It’s a fix! The Fixed Recoverable Costs regime and the impact on professional negligence claims

The 1 October 2023 saw the Fixed Recoverable Costs (“FRC”) regime extend beyond personal injury claims in the fast track to almost every area of civil litigation, including professional negligence, and sees the introduction of a new Intermediate Track.

We address in this article, the impact of the FRC regime on Professional Negligence claims, and how this affects the recoverability of costs.

The FRC Regime

With few exemptions, the new FRC regime is intended to control costs in advance by affording parties better visibility as to recoverable costs. Its proponents argue that as a result, legal expenditure will become more certain and FRC will lead to an increase in access to justice and facilitate earlier resolution to disputes.

In addition to the FRC regime applying to professional negligence claims falling within the existing Fast Track threshold (for pleaded damages between £10,000 and £25,000), the newly created Intermediate Track will accommodate claims worth between £25,000 and £100,000 (CPR Part 26.9 (7)-(9)). It will also apply where cases can be tried within three days or less and where there are no more than two expert witnesses giving evidence for each side.

Within the Fast and Intermediate tracks, cases will now be allocated to one of four complexity bands and each complexity band, plus the stage the claim has reached, will determine the level of costs recoverable for each stage of the claim. The higher band the claim is assigned to, the higher the level of recoverable costs.

Fast Track Cases

For the Fast Track, Professional Negligence Claims fall within complexity “Band 4”, i.e. the highest Band.

Practice Direction 45 of the CPR (Table 12) sets out the relevant fixed costs for fast track claims and can be found here.

By way of example, as Professional Negligence cases fall within Band 4, if a claim was allocated to this track and was to settle before issuing proceedings the recoverable costs are £2,600 plus an amount equivalent to 15% of the damages plus £510 per extra defendant.

If the claim is disposed of at trial, the recoverable costs are fixed as £7,900 plus a trial advocacy fee (of between £580 to £2,900) and an amount equivalent to 40% of the damages agreed or awarded plus £760 per extra defendant.

Intermediate Track Cases

For the new Intermediate Track, the relevant bands and how these apply to professional negligence claims are less straightforward.

CPR 26.16 (Table 2) of sets out how claims in the Intermediate Track should be assigned and is as follows:

• Band 1: Any claim where only one issue is in dispute; and the trial is not expected to last longer than one day, including: (i) road traffic accident related, non-personal injury claims; and (ii) defended debt claims.
• Band 2: Any less complex claim where more than one issue is in dispute, including personal injury accident claims where liability and quantum are in dispute.
• Band 3: Any more complex claim where more than one issue is in dispute, but which is unsuitable for assignment to complexity band 2, including noise induced hearing loss and other employer’s liability disease claims.
• Band 4: Any claim which would normally be allocated to the intermediate track, but which is unsuitable for assignment to complexity bands 1 to 3, including any personal injury claim where there are serious issues of fact or law.

However, the guidance on how the above banding applies in practice is limited. For example, what exactly does “one issue” mean in the context of professional negligence cases i.e. would liability be “one issue” (regardless of issues relating to breach and causation)? How is a determination to be made for professional negligence claims where there is more than one issue in dispute? How is the extent to which Band 2 and/or 3 are unsuitable for the claim determined?

To the extent the parties cannot agree on the complexity band, the matter will fall to be determined by the Court at the allocation stage. Although the court retains a broader discretion to re-assign the claim to an alternative track after allocation, once directions have been set the chance of a claim being re-assigned to an alternative track is significantly reduced. The need to establish a fundamental change to the claim is required in order to re-assign a claim to an alternative track after directions are set.

Practice Direction 45 of the CPR (Table 14) sets out the relevant fixed costs for the new Intermediate Track and can be found here.

By way of example, the recoverable costs for stage 1 (pre-issue to service of the defence) for each of the four complexity bandings is set out below.

There is a concern, taking the above table as an example, that the new regime is not in line with the objectives of the Professional Negligence Protocol which is geared towards the early exchange of information with a view to settling claims at an early stage (saving cost and time) so as to avoid the need to issue proceedings. However, the new regime has the potential to undermine this objective as fixed costs apply (for stage 1) from the pre-action stage up until the service of a defence. Therefore, as soon as liability is denied, there is little incentive for the parties to try and resolve the dispute at the pre-action stage and it is arguable that this will lead to more claims being issued as claimants try and maximise their costs recoverability for this stage.

For larger and more complex professional negligence cases, FRC’s will not apply and claims will be allocated to the multi-track in the usual way. That said, Judges have retained the discretion to allocate more complex claims, which are valued at under £100,000, to the multi-track so that these cases will not inappropriately be captured by the extended FRC regime.

What next?

Whilst many welcome the widening of the FRC regime on the basis that it brings certainty to costs recoverability and exposure, the extension and application of the regime beyond personal injury claims is not without controversy.

What this means in practice for Professional Negligence claims remains to be seen but it is clear that parties will need to prepare early and think carefully about cost considerations before commencing litigation. On the one hand this may result in swifter settlements (although noting the concern outlined above about the potential for more issued claims). In other cases, it may exclude valid claims as there may be too significant a shortfall between the costs incurred and the costs ultimately recovered under the regime for them to consider it worthwhile pursuing a claim.

There is also likely to be an inevitable period of uncertainty as practitioners and the Court work through the new regime and how this applies in practice to their cases. This is likely to result in satellite litigation (particularly in respect of the allocation of the bandings due to the significant cost implications) in the short term which will have the effect of increasing costs.

Further information

If you have any questions regarding this blog, please contact Jemma Brimblecombe in our Dispute Resolution team or Holly Shaw in our costs team.

About the authors

Jemma is a Legal Director in the Dispute Resolution team. She has a wide range of experience in dealing with a variety of commercial disputes, including breach of contract, breach of trust and contractual disputes. Jemma also has experience of dealing with civil fraud claims.

Holly joined Kingsley Napley in 2014 and is an Associate in the Costs team. Holly’s practice covers a wide range of civil litigation, with a particular focus on costs in defamation and privacy proceedings.