What will the introduction of the new Fixed Costs Regime mean for solicitors and clients?

The starting point is of course always the Rules themselves – these are set out in terms of inter-partiesrecovery in the new CPR Part 45 and the associated Practice Direction – the new Fixed Costs Tables are likely to become mandatory reading for all; litigators, partners, finance managers and accountants.

On 1 October 2023, bar any unlikely last minute Government change of heart or a successful Judicial Review Application, the new Regime will no longer be an intellectual debating point but a practical reality for lawyers and their clients alike, in most types of litigation (including RTA cases) where the value of the claim extends up to £100,000. It is the extension of the Rules to these new higher financial limits that this Article concentrates upon.

It is important to Note that for RTA claims, the new regime relates to cases where the cause of action accrued after 1 October 2023, not after the date proceedings were issued. The new major change is the introduction of a New INTERMEDIATE Track for cases valued between £25,000 and £100,000 - TABLE 14. These cases will now be governed by a new mosaic which includes 15 separate STAGES of the progression of the case, which are then read against 4 Bands of Complexity. RTA cases will be found in all 60 squares of the mosaic! It is impossible at this distance to identify all the contentious issues which will inevitably arise interpretating these new provisions. The Government are already committed to a review of the new Rules before they have even become operative. What is certain, is that there will inevitably be a relative tsunami of disputes as to what the new Rules mean and what they do not mean – for example without wishing to be unnecessarily tendentious, it does not appear to be a helpful piece of drafting to define to a Band of complexity as follows: “Any more Complex claim where more than one issue is in dispute, but which is unsuitable for assignment to complexity band 2” – a non-definition definition.

What follows is not legal advice, but rather a set of issues / questions, for practitioners and clients alike.

First – if your client is going to be asked to meet any irrecoverable costs from the defendant, how are you going to explain that to the client both in principle and practically? If people thought the Court of Appeal’s decisions in Belsner v CAM Legal Servies [2022] EWCA Civ 1987 and Karatysz v SGI Legal [2022] EWCA Civ 1988, were the last word on Solicitor / Client disputes, I’m afraid they are likely to be very disappointed.

Secondly – in my many years (over 30) of litigation experience as both a Solicitor and Barrister, I have never seen a litigation dispute that moves in a strictly demarcated linear fashion. How much can a solicitor charge a client for the partial completion of each one of the 60 squares of the work? The complexity of the work is divided into 4 categories but there is no sub-division for the partial completion of the 15 individual stages of work – which relate primarily to the timetable of the litigation, not the completion of the work required to be undertaken at each stage e.g. correspondence, internal meetings, client meetings, pleadings, disclosure, witness statements etc. Many of these things are commenced, sometimes even concluded before the litigation has even commenced – in such cases is the Claimant limited to just Stage 1 costs?

Thirdly, what training is in place for fee-earners at law firms as to how to change their working practices to meet the new regime and the consequential time recording and billing processes? If this has not been addressed in detail already, the time to do so is rapidly disappearing.

Specialist advice may be required by many smaller firms, where they are not as easily able to access the required technical and legal support. Historically, fee-earner time recording has focussed on the amount of time spent undertaking work. The new regime at present seems (some would say correctly) concentrates on the completion of individual elements of work, not for a fixed fee for how long it has taken to complete them.

This is likely to pose many complex management challenges in interpreting the value of the work being undertaken by fee-earners, as their work moves primarily to an output basis of evaluation rather than as historically, effectively an input basis of assessment. It is not difficult to see the challenges that this will pose for fee-earners, managers, and clients alike. This will be particularly the case as work transitions from the “Old” to the “New” styles of time recording, billing, and inter-parties costs recovery.

Fourthly, where the solicitor intends to charge the client for the irrecoverable element of their costs, what are their professional obligations in terms of updating clients as to their potential costs liabilities in the new regime? When and in what level of detail will this be necessary? There are many disputes up to £100,000 where the required work may change many times as the case develops – e.g. upon discovery of new witnesses or documents and where an Expert modifies their Opinion.

More complexity does not necessarily equal financial ruin. For those firms that quickly adapt to the new regime, opportunities will inevitably exist. If the work is undertaken efficiently with appropriate planning, firms may be able to recover more from the Defendant than is possible under the existing regime on a time spent basis. The focus is now on the outcome not the input. For most stages of the work, the recoverable cost is a combination of a fixed fee and a percentage of the damages recovered – the better the result obtained the better the financial reward for the lawyer - see S1, S3, S4, S5, S6 and S8 on all 4 bands of complexity.

Firms are not compelled to operate under the new fixed costs regime. It is possible to contract out of the proposed new fixed costs regime. However, there will in my experience be a lot of market pressure to adopt the new regime and if a firm intends to contract out of the new inter parties fixed costs regime, there will in all likelihood be a professional obligation to at least explain to the client what the new regime would mean and why they are not prepared to operate under that regime.

The most important hearing in litigation moving forward post 1 October 2023, is likely to be the Allocation hearing. This hearing will now not only determine which track a case will be conducted on (Small, Fast, Intermediate or Multi) it will also determine which band of complexity will be applied: 1,2,3 or 4. It is not difficult to envisage that (at least in the short term) Allocation hearings will be extended and contentious particularly as the Judges and Lawyers become familiar with the new Rules and their consequences for practitioners and clients alike.

Fixed Costs rely on things working generally according to anticipated norms of behaviour. If the Defendant (or their Insurer) acts unreasonably in the conduct of their Defence there are now in-built potential sanctions in the new regime. Where the Claimant believes that such unreasonable behaviour has occurred (yes I know it’s hard to believe it will ever happen) it can make an Application for such behaviour (“conduct for which there is no reasonable explanation”) to be reflected by having their fixed recoverable costs uplifted by 50%. It will be interesting to see how this is applied if the Defendant refuses an invitation to attend a mediation – will that in of itself constitute unreasonable behaviour and lead to up to a 50% increase in the recoverable fixed cost? It certainly should at the very least encourage every Claimant to investigate this.

There is also now in place in the new Regime a more punitive sanction where the Claimant betters its own Part 36 offer. Additional costs equivalent to 35% of the difference between the fixed costs for the stage applicable when the relevant period expires and the stage applicable at the date of judgement.

This really is a brave new world. Good luck.