Contracting out of fixed recoverable costs

Are parties free to contract out of Fixed Recoverable Costs (FRC) if a case would otherwise be subject to the regime?

As currently drafted, it appears not. CPR 45.1(3) states:

“Where—

• • a claim is one to which Section IV, Section VI, Section VII or Section VIII of this Part applies; and
  • the parties agree or the court orders that a party is entitled to costs,

subject to the application of any rule in those Sections or this Section by which costs are to be allowed, disallowed, increased or reduced, the court may only award costs in an amount that is neither more nor less than the fixed costs allowed by the applicable Section and set out in the relevant table in Practice Direction 45.”

There has been some doubt as to whether rules of court are capable of preventing contracting out.

This issue is now largely academic as the rules will be changed from 6 April 2024. The new CPR 45.1(3) will read:

“Where—

• • a claim is one to which Section IV, Section VI, Section VII or Section VIII of this Part applies; and
  • the parties agree or the court orders that a party is entitled to costs,

subject to the application of any rule in those Sections or this Section by which costs are to be allowed, disallowed, increased or reduced, the court may only award costs in an amount that is neither more nor less than the fixed costs allowed by the applicable Section and set out in the relevant table in Practice Direction 45, unless the paying party and the receiving party have each expressly agreed this Part should not apply.”

Some commentators have suggested this simply reverts to the position in Doyle v M&D Foundations & Building Services Ltd [2022] EWCA Civ 927. In that case, which would otherwise have been subject to the previous FRC regime, the parties had settled the case by way of a Consent Order including the provision: “such costs to be the subject of detailed assessment if not agreed”. The Court of Appeal interpreted this as meaning costs to be assessed on the standard basis and not subject to FRC. It treated “subject to detailed assessment” as being wholly inconsistent with costs being subject to FRC. The parties were treated as having contracted out of FRC.

Does this rule change simply take us back to Doyle? I am not so sure.

The key word in the amended rule is surely “expressly”. I have little doubt that it was oversight on the part of the paying party in Doyle that led to the wording of the agreement. Or, possibly more likely, that they believed the earlier Court of Appeal decision in Ho v Adelekun [2019] EWCA Civ 1988 had definitively ruled that the phrase “reasonable costs … on the standard basis to be the subject of detailed assessment if not agreed” was not inconsistent with FRC.

I interrupt “express” as requiring something much more than happened in Doyle. I believe it would require the settlement agreement to say something like: “the defendant to pay the claimant’s reasonable costs on the standard basis to be the subject of detailed assessment if not agreed (and not subject to fixed recoverable costs under Practice Direction 45).

It also requires “each” party to expressly agree to this. Does this add a further requirement? If so, what? Does the second party simply saying “we agree” amount to “express” agreement or is something further required?

Nevertheless, we can guarantee that this will be one of the early battlegrounds in interpretation of the new rules.