Authored by RSA
Long-anticipated changes to recoverable costs in civil claims cases came into effect on 1 October 2023. The changes received a mixed response from legal professionals and insurers alike. Some say the reforms to the England and Wales Civil Procedures will deliver cost predictability on a wider range of claims and prevent disputes over costs. Others worry that the different amounts parties can now claim might not cover the actual costs of cases. There have even been calls for the changes to be scrapped altogether.
However, as is the case with any new or amendments to regulations, the true outcome of the reforms may take some time to emerge. For now, it’s essential that insurers and law firms working on civil litigation understand what the changes mean.
Why have the changes been made?
According to the Government, legal costs have become disproportionate to the compensation amount received by claimants. Ministers say spending on clinical negligence by NHS England has risen from £0.6 billion to £2.6 billion over the past 16 years. Launching the Civil Cost Procedure changes, Minister for Health Maria Caulfield argued that “those providing legal representation are due fair remuneration for providing these services”. However, she added: “It shouldn’t be out of proportion to the claim or be to the detriment of justice or front-line services.”
In a bid to improve the system, the Government appointed Sir Rupert Jackson (formerly Lord Justice Jackson) to review civil litigation costs in 2017. Sir Rupert recommended that the Civil Justice Council (CJC) develop a bespoke, streamlined system of fixed recoverable costs. This resulted in changes to Part 45 of the Civil Procedure Rules which covers fixed recoverable costs (FRCs).
So what are Fixed Recoverable Costs and what has changed?
FRCs set the amount of legal costs that the winning party can claim back from the losing party in civil litigation. These already apply in most low-value personal injury cases.
The reforms to Part 45 extend FRCs to more areas of litigation. This includes the fast track (claims valued up to £25,000) and a new intermediate track for claims worth between £25,000 and £100,000. As of 1 October, new rules apply to litigated settlements in property damage claims. The same goes for injury claims relating to accidents and letters of claim in disease claims. Part 45, Section I introduces increases or reductions in fixed costs for unreasonable behaviour, vulnerability, reallocation of track and/or complexity band. It also sets out costs payable to unrepresented claimants.
Section IV’s Low-Value Injury Protocols replicate the previous rules, and costs payable for claims settled under the Portal process remain unchanged. Section VI Fast Track covers claims up to the value of £25,000, including those exiting from the Portal process. It sets out the various stages of costs application across four new complexity bands. Section VII Intermediate Track is a completely new track for claims valued between £25,000 and £100,000. It sets out the various stages of costs application across four new complexity bands.
However, there are exclusions from the intermediate track which include:
Mesothelioma/asbestos-related claimsClinical negligence claims unless both breach of duty and causation have been admittedA claim for damages in relation to harm, abuse or neglect of or by children or vulnerable adultsA claim which could be tried by juryCertain claims against the Police and for breach of Human Rights
How will the reforms benefit insurers and their clients?
Despite some concerns about the reforms, it is anticipated that they will deliver numerous benefits. For example, it’s expected that claimant solicitors will be financially motivated to progress claims, speeding up settlements. Additionally, greater cost predictability across a wider range of claims is good news for both insurers and any institutions facing litigation. It is also believed that the changes will reduce friction in cost negotiations and result in third-party cost savings. Nonetheless, it is feasible that a significant amount of satellite litigation will be needed if the benefits are to be fully realised.
RSA’s Complex and Commercial Claims Director Carolyn Mackenzie says the reforms to civil litigation will give both parties in disputes greater financial certainty. “While claimants and defendants should benefit from fixed cost protection, it’s important to bear in mind that the changes will take time to bed in. We’re working to understand the likely impact of the changes and are developing strategies to manage claims effectively in this new environment,” she said.