC to be recovered up to the date of acceptance (CPR 36.13).
However, if the same Claimant Part 36 offer is beaten at trial then the Claimant is entitled to 35% of the difference between the FRC that would have been allowed when the relevant period expired and the stage applicable at the date of judgment. Whilst this may be minor additional cost recovered it can still provide a helpful amount to meet any potential shortfall.
Unreasonable behaviour is introduced within the CPR and is going to become a frequently. This is because it will result in a 50% increase in the amount of FRC allowed if the paying party is shown to have acted unreasonably, or, a 50% reduction in the amount of FRC allowed if the receiving party is considered to have acted unreasonably.
Unreasonable behaviour is described as ‘where a party is considered by the Court to have acted unreasonably’ and CPR 45.13 (3)(a) defines unreasonable behaviour as ‘conduct for which there is no reasonable explanation’. It is imagined that this will be a concept that will remain a ‘know it when you see it’ concept and an area where judicial comment and interpretation will be required.
This will create significant satellite litigation because the rewards for establishing ‘unreasonable behaviour’ are significant for both parties with limited adverse costs implications.
Exceptional circumstances allow for any receiving party who considers that there are exceptional circumstances to seek to recover an amount that is greater than what would be allowed as FRC (CPR 45.9). Where exceptional circumstances are found then the Court can either summarily assess those costs or make an order for the costs to be subject to detailed assessment.
The wording mirrors that of the previous FRC regime and it is anticipated that the test as set out in Ferri v Gill, namely that exceptional circumstances are a high bar, is likely to apply and reduce the likelihood of being able to successfully raise this argument.
Vulnerability has been included as another factor that the Court will consider assessing FRC. CPR 45.10 allows for a greater amount to be allowed where: a party or witness is vulnerable, that the vulnerability has required additional work, and, that the additional work is for an amount at least 20% more than the amount that would be allowed for FRC.
If the criteria are met then the Court can either summarily assess the costs or make an order for detailed assessment. Both of these options could result in costs being assessed in amounts significantly more than FRC.
Caution should be advised in respect of arguments relating to exceptional circumstances and vulnerability because the CPR sets out that any failure to obtain costs assessed at more than 20% of the FRC are going to be awarded the lower of either the FRC or the amount assessed (CPR 45.11).
Kris Kilsby is a Costs Lawyer at Paramount Legal Costs and a Council member of the Association of Costs Lawyers. For any further questions or queries about costs and costs budgeting please get in touch at [email protected]