The fixed recoverable costs regime – does it all add up?

The fixed recoverable costs regime (FRCR) is yet another government acronym designed to regulate the conduct of personal injury cases, but only ends up diminishing indigent claimants’ vanishingly small access to justice, while improving absolutely nothing.

It was ostensibly designed to fix the legal costs a winning party can claim from the losing party, thereby providing parties with a level of certainty and protection so that no one is deterred from bringing or defending a claim simply because of the ever-increasing expense of litigation. So far, so unsinister.

But, as Ronald Reagan said, “the nine most terrifying words in the English language are: I'm from the Government, and I'm here to help.”

Arguably, the FRCR is no help at all to the parties who need the protection most. Worse, the only apparent beneficiaries are the ones who need it least: the Magic Circle, their deep-pocketed clientele and the insurance industry.

What is the new fixed costs regime?

Originally, only applicable to claims with a value of up to £25,000, from 1 October 2023, the Ministry of Justice (MOJ) extended the FRCR to include most claims with a value up to £100,000. This means, except in the most complicated scenarios, the costs that a successful litigant may claim from the losing side in cases valued at £100,000 or less are capped at the fixed rates set out in PD 45 of the Civil Procedure Rules.

These rates – as usual with schemes of this type – fall well below the market rate for all but the cheapest of legal service providers and, as with all things, you get what you pay for.

The intent of the expansion of the FRCR is twofold. First, to keep the costs of any claim proportionate to the level of damages being sought. It’s true that too often nowadays claims are dwarfed by the legal costs because of excessive billing. The most common culprits – in our experience – being City law firms acting on behalf of defendants with a more laissez faire attitude to the cost of litigation.

Second, to try to provide certainty to parties. By understanding the costs that will be recoverable, the idea is that parties will be able to better evaluate whether bringing a claim (or indeed defending it) is worthwhile. The hope is that this will save parties from unnecessary expense, while lessening the burden on the courts. But this ignores that this is usually more of a concern for a poorly resourced uninsured claimant than it is for what is often a well-represented and indemnified defendant.

Capping costs – cui bono?

In practice, the FRCR will limit the availability of representation to claimants. This happens in two ways.

First, lawyers will not be limited to charging only what is recoverable under the FRCR. The result: a significant portion of costs incurred by a successful party will need to be paid by the party themselves, without any hope of ever recovering them from the losing party. If a party cannot afford to pay more than the fixed rate, they will face a barrier to enforcing their rights or will have to settle for a significantly lower standard of representation (i.e. by a firm that is willing to work only for the lower fixed rate). Meanwhile, it is common for defendants to have both before-the-event and after-the-event litigation insurance.

Second, it risks smaller firms exiting the market. If smaller firms that specialise in claims covered by the FRCR are only able to recover the fixed rates, they may not be able to keep the lights on. The likely outcome is that they will not be able to take on litigation regulated by the FRCR. This reduces competition within the market and means there is a real risk that many smaller claimants could be left without representation.

So, for the prototypical indigent uninsured claimant, as opposed to the more commonly well-resourced and insured defendant, the FRCR is no help at all. Worse, the ones who benefit the most may be the insurance companies finding themselves able to reduce their liabilities overnight. Meanwhile, claimants will struggle either to find a competent firm willing to work for FRCR tariffed fees or to meet any shortfall.

Finally, please let’s not pretend that conditional fee or damages-based agreements are the solution. Setting aside the insidious expectation that lawyers should be willing to work at risk – name another public service profession where that is the case – they just aren’t commercially viable in an FRCR context. Especially when the English courts are empowered only to award the paltriest of damages, and success and contingency fees in personal injury claims have been capped at 25 per cent of those damages (more on this below).

Neutralising QOCS

In personal injury claims, the qualified one-way costs shifting (QOCS) regime means that, whether they win or lose, the general rule is that a claimant will not be required to pay the defendant’s costs. It was implemented in 2013 because the government acknowledged that defendants in personal injury cases often have deeper pockets than claimants from which to pay the most expensive lawyers or satisfy any adverse cost order.

The QOCS regime was meant to level the playing field and restore some modicum of access to justice following the decimation of legal aid in 2012 and the passing of the Legal Aid, Sentencing and Punishment of Offenders Act 2012. To some extent, it has been successful. The FRCR risks reversing much of that success.

For example, let’s say indigent uninsured Jane Doe brings a legitimate personal injury claim against Big Oil Co. If she wins Big Oil Co’s insurer will pay her costs up to the fixed amount. If she loses, she is protected by QOCS. Before the FRCR, Big Oil Co and its insurer might have been incentivised to settle Ms Doe’s claim rather than facing an expensive adverse costs order. Now, given they know their cost liability is limited, why shouldn’t they just roll the dice? They’ve got so little to lose. Meanwhile, the only other thing the FRCR has done is reduce the chance Ms Doe has to finance or finding decent representation. Cui bono? Insurers, plainly. Which is why it is no surprise to find the big insurers and their industry body are listed as key contributors to the MOJ’s consultation on the FRCR.

Because of QOCS, fixing defendants’ costs is no advantage to claimants. It only serves to benefit the defendants and their insurers. To pretend otherwise would be disingenuous.

The solution?

A simple solution is right in front of the MOJ. Its repeated knee-jerk response to any perceived problem has been to impose more regulations on the administration of justice, which has demonstrably served only to increase the burden on legal professionals, interfere in the relationship with their clients, the commercial arrangements those clients have with funders, and further close the ever-diminishing access claimants have to the courts. Rather than tinkering around the edges with ever more complicated and unnecessary rule changes, the MOJ should, instead, tackle the obvious.

The English market for litigation funding for personal injury claims – in contrast to that in the USA and even our own market for employment claims – is not properly incentivised. An open, thriving market – particularly where legal aid has been gutted in recent years – would be the biggest help to claimants. Just ask the sub-postmasters who heaped praise on their funder last month. It’s no exaggeration to say that without a third party to fund their litigation against the Post Office, the scale of the scandal would not have been revealed, and justice would never have been done. The MOJ should encourage this – not fear it.

The English courts generally have an extremely weak damages regime. For example, the Judicial College provides that someone who loses an eye – through no fault of their own – could be entitled to as little as £68,000. It does not have to be so. In the USA, it is not unusual for compensation for such harm to be ten or twenty times that amount.

Even in England, we allow certain types of claims to win big. The employment tribunal regularly makes awards running into several millions of Pounds in discrimination claims brought by employees. Compensation is uncapped It is right that these figures are high, but it is wrong that this is not reflected in the way the MOJ treats claims across the board. This proves the MOJ can put this right for personal injury cases; it’s just choosing not to.

Increasing damages awards – or even considering the actions and/or financial position of defendants when making damages awards – is a straightforward way to make life easier for claimants. We must get past this ridiculous aversion to damages being a deterrent or punitive, rather than just a restorative, measure. Why shouldn’t they be if they would make a company pay more attention to its policies and practices to protect the public’s safety, or punish those who put profit before everything else, including people’s lives? Not only would it be in the public interest and ensure claimants get just compensation – and should be done for these reasons alone – it would have the welcome side effect of encouraging a proper litigation funding market. How? By making it commercially viable for funders to support these cases when, right now, too often it isn’t. And for those clutching their aprons agonising over ambulance-chasing funders profiting from litigation, stop. Absent an effective legal aid service, this is the only alternative. There is a reason the dirty Dickensian words ‘Maintenance and Champerty’ emanate from a bygone age. It’s because they should be consigned to history and stay there.

Secondly, it should remove or amend the 25 per cent cap on proceeds from damages that lawyers and funders can receive under damages-based agreements, as prescribed by the Damages-Based Agreements Regulations 2013. Between them, claimants, their solicitors and funders are perfectly capable of negotiating equitable and mutually beneficial finance agreements that work for all concerned and ensure a case can get to court. That is by no means saying that laws on consumer protection should not be stringently enforced. Just that there is no reason to apply additional rules or regulations on the commercial relationship between a lawyer and their client. Too often, personal injury claimants can’t get funding because the cap and other unworkable restrictions make it unviable for solicitors to represent them under a damages-based agreement or funders to finance their litigation. The claimants want to make the deal, but existing regulations won’t allow it. No one wins.

If that is a step too far, the MOJ should simply amend the damages-based award cap to bring it into line with other types of claims covered by the regulations. If Ms Doe were to bring an employment claim, for example, the cap would be 35 per cent, not 25 per cent. Why? Because employees are seen as less vulnerable than the injured. This is patronising. There seems no good reason why an employee who has suffered harm from their employer should be seen as more sophisticated than someone who has been involved in a road traffic accident. Yet this is how they are treated under the law. It is perverse – they could be the same person, but the regulations treat one as a helpless victim and the other as a sophisticated user of legal services. The result: personal injury victims can only access a poorer level of representation.

In short, the government gave up much of its say when it abdicated its duty to provide the public with an effective legal aid service. It should now step aside and let the market take over. Giving us and our clients the unwanted gift of yet another acronym tied in bureaucratic ribbon really doesn’t help. Or at least not those who need it most.

Matthew Jury is managing partner and Oli Troen is an associate at McCue Jury and Partners
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