Legal Cost Specialists

Defendants arguing fixed costs do not apply

There was a recent article in the online Costs Lawyer Journal concerning the new Fixed Recoverable Costs regime and how it applies to cases involving non-personal injury claims, specifically those that settle pre-issue but after 1 October 2023.

The article records how some defendants are apparently arguing “that, absent an agreement to pay specific costs, no costs are recoverable at all as FRC are not payable under the transitional provisions”.

The cause of the problem arises from the poor drafting of the transitional provisions. This blog has previously looked at this in detail. The transitional provisions state the new rules “only apply to a claim where proceedings are issued on or after 1st October 2023”. Self-evidently, a claim which settles pre-issue will never be a case where proceedings are issued on or after 1 October 2023.

The article goes on to advise receiving parties that this is an opportunity to maximise costs in such cases but to take advantage of this it is necessary, when negotiating the damages settlement, to obtain an agreement to pay costs, whether by settling the claim through acceptance or a Part 36 offer or by way of a Calderbank offer incorporating an agreement to pay costs.

Although the problem concerning the wording of the transitional provisions is clear enough, I am not sure I follow the reasoning of these defendants’ arguments.

If a claim settles pre-issue, there is no automatic right for either side to recover costs. If a damages claim settles pre-issue and is silent as to costs, then that is the end of the matter. Any entitlement only arises by way of agreement that costs will be payable in addition to damages. That might be way of a Part 36 offer (which must include the mandatory wording as to the defendant being liable for the claimant’s costs if the offer is accepted) or by way of an express contractual term in the offer to settle.

If a defendant makes a settlement offer that includes an agreement to pay costs, I do not see how they benefit from arguing FRC do not apply. The costs for Stage S1 in the intermediate track are capped rather than fixed. If the defendant has offered to pay the claimant’s costs as part of the settlement, successfully arguing that FRC do not apply (due to the transitional provisions), would not mean that no costs were payable. There would remain an agreement to pay costs. It could then only mean costs to be assessed on the standard basis. There would never be a case where this benefited the defendant. (The position might be different if minimal work had been done by the claimant at the point of settlement and the Stage S1 costs were fixed, but they are not. They are capped.)

Is this an opportunity for claimants? Yes, if the courts ultimately conclude that the transitional provisions mean the opposite of what they were clearly intended to mean. Otherwise, it would be necessary to “expressly” opt out of FRC at the point of settlement. And that is a topic for another day.

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