On The Tenth Day of Christmas.....Fixed Recoverable Costs Where Are We Now?

After a few false starts the extended Fixed Recoverable Costs (“FRC”) regime came into effect on 1 October 2023 (“the Rules”).

The extension of this regime represented one of the most substantial changes in the legal landscape over the past decade providing for recovery of limited legal costs to most commercial claims valued at between £25,000 and £100,000 where such fixed costs had not previously applied to commercial claims. 

Just over one year in clearly the regime is still bedding in, and, combined with the ongoing backlog in the courts following the Covid pandemic, we remain in a position where there is little to evidence the Court’s interpretation of the new Rules.

The Rules have been tweaked since their implementation, and here we consider two of the most significant amendments since their implementation.

Contracting Out

Before the October 2023 implementation, parties could contract out of fixed costs under the fast-track scheme. 

This was a long-held position, and it was possible for parties to contract out of fixed costs either in an agreement that was completed before the dispute arose or it was equally possible for parties to agree the fixed costs did not apply to them whilst in active litigation.

This position was confirmed by the Court of Appeal in the Doyle v. M&D Foundations & Building Services Limited case. 

Because new rules came into force when the existing Fixed Recoverable Costs regime was extended to include commercial disputes, a question arose as to whether the Doyle decision remained good law, as CPR 45.1 (3) (b) (as effective from 1 October 2023) stated that “the court may only award costs in an amount that is neither more nor less than the fixed costs allowed by the applicable Section and set out in the relevant table in Practice Direction 45." 

There was uncertainty as to what two parties who fully consented to contracting out of the regime would be held to, and liable for, by way of costs if their claim fell within the FRC Rules. 

There was much discussion in legal circles surrounding what was meant to be achieved by the Rules in relation to contracting out and accordingly the Civil Procedures Rules Committee agreed to amend CPR 45.1 (3) (b), with effect from 6 April 2024,  to resolve the ambiguity, absent any judgment on the point, but this amendment states the following:

 In rule 45.1—

(a)in paragraph (3), in the full-out—

(i)after “subject to”, insert “rule 44.5 and to”; and

(ii)after “Practice Direction 45”, insert “, unless the paying party and the receiving party have each expressly agreed that this Part should not apply”;

This change is welcomed to provide certainty in relation to disputes where a party considers they have a contractual entitlement to recoup costs in full notwithstanding the fact that the dispute in question falls within the parameters of the extended FRC regime and thus protects freedom of contract. 

FRC Determination

On 1 October 2024 further amendments to the Rules came into force which detailed the procedure for seeking determination of costs under the FRC regime.

These Rules were brought into effect through The Civil Procedure (Amendment No. 3) (2024).

From October 1 2024 the Rules introduced a structured process for the summary determination of costs in proceedings where FRC apply. 

The process includes a requirement for parties to file a new Precedent U form at least 24 hours before a hearing. The form has three sections: 

• Section A lists the fixed costs, disbursements, and court fees; 
• Section B allows the paying party to dispute amounts; and 
• Section C is for costs exceeding the normal fixed costs under specific exceptions. 

If the court cannot make a determination at the dispute hearing, it has discretion to direct how costs should be determined, without the need for a further hearing to deal specifically with the costs in question.

The court will typically determine costs without a hearing, unless a party requests one, within 21 days of the court’s initial determination. 

The Rules are drafted on the assumption that a completed Precedent U, plus any other evidence provided by the parties, will give the court sufficient information to make a determination of the costs which remain in dispute.

The costs of applying for a costs determination are fixed at £500, with additional costs for any subsequent hearing unless the applicant achieves a significant adjustment in their favour.

Conclusion

It is important to remember that there are limited FRC judgments to follow as precedent as the Regime remains in its infancy, and so there remains a significant amount to be clarified and determined by the courts, however, of equal importance is the fact that within the Rules the Court has the discretion ultimately to decide what orders they wish to make in relation to costs and have the ability to make an order that a claim falls within the FRC regime even when, on the face of it, those Rules do not apply to the dispute in question.