How will the fixed recoverable costs extension affect debt recovery?

How Will The Fixed Recoverable Costs Extension Impact the Debt Recovery Industry?

The aim of fixing recoverable costs is to keep costs proportionate, provide an element of certainty and promote access to justice.

But, how will this impact our debt recovery clients who have no option than to pursue outstanding debts through the Courts when debtors fail to pay, but now will face limits as to how much they can recover in costs?

The Ministry of Justice, in a long awaited announcement, has finally confirmed that it will take on the recommendations of Sir Rupert Jackson from back in 2017, in a bid to reduce the cost of litigation and create more certainty around what losing parties have to pay.

In this article I’ll be discussing the MOJ’s update, and the impact this could have on our debt recovery clients.

Current position

When a party in a civil case wins a case, the general position is that the party is entitled to receive its legal costs incurred from the losing party. The final costs order made by the Court, depends greatly on the conduct of the proceedings by the parties, and will often be determined by the Judge at the end of the trial, by way of summary assessment. This is quite a “rough and ready” basis and provides no certainty for either party.

By implementing fixed recoverable costs, it is hoped that a party will know from the beginning what the cost consequences are of losing.

The idea of fixed costs has been around for some time. In September 2016, the Ministry of Justice issued a vision statement for “Transforming our Justice System”, which included the aim to “look at options to extend fixed recoverable costs much more widely”, with Jackson LJ recommending that the only effective way to control the costs of civil litigation is to do so in advance.

The MOJ update

The Ministry of Justice has confirmed that it is moving forward with the implementation of extending Fixed Recoverable costs by introducing a number of new measures, which could be in force by October 2022.

These measures include:

  • Extending Fixed Recoverable Costs to all civil cases in the fast track up to a value of £25,000 in damages
  • The expansion of the fast track to include certain types of ‘intermediate’ civil cases valued between £25,000 to £100,000
  • Cases involving mesothelioma/asbestos, complex PI and professional negligence, actions against the police, child sexual abuse, and intellectual property will be excluded from the ‘intermediate’ classification
  • Placing fast track cases into 1 of 4 bands of complexity, with an unsuccessful band challenge incurring a costs liability of £150
  • The Fixed Recoverable Costs for each band being set out in advance
  • Imposing a penalty for unreasonable behavior during litigation of a 50% uplift on fixed recoverable costs
  • There will be an “escape” mechanism in order to allow for “exceptional circumstances” to be argued in order to revert to costs at large (i.e hourly rates & budgets).

The measures in theory should mean that our debt recovery clients will have more certainty around the cost of litigating and will assist in the decision as to whether to issue proceedings.

When looking at the extension of the fast track and fixed recoverable rates for “intermediate” civil cases, further guidance is going to be required. It has been identified that certain case types will not be suitable, as detailed above, i.e. cases involving mesothelioma and complex personal injury cases.

The Ministry of Justice does not appear to provide any further clarity over the allocation criteria for intermediate cases, beyond those proposed by Jackson LJ. There is however discussion of an additional Practice Direction, which will hopefully provide the clarity needed.

The four bands

The four bands proposed by Jackson LJ which are to be retained are as follows:

Band 1

The simplest claims that are just over the current fast track limit, where there is only one issue and the trial will likely take a day or less, e.g. debt claims, RTA non-PI (bent metal claims) and credit hire claims.

Band 2

Will be the “normal” band for intermediate cases, e.g. RTA PI (within the Pre-Action Protocol), holiday sickness claims with more complex claims going into Band 3.

Band 3

Will be the “normal” band for those complex intermediate cases, e.g. RTA PI claim (outside the Pre-Action Protocol) EL / PL accident claims.

Band 4

The most complex claims, with claims such as business disputes and ELD claims where the trial is likely to last three days and there are serious issues of fact/law to be considered.

Conclusion

The extension of the Fixed Recoverable costs should mean that our debt recovery clients will be able to budget for and predict the cost of litigating. This will benefit our clients that are seasoned litigants whom, due to the nature of their business, cannot avoid in many cases protracted and expensive litigation.

However one of the concerns of the new measures is that there may well be “satellite litigation”, around the proposed bandings, and in instances where parties seek to maximise costs where there has been unreasonable conduct by the other party, and further around the utilisation of the escape clauses.

There will also be continued discussions over the levels that that the fixed recoverable costs have been set at, and whether this purely limits the amount our clients can recover from the other party as opposed to really reducing the actual cost of the case to the client, which can be hard to predict.

Click to read more about the full consultation response including the fixed cost values.

Get in touch

If you’d like to talk with one of our experts about the upcoming changes, please don’t hesitate to get in touch. You can call our team on 03300 945 100 or request a call back.