Legal costs may put a party in a fix
5th August 2023
Author EditorPosted on Categories Legal
Nick Stockley, a Partner at Mayo Wynne Baxter, explains how new rules will impact the recovery of legal costs from October.
One of the most common questions from clients, who are engaged in a dispute is, “do I get my costs back if I win?”. The answer to that question often starts with “it depends”. However, that answer going to change after 1 October 2023 in both commercial disputes and a lot of civil litigation.
On 1 October 2023, new cost recovery rules are going to come into force which apply to parties to a dispute. At the moment, the general rule on recovering legal costs in commercial disputes can be summarized as follows.
Small claims
If the claim value is under £10,000 then neither party can recover its legal costs, even if they win, beyond a fixed sum prescribed by the court. The level of recoverable costs is very low in comparison with the legal costs that a party may incur. This rule is not going to change after 1 October 2023.
Fast track claims
If the claim value is between £10,000 and £25,000 the winning party can try to recover its legal costs from the other party subject to some restrictions.The level of the recoverable costs will be at the court’s discretion but the general guidance is that a court will award a winning party about 70% of its legal costs.
Multi-track claims
If the claim value is over £25,000 then the winning party can generally recover its legal costs from the other party. The level of the costs will again be at the court’s discretion but a rule of thumb is that a court will award a winning party about 70% of its legal costs.
The New Rules
The new rules that are going to be introduced on 1 October 2023 will relate to both the Fast Track cases where the value is between £10,000 and £25,000. The court is also going to introduce a new category of cases which it will call the “Intermediate Track”. These will be claims where the value is between £25,000 and £100,000 and the new cost recovery rules will apply to these cases.
There are exceptions to these rules for certain personal injury, disease, clinical negligence, jury claims, child abuse and neglect and claims against the police.
There are also some housing claims that do not fall under these rules.
The new rules are that a party to a dispute, where the value is between £10,000 and £100,000, will only be entitled to a fixed prescribed amount towards their legal costs if either they win their case or it settles during the life of the case. The recoverable amount of costs will be determined by three main factors:
1. The value of the case;
2. The complexity of the case;
3. When the case concludes.
The court rules contains a schedule which sets out exactly how much a winning party can recover in costs depending on when the case concludes
What is the benefit?
The general benefit is that there will be cost clarity to parties from the outset. At the moment, the general advice to clients is that, if the claim is over £10,000, a solicitor can, if they win, do what she/he can in order to recover as much money as she/he can. The world of litigation can feel that it is full of uncertainty. Therefore, it is positive that there is a greater degree of certainty in the future. The introduction of these rules will also reduce both general court and legal assistance time.
Currently, if the claim is over £25,000 then parties must, as part of the litigation process, prepare cost budgets. The winning party also has to make a further cost claim once they win. Both of these processes can be both disputed and lead to extra court hearings. The associated costs and time of these stages will be completely removed and so the general process may be both quicker and, in theory, cheaper to clients.
There is also benefit to the court; the civil court systems, which is already overloaded, will be able to progress cases without the need for extra hearings.
Parties can assess their overall financial risk in a dispute much earlier. A party will know both how much they will recover in costs if they win and how much they must pay in costs if they lose. These are determinant factors in settlement discussions. Parties will have more information which will help them make settlements decisions.
There is now a specific recoverable cost sum if the case settles before any court proceedings are issued. This means that a defendant is put under immediate financial pressure from the outset to address matters. It also means that a claimant may benefit from settling early because they will recover more of their legal costs if they do so.
What to do next
If a court claim is sent to the court after 1 October 2023, then there will be a restriction on the recovery of legal costs. If you have already incurred legal costs in a matter then you may lose the chance to recover a greater proportion of those costs if you start legal proceedings after 1 October 2023.