Fixed recoverable costs in commercial litigation
LAW
COUNTING THE COST
Fixed recoverable costs in commercial litigation
Jonathan Fletcher , a corporate and commercial solicitor at Tilly Bailey & Irvine LLP , examines recent changes affecting the complex matter of assessing costs in civil litigation ...
Testing times – Jonathan Fletcher says there will inevitably be a period of uncertainty while the courts get to grips with a new formula for assessing costs in some civil claims .
From the time of major reforms in the late 1990s , a laudable goal of the civil courts process has been to permit litigation to take place at a proportionate cost .
Consequently , the requirement for proportionality of costs was given enhanced emphasis in the Civil Procedure Rules .
However , what might be considered proportionate could still vary considerably from case to case . Parties in relatively straightforward litigation continued to find themselves in situations where the value of making or defending a claim could be equalled or sometimes exceeded by the costs of pursuing it to trial .
Costs budgeting orders were therefore introduced , after a further review , in an attempt to stem a perceived tide of excessive legal costs in certain types of cases .
An unwieldy process , such as budgeting orders , require the parties to spend time ( and therefore costs ) exchanging information about projected litigation costs , which are then reviewed and determined by the judge , effectively to act as a cap on recoverable costs .
The underlying notion of costs budgeting was that limiting ( from a relatively early stage ) the amount of costs that could be recovered by the ultimately successful party to pre-approved , that is , capped figures , would act as a brake on parties ’ litigation expenditure . It has not been an unqualified success . Not least of the criticisms of costs budgeting is that it leads to additional “ satellite ” litigation , it requires considerable extra work ( and therefore expense ) in itself , and it frequently lengthens otherwise straightforward procedural hearings by turning them into complex , adversarial contests rather than simple timetabling exercises . In many cases , it also produces costs budgets that look distinctly disproportionate .
Costs budgeting remains a feature of higher value and more complex claims , but for others – generally , those with a monetary value of between £ 10,000 and £ 100,000 – successful parties will now be entitled to recover only fixed costs , determined by reference to a prescribed formula .
“ Well , that ’ s a relief ,” a prospective litigant might say .
“ Not so fast ,” might be the response : the new regime introduces a raft of new procedural rules , a new intermediate procedural “ track ” and eight bands of complexity , in effect benchmarks against which to determine the level of fixed costs to be claimed , the amounts of which vary depending on the stage of litigation reached at its conclusion .
Little to no guidance has been issued in relation to the determination of “ complexity ”. There will inevitably be a period of uncertainty about this while the courts work through cases from which principles can be divined .
The level of complexity ascribed to a particular case can make a material difference to the level of fixed recoverable costs that can be claimed , so there will be something to argue about in relation to the question of complexity in many cases .
Specifically , this is likely to mean there will be satellite litigation at the early , timetable-setting stage as parties seek to have their cases allocated to the most advantageous track from their perspective – that might be a lower or higher track or complexity band as parties tactically seek to limit or maximise recoverable costs , as the case may be .
Differences between the track and complexity band to which a matter might be allocated can be significant , and in some cases might be the deciding factor in a party ’ s assessment of the benefit of commencing the litigation process at all .
For example , in the intermediate track , allocation to complexity Band 1 limits recoverable costs to a maximum of £ 25,860 ( although it can be considerably lower ), whereas allocation to Band 4 for the most complex cases means the maximum recoverable costs may be £ 71,580 .
Another factor introduced by the new rules is the recoverability of costs prior to the issuing of court proceedings . Previously , potential parties to litigation could fire off aggressive letters of claim almost with impunity , requiring the receiving party to spend time and money responding to claims that may have little merit .
Now , fixed costs are recoverable in relation to claims which settle or , presumably , are not pursued , after a letter of claim has been sent but before court proceedings have been issued . It seems that no longer can such letters be sent without the risk of incurring adverse cost consequences . Advice in relation to the costs risk of being a litigant will be required in detail at the outset .
While these rules are newly introduced , our experienced commercial litigation team at Tilly Bailey & Irvine LLP is already advising our clients in relation to matters that will fall within the new fixed recoverable costs rules .
If you are or may be involved in a commercial dispute and you are either considering commencing court proceedings or contemplating having to face a claim by someone else , then you can have confidence that you will receive expert , practical and pragmatic advice from the Commercial Litigation team at Tilly Bailey & Irvine LLP .
Contact Alison Leith and Nigel Broadbent on 01740 646000 for further information .
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