Fixed Recoverable Costs: a barrier to justice in housing disrepair claims?

Fixed Recoverable Costs (FRC) was implemented for most claims with a value up to £100,000 on 1 October 2023 but in February 2023, the Ministry of Justice (MOJ) announced that the regime, insofar as it related to housing disrepair claims, would be delayed for two years.

It was not (and still is not) clear whether the two years is to be taken from the February 2023 announcement or the 1 October 2023 implementation date. Yet, notwithstanding that, it is clear that any proposed implementation of FRCs in housing claims would profoundly impede access to justice, particularly for the most unfortunate and vulnerable individuals across England and Wales.

Impact on access to justice for housing claimants

Tenants who seek the most basic of housing conditions from their landlords, in terms of safety and comfort, would experience significant difficulties in obtaining, and may even be denied, the opportunity to remedy poor living conditions.

But also, under an FRC regime, housing claimants are likely to have to routinely pay over the majority (if not all) of any damages received in successful claims.

With the new Labour government now more than two months into its term of office, it is critical that the scheme recommended by the Ministry of Justice during the previous administration is not brought to fruition in the statute book insofar as it relates to housing claims.

Whatever the broader benefits might be of an FRC scheme, maintaining the status quo in housing claims will enable more claimants to obtain legal and financial restitution. Conversely, its introduction, would drastically reduce that ability.

Introducing FRC in housing claims, where there are often no, or very low, damages is likely to increase the risk of solicitors leaving the market and be forced to operate in alternative legal sectors, leaving some of the most vulnerable claimants without legal representation.

It can therefore easily be seen that the beneficiaries of the implementation of FRCs in housing disrepair claims would be the very housing associations and rogue landlords who have been the focus of so much public anger in recent years.

They would escape justice more easily, whereas those without the financial means to take on unscrupulous entities which provide substandard accommodation would find themselves legally stranded.

The indemnity principle

There are multiple reasons why the consequences of extending FRC to housing claims will negatively impact access to justice. Of direct relevance is the ‘indemnity principle’, which generally operates in relation to claims for costs in civil cases.

This is the common law principle by which paying parties cannot be ordered to pay receiving parties more, by way of costs, than the receiving parties are themselves liable to pay.

The general principle that an unsuccessful party will be ordered to pay the costs of a successful party also operates in relation to claims for costs made in civil claims.

A costs liability between a solicitor and their client is a liability on the indemnity basis (ie the costs must be reasonably incurred, reasonable in amount and with the benefit of any doubt as to reasonableness being in the solicitor’s favour). Whereas the costs between a successful solicitor’s client and their unsuccessful opponent (a between-the-parties costs liability) is generally a liability on the standard basis (i.e. the costs must be reasonably incurred, reasonable and proportionate in amount and with the benefit of any doubt as to reasonableness being in the unsuccessful opponent’s favour).

Accordingly, costs agreed or assessed between-the-parties are generally less (and sometimes a lot less) than the costs between a solicitor and client.

The effect of is that between-the-parties’ costs are generally only ever, and no more than, a contribution towards a successful claimant’s solicitor/client costs and is a contribution which seems to be diminishing over time.

As a result, a successful claimant will usually be liable to their solicitor for the difference between the solicitor-client costs and the between-the-parties costs. This is often referred to as the solicitor-client shortfall.

The solicitor-client shortfall became a much more common event with the abolition of the between-the-parties recoverability of additional liabilities (ie success fees and ATE premiums).

The between-the-parties recoverability of additional liabilities became prohibited with the implementation of the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) on 1 April 2013, except in limited circumstances.

The solicitor-client shortfall

Since then, solicitors have continued to charge success fees, but upon them not being payable between-the-parties, their clients have had to pay them. This is often not a charge born out of solicitor greed, but rather that, for solicitors to operate profitably in this market, the success fees paid in successful cases compensate solicitors for the costs they must write off in unsuccessful cases.

The solicitor-client shortfall became even more stark with the implementation of FRCs in road traffic accidents (RTAs), employers’ liability (EL) and public liability (PL) claims in 2013.

This is because solicitors have continued to charge their clients ‘conventional costs’ (i.e. hourly rate/time spent costs) and the between-the-parties contribution to those costs has been at much lower FRCs, thereby creating a much greater solicitor-client shortfall.

In his 2009-published ‘Review of Civil Litigation Costs: Final Report’, Sir Rupert Jackson concluded that "in order to assist personal injury claimants in meeting the success fees out of damages", "[the] level of general damages for pain, suffering and the loss of amenity be increased by 10% across the board". However, as damages are often either very low, or non-existent, in housing claims, this is not something that assists many housing claimants.

Implementing further, and wider, FRC regimes will plainly significantly increase the frequency of situations in which solicitors will be forced to charge their clients the solicitor-client shortfall.

The FRC regimes were never intended to regulate costs between solicitor and client.

Sir Rupert Jackson himself made this clear, and so the FRC will rarely, if ever, reflect the actual work needed to be done by solicitors to carry out the work they are instructed to do.

Accordingly, for firms of solicitors to remain profitable, which of course they have to be, they must continue to charge their client costs on a conventional basis and with success fees, to compensate the firms for the costs not recovered in those cases. This will enable solicitors to continue to provide legal services in this crucial area.

The broader economic pressures impinging upon the successful operation of a law firm must also be accounted for.

As a direct correlation of this, it must therefore also be anticipated that solicitors’ charges to their clients on the conventional basis will continue to increase (given the costs of running businesses are increasing), which thereby further drives up the solicitor-client shortfall.

But if FRC were to ultimately be introduced in housing claims, the between-the-parties contribution will almost always be lower than any solicitor/client costs liability and so naturally the solicitor/client shortfall will increase too.

Given many of these claimants are impecunious and are on state benefits, the shortfall will usually, and can realistically only, be paid for by way of a deduction from the client’s compensation. Logically, therefore, one can easily deduce that will prove a deterrent for those of limited means, whose opponents are in better financial health.

The consequences of FRC in housing claims

We are able to broadly conclude that, were the current FRC regime to capture housing claims now, given the level of financial damages if often relatively small (if any are recovered at all) in many circumstances Claimants would have to hand over up 100 percent of those damages in exchange for the necessary repairs needed to their homes.

No doubt firms will disclose their own data in due course should the regime capture housing claims.

In housing claims, justice should mean that a successful claimant receives a substantial amount (if not all) of their damages. Damages, after all, exist to compensate claimants for their original losses.

Yet, to be obliged to sacrifice substantial amounts, and possibly all, of that compensation due to a government-created dynamic between solicitor-client conventional costs and the between-the-parties FRC contribution in the way that was proposed by the Ministry of Justice is, and continues to be, wholly unjust.

By continuing to delay the implementation of FRC in relation to housing disrepair claims, the impact of other reforms to the housing sector which are intended to rebalance the power between renters and landlords and to strengthen regulators’ powers to take tough action against rogue landlords, should unfold.

Until then, the government must be extremely careful before they allow an FRC regime to capture housing conditions claims where the unintended consequences are likely to have an extreme and profound impact on some of the country’s most unfortunate and vulnerable individuals.