Insights

Emily Jaye

Published 1 December 2023
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Revised Indemnity Costs Rules Now in Force

New rules in respect of indemnity costs and Fixed Recoverable Costs are now in force.

Changes to the Fixed Recoverable Costs (FCR) regime

Prior to the 1 October 2023, the FRC regime usually only applied to the small claims track. Changes to the rules now means that the regime will apply to most civil litigation claims with a value of up to £100,000. There is also now a new intermediate track in addition to the existing small claims track, fast track, or multi-track pathways of a civil claim. The track your claim is allocated to will still depend on the amount in dispute and the complexity of your case. But for most cases, the FRC regime will now apply to most proceedings issued on or after 1 October 2023.

Indemnity costs reform  

The reforms have also replaced indemnity costs on fixed costs cases with a 35% uplift of the difference between fixed costs payable when the relevant period expires, and the fixed costs awarded. This only applies where a claim concludes at trial.

A recap of indemnity costs

An assessment of costs on the indemnity basis by the court means that any decision as to reasonableness will be in favour of the receiving party and will assume that the costs were proportionate in amount and reasonably incurred by the receiving party. The indemnity costs principle was punitive in nature and the court had to be satisfied that the paying party’s conduct was wrongful enough to take it “out of the norm” of the general conduct of litigation.

Under the old regime, an indemnity costs order on any fixed costs case disapplied the fixed costs regime. The new CPR 45.1(3) provides that the court can only award fixed costs but the question of whether contracting out of fixed costs is possible is now subject to judicial review proceedings. So watch this space.

In non-part 36 (offers to settle) cases, the reforms have also introduced an ‘unreasonable behaviour’ test whereby if unreasonable behaviour is found the court can either award an uplift of 50% of the applicable fixed recoverable costs or reduce the applicable fixed recoverable costs by 50% (depending on which party is claiming unreasonable behaviour).  

CPR 45.13(3)(a) defines ‘unreasonable behaviour’as “conduct for which there is no reasonable explanation.” 

Comment

This new regime is likely to take some bedding in and practitioners will have to be careful how they approach the question of costs. Indemnity costs are not completely out of the question in all cases, but they are certainly likely to be much less frequently made. Practitioners will need to consider whether an indemnity costs application is possible and the distinction between unreasonable behaviour (conduct for which there is no reasonable explanation) and out of the norm. As always, we will keep you posted as this area evolves.

If you would like help with a claim or costs issue, please get in touch.

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