New legislation regarding recovering costs in a civil dispute has been recently introduced. Where the government has sought to simplify, it may have inadvertently confused the issue. By Helen Bell, Head of Litigation & Dispute Resolution at Mayo Wynne Baxter
It was not that long ago that a solicitor could confidently advise their client that if they succeed in their case, the court will order the losing party to pay their costs. From an individual’s perspective, if you have to take a matter to court and the court agrees that money is owed then isn’t it reasonable to expect your losing opponent to have to pay your costs? No longer can you make that assumption. When considering the commerciality of seeking redress in the courts, business owners need to factor in these changes.
Over the last decade or so, we have had a huge amount of legislation which limits a successful party’s right to recover their costs.
The well-intentioned aim has always been to try and limit the costs of litigation and bring certainty to those who find themselves wronged and having to consider if they want to bring a claim in court.
One unintended consequence may be to further limit access to justice because the actual costs of taking professional advice from experienced lawyers exceed the costs that they may recover from the opponent – even when that person succeeds and has a very strong claim.
Prior to embarking on litigation, it pays to be armed with some fairly detailed knowledge about how much you might be able to recover, even if you obtain a judgement in your favour.
On the assumption that you succeed in your case, whether you can recover your costs will largely depend on the value of your claim, the complexity and the stage at which the dispute concludes.
For claims with a value of below £10,000, neither party can recover their legal costs even if they obtain a judgement in their favour.
On October 1st 2023, the government extended the fixed recoverable costs (FRC) regime for the large majority of claims with a value between £10,000 and £100,000. Save for few exceptions, the costs that you can recover are now fixed. Whilst this has the benefit
of certainty, it can throw up some scenarios which might be seen to be unfair for the price of that certainty.
One such example is that if you have a claim for, say, £24,500 which is agreed between the parties as involving very complex issues, then the costs that you may recover (currently) from the losing opponent is limited to £2,600 plus an amount equivalent to 15% of the damages (plus £510 per extra defendant) if the matter settles before you issue the claim in court.
Most claims are now governed by pre-action protocols which will require you to set out your claim and take certain steps prior to issuing proceedings in accordance with that protocol. A failure to comply with a pre-action protocol can result in an adverse costs order. It follows, therefore, that the stage before issuing proceedings has the potential to be lengthy and involve a lot of time and costs.
The new FRC regime is somewhat at odds with the policy behind the pre-action protocols. Now, the successful party will recover exactly the same amount of costs regardless of whether they have settled the claim shortly after issuing a letter before claim, or settled the claim after having complied with various steps under the protocol, but before issuing proceedings.
The policy behind the FRC regime is to encourage early settlement, but it may also encourage the party bringing the claim to cut corners in their haste to issue proceedings and move onto the next stage which brings with it the ability to recover higher costs.
There are many other factors that affect the ability to recover costs. For example, if a party unreasonably refuses to engage in settlement discussions, they run the risk of an order that they are not entitled to recover any of their costs even if they have succeeded at trial. The court will always retain the discretion to determine who pays whose costs.
A party might also argue that they have a written contractual right to recover costs in certain circumstances. In such cases, this may conflict with the FRC regime. Currently, the position seems to be that a contractual right to recover costs will prevail over the FRC regime, but that right is still restricted by the court’s right to limit those costs to what has been reasonably incurred, and that are reasonable in amount.
The new extended regime of fixed recoverable costs reinforces the government’s stated intention to provide certainty for litigants. However, the impact is likely to have unintended and unfair consequences in some cases.
Until we have a body of case law to assist us in how to interpret the new regulations, the regime poses many unanswered questions. What remains clear is that it will pay to ensure that you have a thorough knowledge of the cost’s consequences of proposed litigation before you embark on any communications with an opponent.
Helen Bell – a partner in Mayo Wynne Baxter LLP who heads up their Litigation & Dispute Resolution department and specialises in property disputes.
