Fixed costs in litigation
There are changes coming into force soon relating to the way dispute cases are run designed to improve the life for many litigants.
The main benefactors will be litigants with a strong case but limited appetite for risk /ability to pay large fees if they lose and the other side knows that and plays on it. The general idea is that there will be fixed costs introduced for cases worth less than £100,000 which it is hoped will make the law more accessible.
We explore the changes and how they could work.
The new fixed recoverable costs regime could also benefit those considering litigation funding if more certainty on exposure is created. We explain the changing landscape.
Fixed Recoverable Costs
Everyone knows litigation is expensive. And it is not just the sheer numbers involved that put off potential claimants; it’s how unpredictable the costs can be at the outset. Legal fees are calculated on an hourly basis which can be hard to forecast, and this issue is multiplied by the ‘loser pays’ rule, whereby the unsuccessful party is ordered to pay the winner’s legal costs. An unfortunate party who finds themselves out of pocket having just lost a case may have to pay their own fees as well as those of their opponent. The fear of this puts off many potentially worthy claimants, and can have a chilling impact on access to justice.
What are Fixed Recoverable Costs?
Fixed recoverable costs set the amount of legal costs that the winning party can claim back from the losing party in civil litigation. They give certainty in advance about the maximum amount that the losing party will have to pay. However, they mean that the amount that can be reclaimed may not cover the actual costs of the case, which can still be hard to predict.
Attempts at reform
Addressing the problem of unpredictable legal fees has long been a priority for litigation reformers.
While the costs budgeting system ensures lawyers must justify the fees they hope to recover from the losing party, it does not provide the same level of certainty as fixed recoverable costs. Additionally, significant legal and judicial time is spent approving costs budgets – this time could be more usefully spent dealing with the actual dispute. In 2016 the government therefore commissioned another review into specifically:
- Developing proposals for extending the present fixed recoverable costs regime to make the costs of going to court more certain, transparent and proportionate for litigants; and
- Considering the types and areas of litigation in which such costs should be extended, and the value of claims to which such a regime should apply.
The key recommendations which are known as the Jackson proposals were to:
- extend fixed recoverable costs to all civil cases on the fast track; and
- expand the fast track to include simple ‘intermediate’ cases valued between £25,000 and £100,000 in damages.
In all cases, the recommendations envisaged the use of ‘bands’ to determine the maximum recoverable costs given the complexity of the case and the value of damages awarded.
The Ministry of Justice conducted a consultation including representations from the Law Society, the Bar Council and other key stakeholders in the sectors affected. It is expected that Jackson’s reforms will be introduced to the courts in 2021, though we do not have a precise date for when they will begin.
While the Jackson proposals are generally welcome, some concerns were raised during the consultation process. In particular, the Law Society suggested that the fixed recoverable costs were not necessarily set at the correct levels, and that the proposals only restricted the amount of money parties could recover, rather than reducing the underlying cost of litigation. However, by reducing the amount of court time which is dedicated to costs budgeting and management, the regime is surely a step in the right direction.
We believe that the proposals are to be welcomed, as they help address the incredible imbalance between potential parties in litigation. If you have access to unlimited sums of money you are likely to be in a position to defend any claim brought against you, and can be confident that any potential claimant may blanch at the prospect of paying your legal fees. If this continues, justice really will be only for those who can afford it. It can’t go on.
Fixed Costs & Litigation funders – Replacing the Arkin Cap?
Another interesting factor is the increasing prevalence of litigation funders – investors who agree to pay the legal fees of claimants in exchange for a percentage of any damages awarded if the case is successful. Of course, if the claimant is unsuccessful the ‘loser pays’ rule still applies, and the funder may have to pay the other side’s legal fees.
Traditionally it has been understood that if a litigation-funded party is unsuccessful, the funder will only be liable for the other side’s costs up to a maximum cap which is equal to the amount of funding they provided. This is referred to as the ‘Arkin Cap’. However, recently the Court of Appeal in ChapelGate Credit Opportunity Master Fund Limited v Money and others departed from this assumption, requiring a litigation funder to pay the other side’s costs even though they were higher than the amount of funding provided to their own client.
While litigation funding has previously been used for very high value claims, we have noticed a growing trend towards funders financing smaller cases – those with a value of up to £100,000. It may be that the introduction of fixed recoverable costs encourages this further, as the regime would essentially restore the certainty that was removed by the Court of Appeal in ChapelGate.
When the new funding regime is introduced you will be best served by lawyers who are comfortable adopting a practical and flexible approach. At Gannons, we are renowned for our dynamic and nimble approach to commercial disputes. If you would like to explore the legal merits of a potential claim and understand the funding options which are open to you, please get in touch.