All businesses, including successful businesses, are likely to be faced at some point with either having to pursue or defend a dispute.
This may be a dispute in relation to an unpaid invoice, a contractual dispute or a professional negligence claim. When it comes to deciding how to deal with these disputes and the strategy to be adopted, costs are a big consideration, especially if Court proceedings are required. New changes to cost rules in court cases are therefore very important for businesses to understand to enable them to understand how best to deal with a dispute.
The general position in respect to the recoverability of costs in litigation is that, in most circumstances, a winning party will be able to recover a proportion of its legal costs from the losing party. Traditionally, the level of recovery is around 60% to 70% of the overall costs incurred, however, the Court has a wide discretion, and the percentage can be higher or lower than this. Historically, this has made it difficult for solicitors to advise what a client may recover upon success or will need to pay out if unsuccessful with a claim.
From 1 October 2023, one of the most significant changes to the cost rules in more than a decade will come into force. Fixed Recoverable Costs (FRC) already apply to certain claims, generally claims worth up to £10,000, however, from 1 October 2023, this regime will be extended to a broader range of claims with a value of up to £100,000. The new regime will affect many types of business disputes, including defended debt claims, contract disputes, professional negligence claims and property disputes.
Most disputes with a value of up to £100,000 will now be allocated to a specific Court “track” and band of complexity. The amount of costs that can be recovered by a winning party will be fixed by reference to the allocated track and complexity band unless the Court decides that a case is complex enough to justify being allocated to what is called the “multi-track”, where FRC will not apply.
As with any new regime, there will be advantages and disadvantages. Businesses will have a clearer idea from the outset of the amount of costs that they will recover if a claim is successful, or the amount they will have to pay out if it is not. However, as is already the case, the amount of costs that are recovered by a successful party are generally less than the actual costs incurred and, following the implementation of the FRC regime, this may mean that the shortfall in costs recovery upon success is even greater. Therefore, more than ever, businesses need to be sure that it is financially viable to bring or defend a claim.
It is hoped that the fixing of the amount of costs that may be recovered will discourage less meritorious claims being pursued. This will be welcome news for businesses who have previously been forced to spend time and money defending such cases.
Going forward, businesses will need to assess how to deal with their commercial disputes with the new FRC regime in mind. We offer expert and practical legal advice that appreciates the economic realities facing businesses and the need to successfully resolve disputes as quickly as possible.