Is the Government Prepared to Extend Fixed Recoverable Costs in Civil Cases by Autumn 2022?

INTRODUCTION

On 6 September 2021, the Ministry of Justice (MoJ) announced (here) that it would be pressing ahead with its introduction of fixed recoverable costs (FRC) for all other civil claims up to the value of £25,000 in the fast track – a new process and separate grid of FRC for NIHL claims in the fast track up to the value of £25,000 will also be initiated. Moreover, the MoJ announced that the fast track would be stretched to include ‘simpler’ so-called ‘intermediate’ claims up to the value of £100,000, which would also be governed by FRC.

THE ROAD TO FRC CHANGE

‘If the costs are too high, people cannot afford lawyers. If the costs are too low, there will not be any lawyers doing the work’ – Sir Rupert Jackson (the former Justice of the Court of Appeal).

Fixed recoverable costs (FRC) are intended to provide certainty in civil litigation, as they prescribe the exact amount of costs that can be claimed by the receiving party. FRC are calculated to be proportionate to the value of the claim and the stage that the claim has progressed to. They are supposed to reflect the amount of work that an efficient and effective provider would undertake and there is a fine balance to be struck.

Back in 11 November 2016, the then incumbent Lord Chief Justice (The Right Honourable Lord Thomas of Cwmgiedd) and Master of the Rolls (Sir Terence Etherington), commissioned Sir Rupert Jackson to write a follow-up report to his wider 2010 publication, entitled Review of Civil Litigation Costs: Final Report.

Specifically, the commissioned report was supposed to focus on the potential for extending the FRC regime and on 31 July 2017, Sir Rupert released Review of Civil Litigation Costs: Supplemental Report - Fixed Recoverable Costs.

It was not until 28 March 2019 that the MoJ opened a consultation (‘Extending Fixed Recoverable Costs in Civil Cases: Implementing Sir Rupert Jackson’s proposals’), accompanied by an impact assessment (see here), proposing its recommendations for FRC extension and seeking opinions from those with an interest in civil costs in England and Wales.

Ultimately, the Government’s proposed expansion of FRC mirrored Sir Rupert’s 2017 report, except for the fact that it did not consider it necessary to introduce a new ‘intermediate track’ for claims valued between £25,000 and £100,000. Instead, the following compromise was suggested:

‘We propose to assign these intermediate cases to an extended fast track, where all cases will be subject to FRC’.

The MoJ’s consultation closed on 6 June 2019 after having received 149 responses, but it is not until now, following years of anticipation and delays, that actual reform of the FRC system has been confirmed.

As was also the case moving from the Jackson Report to the Government consultation, the response to the consultation has essentially accepted the consultation proposals without substantial revision. FRC will be extended in the foreseeable future to the majority of claims up to the value of £25,000 and a large proportion of claims up to the value of £100,000.

IMPLEMENTING THE UPDATED FRC REGIME

The MoJ is hopeful that FRC should apply to ‘as many cases as reasonably possible’, but much of this will depend on the implementation date.

Draft rules are set to be submitted for consideration before the Civil Procedure Rule Committee (CPRC), which will work with the Government ‘to ensure the smooth delivery of these reforms’.

However, legal commentators are of the opinion that a ‘very significant amount of work’ is still needed to enforce FRC expansion and, in the absence of official guidance, an Autumn (October) 2022 start date has been speculated.

Subject to CPRC approval, therefore, cases engulfed by reform will be those ‘where the accident or cause of action arises after the implementation date, or in disease and equivalent cases where no letter of claim has been issued before the implementation date’.

THE EXTENT OF FRC EXPANSION

Comprehensive FRC for Fast Track Claims (Besides NIHL Claims)

Part 45 of the Civil Procedure Rules (CPR) sets out the current FRC regime and provides tables of costs for the main categories of low-value personal injury claims, which are Road Traffic Accident (RTA), Employers’ Liability (EL) Accident and Pubic Liability (PL) claims.

Claims traditionally excepted from Part 45 have included non-personal injury RTA, holiday sickness and EL Disease (ELD) claims (mostly made up of NIHL claims).

However, these claims will no longer be exempt, as the more far-reaching FRC system will cover all civil cases within the fast track.

Claims will be allocated to 1 of 4 complexity bands (Band 1 being the least complex and Band 4 being the most complex), each of which carry varying levels of costs liability. Naturally, costs will build as claims progress from pre-litigation to post-litigation and then on to trial.

Allocation should occur ‘as soon as is practicable’. The relevant Pre-Action Protocols will be amended to require parties to endeavour to agree the appropriate track and band pre-action. Claimants will state their proposals (with reasons) in the letter of claim and defendants will do the same in the letter of response. If no agreement is struck, then a judge will make the final determination at the allocation stage. Alternatively, if the case settles prior to issue or allocation and there is disagreement between the parties, a verdict on band allocation will fall to the judge assessing costs.

An unsuccessful band challenge, pursuant to CPR 3.3(5)-(6), will incur a costs liability of £150, subject to ensuing review.

In ‘exceptional circumstances’, a claim will be permitted to ‘escape’ FRC in the fast track, by continued application of CPR 45.29J.  

The proposed grid of FRC for fast track cases are laid out in below – costs are exclusive of VAT and will be modified prior to implementation by reference to services producer price index (SPPI) inflation.

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The grid is representative of costs recoverable by a single claimant in an action, but a 25% FRC uplift will apply for additional claimants whose claims arise from the same set of facts. As regards to claiming counsel’s fees – potentially seen as disbursements for work already included within the FRC (see Aldred v Cham [2019] EWCA Civ 1780) – the MoJ has decided that such fees should only be ring-fenced for Band 4, as counsel would be ‘rarely instructed’ outside of it. Parties that live in the London area and who instruct legal representatives practising in the London area will also benefit from existing provision for a 12.5% uplift on FRC. Upon assessment of costs, for cases that do not undergo a process of summary assessment at the end of a trial, a shortened form of detailed assessment [akin to conditions portrayed in Practice Direction (PD) 47 para 5.7] will ensue, with a fee cap of £500.

Punitive costs consequences will affect litigants that attempt to disrupt the FRC process. For example, a 35% uplift on FRC will be imposed on parties that fail to beat a Part 36 Offer, as opposed to facing indemnity costs. Moreover, a 50% uplift will be imposed on parties that engage in so-called ‘unreasonable behaviour’, which could signify an unsuccessful challenge to band allocation ‘without sufficient basis’. Otherwise, the Government has opted against defining what would amount to ‘unreasonable behaviour’, leaving that responsibility to case law and the courts.

FRC for ‘Intermediate’ Claims Under an Extended Fast Track

‘Intermediate’ cases encapsulated within an expanded fast track and FRC will match the following criteria:

  • They will be valued between £25,000 and £100,000;
  • Trials will last no longer than 3-days if the case is managed properly;
  • Statements of Case will be no longer than 10 pages, witness statements will not exceed 30 pages and expert evidence will be no more than 20 pages (giving concurrent evidence at trial, if applicable);
  • No more than 2 expert witnesses will give oral evidence per party;
  • No wider factors, (such as reputation or public importance) or exceptional circumstances which make the case inappropriate for the intermediate track will be in play, e.g. the ‘inherent complexity’ of some multi-party claims; and
  • They will not seek damages for mesothelioma, or other asbestos-related lung diseases, complex PI, clinical negligence (unless breach of duty and causation have been admitted), child sexual abuse, actions against the police, professional negligence, etc.

Sir Rupert has previously explained why mesothelioma and other asbestos-related lung diseases, managed in accordance with the specialist PD 3D without complaint, would not be adequately described as ‘intermediate’ cases. Although some (e.g. diffuse pleural thickening claims) may be ‘of a value and/or level of complexity’ befitting of an intermediate case:

‘There is not always a clear distinction between mesothelioma cases and pleural thickening cases because i) quite frequently the diagnosis is not clear-cut, at least in the early stages, and ii) some claimants with relatively benign conditions will go on to develop mesothelioma or lung cancer or disabling respiratory disease’.

The proposed grid of FRC for ‘intermediate’ cases, stratified by complexity band and stage of litigation (mirroring the fast track section above), is detailed below – costs are exclusive of VAT and will be modified prior to implementation by reference to SPPI inflation.

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Irrespective of the fact that the Government is not proposing at this time to put forward more prescriptive allocation criteria than that which was advocated by Sir Rupert (leaving judges to ‘exercise their discretion’ to allocate or re-allocate), it has stressed that ‘intermediate’ cases will only be granted leave to exit the FRC regime in ‘exceptional circumstances’. However, in collaboration with the CPRC, the Government will, in due course, discuss the potential ‘helpfulness’ of drafting a new PD, similar to CPR 28.6, which (i) gives guidance on allocation, and (ii) indicates the information needed to make an appropriate band allocation. Were a PD to be developed, a new directions questionnaire would also be required to elicit information.

Unsuccessful challenges to band allocation re ‘intermediate’ cases will incur a costs liability of £300. Further, challenging allocation (or resisting a challenge) without sufficient basis may amount to ‘unreasonable behaviour’ (as described in the fast track section above), incurring additional costs penalties.

For now, the plan is for existing multi-track court fees to apply to ‘intermediate’ cases, at least until the reforms have had time to ‘bed in’.

FRC for NIHL Claims

A Civil Justice Council (CJC) Working Party was created to put forward a bespoke FRC process for fast track NIHL claims back in 2015, with a Final Report being published in 2017. An agreement was subsequently struck between the CJC and claimant and defendant representatives (Karen Jackson of Roberts Jackson solicitors and Ian Harvey of Pro Global, respectively). This was featured in Appendix 11 of Sir Rupert’s 2017 Report.

The Government has now confirmed that it will accede to the CJC’s devised process, as part of the overall package of FRC reforms.

With respect to pre-litigation, it was agreed that the following categories of NIHL claims would fall outside of FRC:

  1. Single defendant claims, where the defendant puts their name on a list for all their cases to commence within the EL/PL Portal.
  2. Single defendant claims commenced within EL/PL Portal, which subsequently fall out of the Portal.
  3. Military claims.
  4. Claims valued at more than £25,000.
  5. Claims with more than 3 defendants.
  6. When a defendant, in their letter of response:
    1. Argues that the occupational loss is de minimis;
    2. Requests a second audiogram;
    3. Requests their own medical evidence; or
    4. Treats the claim as a ‘test case’.

With respect to post-litigation, it was agreed that the following categories of NIHL claims would fall outside of FRC:

  1. Military claims.
  2. Claims valued at more than £25,000.
  3. Claim allocated to the multi-track.
  4. Claims with more than 3 defendants.
  5. When a defendant, in their defence:
    1. Argues that the occupational loss is de minimis;
    2. Requests a second audiogram;
    3. Requests their own medical evidence;
    4. Treats the claim as a ‘test case’.

Any argument by any defendant under sub-categories (a) to (d) will irrevocably remove the ‘whole case’ from the FRC regime. If this occurs pre-litigation, all costs will be assessed on the standard basis. Comparatively, if this occurs post-litigation, FRC will be attracted for pre-litigation stage, with post-litigation costs assessed on the standard basis.

The proposed grid of FRC for low-value NIHL claims, stratified by number of defendants and stage of litigation, is illustrated below – these will be modified prior to implementation by reference to SPPI inflation.

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Figures displayed in the tables are exclusive of VAT and reasonable disbursements. Again, as with Band 4 fast track FRC, counsel’s fees will be ring-fenced. Restoration costs will also carry an additional £1,280 (exclusive of VAT) fee for every restored defendant successfully pursued, plus any reasonably incurred disbursements (excluding counsel’s fees). No agreement was struck on the appropriate trial advocacy fee, though Sir Rupert did Jackson recommend the Band 4 fee for fast track claims i.e. £1,380.

Underpinning the new pre-litigation process will be a bespoke letter of claim, which is to be accompanied by:

  • An audiogram produced by a ‘suitably experienced and approved provider’;
  • A schedule of employment from HM Revenue and Customs (HMRC) to be obtained after the audiogram; and
  • Search results from the Employer’s Liability Tracing Office (ELTO) where necessary.

N.B. Only where liability is denied and litigation is anticipated will a claimant be expected to obtain an Ear, Nose and Throat (ENT) consultant’s report.

The other constituent part of the new pre-litigation process is the defendant’s letter of response, which should set out the position on breach of duty, co-ordinating in accordance with the Association of British Insurers’ (ABI) guidelines.

In respect of the new post-litigation process, the CJC formerly arrived at the conclusion that it would be ‘helpful’ to have standard case management directions for the judiciary, e.g. to control the number and use of experts, but could not agree completely on content. Despite agreeing with the CJC that this would allow parties and courts to manage NIHL claims more efficiently, the Government considers that this should be ‘taken forward by the industry’, i.e. a non-prescriptive approach will be adopted. A Working Group may soon be convened to explore the wording of standard directions in greater detail.

On the matter of separate preliminary trials, e.g. on limitation, the Government was expected to advance ‘tighter controls’ on listing criteria. In its response to the consultation, it simply stated that such trials should be discouraged ‘where they would be superfluous’. Supposing a preliminary trial does take place, ‘the FRC set out in the CJC’s report should still apply to that trial’.

PREDICTED IMPACT OF FRC ON CLAIMS MARKET

The MoJ’s Impact Statement claimed that the FRC reforms would afford solicitors the opportunity to take on an at least 17,000 more claims under fast track FRC and a minimum volume of 11,000 new ‘intermediate’ claims on an annual basis.

However, this will create in an ‘overall net reduction in legal fees’, meaning a reduced income per case for receiving parties. Consequently, small, niche firms may struggle to compete with larger competitors, which could change the complexion (size and number of firms) of the legal services market.

If claimant solicitors are forced to ‘reduce the time and resource they spend on cases’ to counteract the effects of reduced income, this could lead to an influx of professional negligence proceedings, in which unsatisfied claimants challenge unsatisfactory claim outcomes.

Whilst defendant solicitors are likely to see satellite litigation,[1] paying defendants will be buoyed by the fact that the claims will be more efficiently resolved (at least in theory) and litigation costs will be easier to predict. Indeed, when NIHL defence spend in 2017 (see here) was compared against defence spend under a hypothetical FRC scheme (assuming 80% of claims were paid and 20% repudiated), defendants were found to be better off under non-FRC handling, assuming a repudiation rate upward of 50%.

Of course, with regards to NIHL claims, it will be interesting to observe the fraction of cases that fall out of the FRC regime either pre-litigation or post-litigation. On the face of it, there appear to be many ‘normal’ features of claims handling (e.g. requesting repeat audiometry) and factual elements of such claims (e.g. more than 3 defendants), which will render claims incompatible with the CJC’s proposals. Whether this happens in reality is yet to be seen.

REACTION TO GOVERNMENT RESPONSE ON FRC

In the wake of the Government’s consultation, the Parliamentary Under-Secretary of State for Justice, Lord Wolfson of Tredegar QC, maintains that the case for extending FRC remains strong.[2]

Whereas, the Law Society opposes the Government’s proposals for fear of ‘serious damage’ to the justice system and has urged ministers to re-think.[3] Society President, Stephanie Boyce, warns that by extending FRC, ‘a deep-pocketed and unscrupulous party could force their opponent to run up legal bills they’ll never recover’. She also criticises the evidence for reform as being ‘out of date’ as they pre-date both the COVID-19 pandemic and the court reform programme.

Elsewhere, Claire Green, Chair of the Association of Costs Lawyers, considers that a ‘much more rigorous statistical base’ is needed to garner support, with the likely final FRC figures being based on just one law firm’s narrow sample of cases (data submitted by Taylor Rose), yet the entire spectrum of civil litigation will be affected. She also says that the Government must commit to regularly reviewing and updating the system.

In addition, Neil McKinley, President of the Association of Personal Injury Lawyers (APIL), believes that EL Disease claims, specifically, cannot be ‘shoe-horned’ into a simpler FRC fast track system when such cases can be ‘incredibly complex’.[4]

Welcoming the coming changes with more optimism was Matthew Maxwell Scott, Executive Director of the Association of Consumer Support Organisations (ACSO). He is on-board as long as band allocation is guaranteed to be proportionate.

Based on several articles published in the Law Gazette and Legal Futures last week, there is a general feeling that parties and judges have been left to work out for themselves how the significantly overhauled system will work. Without clearer direction for the legal profession, some assert that a long lead-time will be required for the sector to adapt.

What is more, there have been calls for the Government to justify extended FRC success and to conceive a ‘formal review mechanism’, similar to how the Ogden rate is reviewed under the Civil Liability Act 2018. Sir Rupert, in his 2017 Report, recommended a rolling 3-to-4-year review period.

 

[1] Neil Rose, ‘Law Society and APIL lead opposition to fixed costs extension’ (8 September 2021 Legal Futures) https://www.legalfutures.co.uk/latest-news/law-society-and-apil-lead-opposition-to-fixed-costs-extension> accessed 9 September 2021.

[2] John Hyde, ‘Official: MoJ will extend fixed recoverable costs’ (7 September 2021 Law Gazette) https://www.lawgazette.co.uk/news/official-moj-will-extend-fixed-recoverable-costs/5109695.article> accessed 9 September 2021.

Neil Rose, ‘Ministry of Justice to press ahead with fixed costs expansion’ (7 September 2021 Legal Futures) <https://www.legalfutures.co.uk/latest-news/ministry-of-justice-to-press-ahead-with-fixed-costs-expansion> accessed 9 September 2021.

[3] John Hyde, ‘Fixed costs extension helps those with deeper pockets - Law Society’ (8 September 2021 Law Society) <https://www.lawgazette.co.uk/news/fixed-costs-extension-helps-those-with-deeper-pockets-law-society/5109709.article> accessed 8 September 2021.

[4] John Hyde, ‘Fixed costs plans “untested and misguided”, say critics’ (7 September 2021 Law Gazette) <https://www.lawgazette.co.uk/news/fixed-costs-plans-untested-and-misguided-say-critics/5109703.article> accessed 8 September 2021.