Fixed recoverable costs (FRCs) set out the amount of legal costs a successful litigation party can recover from their opponent in certain claims. Often the prescribed FRC rate is lower than the realistic cost of litigating. This often leaves a shortfall in terms of actual costs incurred by a successful party and how much they can recover. With the FRC scheme recently being extended, many businesses are asking if they can contract out of FRCs?
This article looks at what the FRC scheme means for litigants and how businesses can contract out of fixed recoverable costs.
What are Fixed Recoverable Costs?
In England and Wales the general rule in litigation is that the unsuccessful party pays some of the successful party’s reasonable costs.
Historically, a successful litigant might hope to recover 60-70% of their litigation costs.
Fixed recoverable costs set the amount of legal costs a successful party can recover from their opponent within certain litigated claims. Unfortunately, some fixed recoverable costs are much lower than the realistic costs of litigation.
Litigation can be expensive so it is important to understand the cost implications of a claim at the outset. The intention of FRC is to provide some certainty as to how much a party may have to pay if they lose.
How have Fixed Recoverable Costs been extended?
From 1 October 2023, FRCs were extended to all civil cases in the fast track. These are claims with a value of up to £25,000 that will last no longer than a day.
A new intermediate track was also introduced to include simple cases with a value of up to £100,000 in damages.
Impact of Fixed Recoverable Costs extension
The amount of costs recoverable by parties will be a set amount for each stage of proceedings. This provides certainty for parties over how much they will be liable to pay upon losing any litigation. However, some stages of the fixed recoverable costs are much lower than the realistic costs of litigation.
As a result, the FRC regime will likely affect the cases that solicitors are able to progress. It will also impact on the funding arrangements that solicitors and clients may need to enter into to be able to proceed with any litigation.
Contracting Out
From 6 April 2024, parties will be able to contract out of the fixed recoverable costs regime. The paying party and receiving party must expressly agree that the regime should not apply.
The benefits of contracting out of the regime are substantial. Parties will be able to recover a bigger portion of their legal costs where they are successful in litigation. This also allows for more negotiation between parties generally.
How We Can Help
As this is a recent change in the law, many standard business contracts will not address the issue of FRC. As such, now is a good time to get your terms and conditions and other legal documents in order.
We can help by reviewing your existing legal documents. As well as advising on contracting out of the FRC regime, we can make sure your contracts are offering your business the best protection possible.
We also have extensive experience within civil litigation and understand that it can be a stressful and complicated journey. We aim to be the practical guidance and support through this process.
This article does not constitute legal advice. If you would like to understand more about FRCs and contracting out of the regime, please contact us at:
e: info@bailoran w: https://bailoransolicitors.com/ t: 0113 266 0735.