CM October 2023

OPINION
REGIME CHANGE
A new costs regime is about to land for debt
claims, and it could hurt your bottom line.
AUTHOR – Paula Swain
IF you are familiar with litigation in
the courts of England and Wales, you
will be acutely aware of the challenge
of trying to recover your legal costs.
Late payment interest and express
terms providing for an indemnity on
legal costs can be mitigating factors, but there
will always be those cases where the court
decides to reduce your costs recovery. A new
set of court rules could worsen that position,
leaving a larger gap between your costs and
your recovery.
From 1 October 2023, a new intermediate
track and corresponding fixed recoverable
costs for less complex claims valued at more
than £25,000 but not more than £100,000 will
arrive through changes to Practice Direction
45. Your ability to recover legal costs from the
other side will be prescribed and limited, and
it is very likely that you could find yourself
with difficult decisions to make about how
far you are willing to push a case if your costs
exposure is likely to far exceed your ability to
recover those costs.
The complexity of a claim becomes a point
for consideration (and potential dispute) as
the amount for fixed recoverable costs will
depend in part on the complexity band a case
is assigned (there are four). While complexity
will be determined by the court, an early
indication suggests that debt claims will sit
within band one – being the least complex
cases the court expects to deal with. I will
not be alone in feeling some concern here,
particularly when I think back on almost 25
years of defended debt litigation. There have
been some technically complex and difficult
disputes within the value banding of £25,000
to £100,000 which have incurred significant
amounts of management and legal time. How
this new regime will deal with those hard to
resolve and heavily contested cases is a risk to
be managed.
Where the complexity band to which a
claim is assigned determines the costs that are
to be allowed, there could be many arguments
about whether a band one assignment for
debt is appropriate. The parties can agree the
complexity band to which a claim is assigned
(although that is not binding on the court), and
where parties are legally represented more
agreement might be possible. This might be
a harder discussion where your opponent is a
litigant in person.
Costs exceeding fixed recoverable costs
The court may consider a claim for an amount
of costs (excluding disbursements) which
is greater than the fixed recoverable costs
where there are exceptional circumstances
making it appropriate to do so. However, if
the court assesses the costs (excluding any
VAT) as being an amount which is in a sum
less than 20 precent greater than the amount
of the fixed recoverable costs, the court shall
make an order for the party who made the
claim to be paid the lesser of— (a) the fixed
recoverable costs; and (b) the assessed costs.
Unreasonable behaviour
If an order for costs is made in favour of a
party whom the court considers has behaved
unreasonably, the other party may apply
for an order that those costs be reduced by
an amount equivalent to 50 percent of the
fixed recoverable costs which would otherwise
be payable. Unreasonable behaviour is
conduct for which there is no reasonable
explanation.
The Costs
The table included below is not an exhaustive
list and does include some changes to fixed
recoverable costs for cases which have been
or would be allocated to the Fast Track. The
stages referenced below (for cases assigned
to complexity band one) illustrate how
prescriptive the new fixed costs regime will
be.
Leaving aside the costs of a barrister
representing a case on the new track, and your
own attendance at trial, if you successfully
progressed a disputed claim for payment
of £50,000 to trial (stage eight), your fixed
recoverable costs would be limited to £14,100
(net of VAT where appropriate). If the court
does not enforce any indemnity for legal costs
in your terms and conditions, you could end
up with a significant gap between your own
legal costs and what you can recover from
the paying party.
It is likely that this new regime will
also affect the tactics of settlement.
Where the costs escalate as the
case passes through the defined
stages, the arrival of each stage
will be a key trigger point for
consideration about the possibility
and commerciality of
settlement.
Paula Swain FCICM is
Partner at Shoosmiths.
Brave | Curious | Resilient / www.cicm.com / October 2023 / PAGE 38