What is the Fixed Costs Regime?
The fixed recoverable costs (FRC) regime sets the amount of legal costs that the winning party can claim back from the losing party in civil litigation.
In proceedings today, it is not uncommon for costs to amount to nearly the same or exceed any sum awarded by a court. The purpose of the regime is to give parties certainty about the maximum amount that the losing party will have to contribute to the winning party’s costs.
The New Fixed Costs Regime October 2023
Previously, under the Civil Procedure Rules (CPR), the FCR regime only applied to road traffic accident cases with up to £10,000 in damages. For all other cases, the amount recoverable depended on what the winner’s lawyers charge and whether the court deemed those charges to be reasonable and proportionate, considering the value and complexity of the case.
However, since the implementation of the new regime under CPR 45 and PD 45, which came into effect on 1 October 2023, the regime is now extended to all types of civil proceedings valued at less than £100,000 allocated to the fast and intermediate tracks, that are issued on or after 1 October 2023.
There are exceptions to this general rule including:
- particularly complex cases allocated to the multi-track;
- if a party is protected by CPR r.45.1(6);
- personal injury claims where the cause of action accrues before 1 October 2023; and
- residential housing claims (although this may change with new legislation in 2025).
Effect of the New Fixed Costs Regime
Under the new regime, the maximum costs the losing party will be liable to pay will be fixed at the rates set in the tables at PD 45 of the CPR.
In determining these rates, the court will assign the case to a complexity band, labelled 1 to 4 in ascending order of complexity. The more complex the case, the higher the band it will be assigned to, and the greater the fixed costs applicable to the case.
In deciding the band into which the dispute falls, consideration will be had for the nature of the claim, the amount in dispute, the legal complexity, the number of parties, and the expected duration of the hearing.
There are also certain cases in which the new FCR regime is applied but costs greater than the FRC can be awarded such as where vulnerable parties or witnesses have resulted in additional work leading to costs 20% above the FRC.
How Does The New Fixed Costs Regime Affect Disputes?
At first blush, the new regime may appear to be a welcome change to litigants as it provides an additional degree of certainty as regards adverse costs.
However, it is important to remember that only the recoverable costs are fixed, not what lawyers charge for representing a party in the proceedings. Any shortfall between the recoverable costs and the amount charged by lawyers remains the winner’s liability.
This liability will also be greater as the introduction of complexity bands potentially creates and additional procedural step for which parties will have to determine their applicable band and make representations if their assigned band is disputed.
Arbitration Agreements to agree on costs liabilities
Since the introduction of the new FCR regime, parties are seeking alternative methods to resolve their dispute which allows them to keep in control of their costs.
Unsurprisingly, parties are turning towards arbitration as a method that is more cost-effective and allows the parties to agree terms on costs liabilities.
To ensure arbitration is available when a dispute arises, parties need to enter into an Arbitration Agreement.
International businesses across the world are including arbitration agreements as boilerplate clauses in all their standard contracts. However, there are still many who don’t and end up incurring significant costs when a dispute ultimately arises.
As such, the best approach parties can take to maintain control over their costs is to draft a clear arbitration clause into their contract.
An effective Arbitration Agreement should be in writing and include the following non-exhaustive provisions:
- The seat of the arbitration
- The governing law
- The nature of the dispute under the agreement
- The inarbitrability of specific agreements under the chosen law and elected by the parties
- Whether the arbitration is to be ad hoc or institutional
- The number of arbitrators in the tribunal
- The language of the proceedings
- Specifying any opt-out provisions.
The decisions a business makes on each of these points will have consequences on future arbitrations, so it is essential that expert advice is sought. A poorly drafted, unclear Arbitration Agreement will only result in additional delay and costs.
At Eldwick Law, our expert lawyers can assist in drafting an Arbitration Agreement that suits your business needs and will draw upon their experience in arbitration proceedings to mitigate potential issues arising in the future.
For more information on how Eldwick Law can assist you, or to arrange a consultation, please contact our London office.
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