Those recently involved in litigation will most likely have been told about the new Fixed Recoverable Costs (FRC) regime regarding costs which came into force on 1 October 2023.
What is the new Fixed Recoverable Costs (FRC) regime?
This new regime (“the FRC”) has created a new “intermediate” track for claims valued between £25,000 and £100,000.
It also applies to claims on the existing fast track, which are claims valued between £10,000 and £25,000.
Claims for £10,000 or less are dealt with on the small claims track. It is not usually possible to recover anything other than court fees and very modest fixed costs on the small claims track.
The FRC applies fixed limits to the amount of costs that are recoverable if a party is successful in court proceedings. Previously, parties could agree an amount for costs, or the court would decide the amount.
Standard vs indemnity costs
The usual rule is that the losing party pays the winning party’s costs. Costs can be ordered or agreed to be paid either on a standard basis or on the indemnity basis.
The difference between the two is that the proportionality of the party’s costs as against the value of the claim is disregarded if costs are awarded on the indemnity basis.
Now under the FRC, costs don’t need to be reasonable or proportionate. A set amount is awarded depending on what stage in the proceedings the case reached, and the complexity of the matter.
Contracting out of the FRC
Business contracts sometimes include provision for a party to recover legal costs from the other party in the event of a breach of contract and/or a claim being made. The court has previously considered the potential conflict between such a clause and the fixed costs recoverable on the small claims track. Please see previous article here. In that case, the court decided that where a party has a contractual entitlement to costs, the court is able to assess costs without applying the usual limitations of the small claims track.
There does not seem to be anything in the FRC or Civil Procedure Rules which would prevent the same logic being applied in respect of a contractual entitlement to costs in a claim on the intermediate track, to which the FRC applies. However, it has yet to be tested in the courts.
If there is a contractual entitlement to costs, the courts will consider the wording of the relevant clause when assessing the amount of costs. As such, it is vital that legal advice is sought when drafting your terms and conditions to ensure that your business is as protected as possible in the event litigation is needed. Our Commercial Disputes team would be happy to help if you have any questions about FRC or business contracts.