What the fix?!
Fixed recoverable costs in professional negligence claims: new rules applicable from 1 October 2023
Despite opposition from the Law Society, Bar Council, Professional Negligence Lawyers Association and Professional Negligence Bar Association, professional negligence claims will be subject to the new fixed recoverable costs ("FRC") regime which comes into force on 1 October 2023. Many expected professional negligence claims to be entirely excluded from the regime as the Government and Jackson LJ had confirmed that complex professional negligence claims would be unsuitable for FRC. Professional negligence lawyers and insurers now need to get their heads around what this will mean for them.
We set out below a high-level overview of the new rules. Since this development will have major implications for the way lower value claims are dealt with, we are preparing more resources for our clients with colleagues from across the business. Watch this space.
Which claims will be caught by the new rules?
Under the new rules published in draft by the Civil Procedure Rules Committee on 20 April 2023, simpler professional negligence claims issued on or after 1 October 2023, where £100,000 or less is sought, will be subject to a sliding scale of FRC. The new limits on recovering costs will apply to claims allocated to the fast or newly-created intermediate track regardless of whether the actual sums incurred by the parties are higher or lower than the FRC. Previously, claims allocated to the fast track were subject to fixed costs only in respect of trial costs and any claim which fell outside the scope of the fast track would be allocated to the small- or multi-tracks.
In practice, the new rules are likely to apply to less complex cases where:
1. The sum sought is between £25,000 and £100,000;
2. The trial will last 3 days or less;
3. There are no more than 2 experts giving oral evidence per party;
4. There are no more than 3 parties (2 claimants and 1 defendant or 1 claimant and 2 defendants); and
5. There are no issues of fraud.
As such, this change is likely to have a significant impact on litigants and insurers and will give rise to new tactical considerations.
Claims allocated to the fast or intermediate tracks will be allocated a complexity band which will govern the amount of costs recoverable by the successful party. The court will not have jurisdiction to disapply FRC to claims so allocated, although there is provision for claims to be re-allocated or assigned to a different complexity band in exceptional circumstances. There is limited guidance to assist in differentiating between the complexity bands.
How much are the fixed recoverable costs?
The actual sums payable depend on the stage at which the case settles or is determined and the assigned complexity band; however, the new CPR r. 26.15 and 26.16 suggest that professional negligence claims not suitable for the multi-track will normally be allocated to the fast track and assigned the highest complexity band (4) or to the intermediate track. A guide to the recoverable costs (which have been updated since Jackson LJ's report in accordance with the Services Producer Price Index) is as follows:
• Settlement pre-action: £2,600 plus 15% of the damages awarded or agreed
• Settlement/determination after proceedings issued but before trial: Between £3,000 + 40% of damages to £7,900 + 40% of damages, depending on the stage the litigation has reached
• Determination at trial: £7,900 + 40% of damages + counsel's fees (of between £1,600-£2,900 depending on the sum in dispute)
• Settlement before service of the defence (including pre-action): up to £9,300 + 8% of damages
• Settlement after the first CMC: Up to £13,000 + 14% of damages
• Settlement after disclosure but before witness statements of expert evidence: £16,000 + 16% damages
• Settlement after disclosure, witness statements and expert evidence: £20,000 + 18% damages
• After a 3 day trial where solicitor attends and litigant represented by Counsel: £45,380 + 22% damages
These are cumulative sums, so only the figure shown for that phase will be recoverable in total – not the sum of all previous phases. However, there is provision for additional costs to be recovered in certain circumstances, such as a specialist legal representative (which could be Counsel) drafting pleadings or advising on the merits, or if a mediation takes place.
Claimants will still benefit from the generous Part 36 suite of benefits in the event that they recover more than their offer, although instead of an order for indemnity costs, they will be entitled to a 35% uplift on their FRCs. Where a claimant fails to beat a defendant's offer at trial, the claimant will be entitled to their costs up to the phase when the relevant period expired – and liable for the defendant's FRC up to the trial phase. In practice, these will likely be set off against one another.
Our early predictions as to how this will affect litigation tactics
The actual costs of pursuing litigation have not changed and will arguably increase slightly as there are more contested hearings and as practitioners/parties grapple with the uncertainty brought about by the new rules. As such, this change is likely to discourage some claimants from pursuing claims due to the inability to recover a significant portion of their legal costs.
Insurers are likely to have an advantage here as they will be able to afford to litigate, but a more circumspect cost/benefit analysis will need to be taken at an early stage to ensure that it remains commercially viable to defend the claim.
Since the successful party is "rewarded" in higher costs for reaching later stages of litigation, we can expect claimants to try to push the claim into the next phase as soon as it is apparent that a settlement is unlikely to be achieved; however, this will need to be balanced against the commercial reality that reaching further stages of litigation will likely result in higher levels of irrecoverable costs.
Mediation can easily cost £10,000 per party, so parties are likely to want to explore other methods of ADR. We have had consistent success with blind bidding, which may well become the default ADR method (in addition to Part 36 offers) for FRC claims. Part 36 offers will need to be carefully timed as the "relevant period" will in effect run to end of that stage of the litigation. As such, we anticipate that Part 36 offers will be deployed more often and earlier in the litigation.
As mentioned, watch this space for more news on this development. In the meantime, please do contact us if you would like to discuss how the changes will impact your claims.