The extension of Fixed Recoverable Costs sets the level of recoverable costs for both claimants and defendants.
Where the claimant wins, the claimant’s costs are set by reference to the damages as agreed/awarded (see CPR 45.45(1)(a)(iv) and CPR 45.50(2)(b)(iv)). It is the settlement value which is determinative.
The position is very different when the defendant is awarded costs.
CPR 45.6(2) and (3) provide that the defendant’s costs shall be calculated by reference to the value of the claim and that this shall be based on “the amount specified in the claim form, without taking into account any deduction for contributory negligence, but excluding – (i) any amount not in dispute; (ii) interest; or (iii) costs”.
Previously, the only likely sanction for a claimant serving a claim form giving an unrealistically high value to the claim was the possibility that the issue fee might be knocked down at detailed assessment. Now, there is the risk that any adverse costs may be significantly higher as a consequence.
Certainly, outside personal injury, solicitors need to give very careful advice to their clients when deciding what level to pitch a claim at.
There are also significant dangers in personal injury claims in submitting inflated claims, notwithstanding Qualified One-Way Costs Shifting:
- If the claimant does not have the benefit of ATE/BTE cover that provides protection against failing to beat Part 36 offers, an inflated claim may lead to a much higher proportion of damages being eroded for the period where the defendant is awarded costs. Claimant solicitors leave themselves open to negligence claims if they have encouraged their clients to submit claims at an unrealistic level.
- Even if the claimant has the benefit of ATE/BTE protection against failing to beat a Part 36 offer, insurers may not be willing to fully cover the adverse costs order if it is unnecessarily high as a result of pitching the claim at an unrealistic level.
The fact that claimants’ costs and defendants’ costs are based on entirely different figures (settled damages vs claimed amount) will lead to some interesting outcomes.
Let us say that a non-personal injury claim is issued with a value of £90,000. The matter settles during Stage 4 (“From the end of Stage 3 [being from the date of service of the defence up to the earlier of the date set for CMC or the order giving directions] up to and including the date set by the court for inspection of documents” for £30,000 having been allocated to the Intermediate Track and assigned to Complexity Band 4.
If the claimant recovers all their costs, they will recover profit costs of £3,600 for the Stage 4 work. This calculation is based on the awarded damages of £30,000.
However, if the defendant has succeeded on a Part 36 offer made during Stage 3, such that they are awarded the Stage 4 costs, they will recover profit costs of £4,800 for the Stage 4 work. This calculation is based on the amount specified in the claim form of £90,000.
(The above figures are based on the difference between the Stage 3 costs (£13,000 + an amount equivalent to 14% of the damages) and the Stage 4 costs (£16,000 + an amount equivalent to 16% of the damages).)
Therefore, even though in both cases the claims are allocated to the same track, assigned to the same Complexity Band and the damages are the same, the profit costs calculation is much more generous to the defendant compared to claimant for the same Stage.
The difference between what a claimant and defendant may recover becomes ever greater the larger the difference between the damages recovered and the amount specified in the claim form.
Was this deliberate or is this another drafting error?
Clearly, if a claim fails then there is no damages figure from which to calculate the % element of the profit costs. In this case it makes sense to use the amount stated in the claim form, even if this will probably be a somewhat higher figure than the actual settlement value would have been if the claim had succeeded.
However, if a claim succeeds there will be a known damages figure which could have been used to calculate the defendant’s costs. Instead, the defendant’s costs are based on the amount stated in the claim form.
In any event, claimants clearly need to be cautious about submitting inflated claims.