Legal costs may put a party in a fix

Nick Stockley, a Partner at Mayo Wynne Baxter, explains how new rules will impact the recovery of legal costs.

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 has changed since 1 October 2023 in both commercial disputes and the majority of civil litigation.

On 1 October 2023, new cost recovery rules came into force which apply to parties to a dispute.

The old rules on recovering legal costs in commercial disputes, which apply to cases where proceedings were issued before 1 October 2023, can be summarised as follows.

The Old Rules:

Small claims

If the claim value is under £10,000 then the general rule is that 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 has not changed since 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 rule of thumb 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 were introduced on 1 October 2023, relate to 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  where the value is between £10,000 and £100,000, a party will only be entitled to recover a fixed prescribed amount towards their legal costs if either they win their case or it settles during the life of the case. The amount of recoverable 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 new rules include 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 time and legal assistance time.

Currently, if a 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. 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 cheaper for clients.

There is also a benefit to the court; the already overloaded civil court systems will be able to progress cases without the need for extra hearings.

Parties can now assess their overall financial risk in a dispute much earlier.

A party now knows how much they will recover in costs if either they win or lose. These are determinant factors in settlement discussions. Parties will have more information which will help them make settlement decisions.

There is also 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 to address matters from the outset.

The new rules also mean that a claimant may benefit from settling early as they can recover more of their legal costs if they do.

Summary

If a court claim starts after 1 October 2023, then there will be a restriction on the recovery of legal costs.  However, if you are now involved in a dispute we can advise on both the case merits, the settlement options and your recoverable costs under these new rules.   

nstockley@mayowynnebaxter.co.uk