It has now been a year since the extension of fixed recoverable costs (FRC) – this article reviews the impact of the new rules, explores concerns around their implementation, and considers what the next 12 months might hold, particularly as we await further reforms, including the introduction of FRC in lower-value clinical negligence claims.
To recap, the FRC extension introduced significant reforms to the cost recovery regime in civil litigation. The changes, which came into force on 1 October 2023, saw FRC extended across the fast track for claims valued between £10,000 and £25,000. In addition, a new intermediate track was created for claims worth between £25,000 and £100,000. These reforms were designed to bring greater cost predictability and proportionality to litigation, ensuring that legal costs remain in line with the value of the claims being pursued.
However, while the reforms set out a new structure, the practical implementation of these new rules has brought a number of challenges.
As the FRC reforms apply only to claims issued after 1 October 2023, it is still too early to see their full impact on the litigation landscape. With the current backlog in the courts, cases are taking longer to progress and we are yet to witness significant cost arguments arising from these new rules. However, based on the early signs, it is clear that there are several areas of concern that could lead to frictional litigation in the near future.
For compensators, the extension of FRC has been largely welcomed, providing more certainty regarding cost exposure in lower- and mid-value claims. This predictability has allowed compensators to assess litigation risks more efficiently and budget for costs in a more streamlined manner. However, some ambiguity in the wording of the new rules has caused concern across the industry, raising the potential for disputes regarding how cases are allocated and which complexity band they should fall into.
One of the most pressing issues with the new rules is the potential for ambiguity around case allocation. The reforms also introduced new complexity bands, which dictate the recoverable costs depending on the complexity of the case. The difference between these bands can be substantial, particularly in claims worth closer to £100,000. This is likely to lead to disputes between parties over which complexity band a case should be assigned to, as claimant solicitors seek to recover the maximum possible costs.
These allocation disputes are expected to result in frictional litigation, with parties arguing over where a claim should sit within the FRC framework. The industry had hoped for clearer guidance when the rules were published to mitigate this risk. Unfortunately, without this clarity, it seems likely that the courts will have to resolve these disputes over the coming months, which could erode some of the intended benefits of the reforms, namely reducing litigation costs and delays.
Another area where we expect to see frictional litigation arise is in relation to disbursements. The rules around recoverable disbursements have already been flagged as a potential flashpoint, particularly when third-party agencies are used to carry out tasks that might otherwise be handled by a solicitor. Questions around the necessity and proportionality of such disbursements are likely to generate disputes, especially in claims falling within the intermediate track where higher value and more complex cases tend to incur greater costs.
The industry is waiting for the Government to respond to a consultation on disbursements in clinical negligence cases, but the broader issue of recoverable disbursements will undoubtedly affect the wider litigation landscape. These disputes could add further costs and delays to the process, again undermining the core goals of the FRC reforms.
Another area of significant interest is the introduction of FRC for lower-value clinical negligence claims. While the Civil Procedure Rule Committee (CPRC) has drafted rules, progress has been slow, with the reforms delayed due to ongoing consultations and the complexity of clinical negligence cases. The current expectation is that these rules will not come into effect until spring 2025.
For compensators, the introduction of FRC in clinical negligence claims is eagerly anticipated, as these cases often involve disproportionate legal costs due to the need for expert medical evidence. However, concerns about the potential for claimants’ costs to exceed the recoverable amounts remain prevalent. The complexity of clinical negligence claims could also lead to further disputes over case allocation, adding to the friction already expected under the broader FRC regime.
While it is still too early to draw firm conclusions on the overall impact of the extended FRC, it is clear that the industry will need to monitor developments closely over the next 12 months. We expect to see frictional litigation increase as parties test the limits of the new rules, particularly in relation to case allocation and disbursements.
Compensators should be prepared for potential challenges as these disputes unfold, particularly where ambiguity in the rules is likely to give rise to arguments. Proactive case management and a focus on cost containment will be key strategies for insurers moving forward.
In summary, while the extension of fixed recoverable costs has brought much-needed predictability to certain areas of litigation, the next year will be crucial in determining how effectively these rules are implemented and whether they achieve their intended purpose. The potential for disputes around allocation and disbursements means that the litigation landscape remains complex, and the industry will need to stay alert to new challenges as they emerge.
For more information, please contact:
Howard Dean - hdean@keoghs.co.uk
Natalie Larnder - nlarnder@keoghs.co.uk
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