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The battle between the new fixed recoverable costs regime vs a contractual right to costs

On 1 October 2023, the new Fixed Recoverable Costs Regime was introduced, which is likely to affect the recoverability of costs from the opposing party in any claim with a financial value between £10,000 - £100,000 (subject to certain exceptions).

For more information on the new rules, and how they might affect your case, please see our previous article explaining the Fixed Costs Regime Extension.

What’s changed?

The Fixed Recoverable Costs (FRC) restricts the amount of costs that a successful party might recover to no more than a set fixed amount.  The amount will depend on the value of the claim, the stage at which the litigation completes, and the complexity band assigned by the Court.

The intention of the FRC is to ensure that the costs recovered are proportionate to the value and complexity of the claim whilst introducing certainty to litigants.

How does the FRC affect those who already have a contractual entitlement in place for the recovery of costs?

This might be relevant to freeholders with a contractual entitlement to recover costs from their tenants within their lease, or to anyone contracting on terms of business that provide for the defaulting party to pay costs.

As the FRC is new, there has not yet been any case law dealing with contractual provisions dealing with recovery of costs that may conflict with the FRC. It is unchartered territory.  To help unravel the conflict, we turn to Civil Procedure Rule (CPR) 44.5: “amount of costs where costs are payable under a contract”.

What does CPR 44.5 say – and what does this mean?

CPR 44.5 states that “where the court assesses… costs which are payable by the paying party to the receiving party under the terms of a contract, the costs payable under those terms are, unless the contract expressly provides otherwise, to be presumed to be costs which… (a) have been reasonably incurred; and (b) are reasonable in amount…

Put simply, the Courts have been historically reluctant to disapply a contractual liability for costs unless there was a specific reason for doing so, perhaps such as misconduct.

But how will CPR 44.5 interact with the FRC in practice?

FRC vs CPR 44.5

The issue of contracting out of the FRC is yet to be explored by the Courts. Our view is that, given the CPR has not changed, a contractual liability for costs should prevail over the FRC.  However, the Court has retained the discretion to decide what costs orders to make and there may be policy reasons for seeking to move towards the FRC.  We therefore, cannot predict the future with any certainty.

Next Steps

Costs can become the focal point of any litigation and, in extreme cases, a bar to settlement. The extension of the FRC represents a shift in the landscape which will heavily influence the decision to issue proceedings and may assist the parties in reaching settlement earlier.

We recommend reviewing your terms and conditions and any contractual documentation with third parties to ensure that they include a contractual right to recover costs over and above those allowable under the FRC. This will ensure that you have the best chance of maximizing costs recovery in the event of a successful claim.

Contact Us

Our Dispute Resolution team has experience in all types of litigation and regularly act for both claimants and defendants.  We have extensive experience of all track allocations and aim to bring and defend claims in a commercially proportionate way to ensure clients achieve their desired outcome.

If you would like to speak with our dispute resolution solicitors, please contact Amelia Williams on 01202 099 095, email [email protected] or Taylor Anderson on 01202 204 530, email [email protected] or complete the form below. 

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