How will the mediation landscape be changed by the Fixed Recoverable Costs regime?

The new Fixed Recoverable costs (“FRC”) regime took effect from 1 October 2023. It arrives as parties are being encouraged to mediate. Will it help? Here are some things to think about and some reasons why

• Flexible four hour online mediations will become more popular
• Lawyers will recognise need to get better at identifying the key issues
• Arguments about tracks and complexity banding will get merged with the underlying dispute in mediations pre CMC
• Costs recovery and shortfalls will assume greater importance
• There will be greater pressure on claimant lawyer fees
• Assertions that “exceptional circumstances” exist (referred to in Part 45.9, but not defined) or that a refusal to mediate is “unreasonable behaviour” within the meaning of Part 45.13 will litter the correspondence.

The impact of the Fixed Recoverable Costs regime

The aim is that most cases caught by the FRC regime will be monetary claims. Crucially where a claim includes non-monetary relief it will not be allocated to the Intermediate Track unless the Court considers it to be in the interest of justice to do so. Any case more complex will be allocated to the Multi-Track where the extended fixed costs scheme will not apply.

The FRC regime simply determines what costs can be recovered from the other party in the event of settlement. Crucially the regime does not restrict the costs payable by the client to their legal advisers. Lawyers undertaking litigation in claims that are likely fall with the regime will need to have adjusted their engagement terms and advice to clients.

But, whatever the views of the fairness of the new FRC regime, the fact of the matter is that it will put pressure on the parties to deal with the dispute in a more cost-effective manner. 

Mediation costs under the Fixed Recoverable Costs regime

Under the Fast Track scales, no allowances are made for the costs of a mediator or the costs of legal representation. Any costs incurred would therefore be paid for by the parties but would be irrecoverable on an assessment under the FRC regime. The mediation allowances on the Intermediate Track are relatively modest and although the allowances for legal representation increase from £1,400 to £2,300 across the complexity bands oddly the mediation fee allowances do not and the same allowance for mediator’s fee is given for each ban, fixed at £1,200. VAT is recoverable on top, where appropriate.

Will the parties view mediation differently?

Certainly, the fact that there are no allowances for mediation costs in the Fast Track scales will not encourage the parties to consider adding this step unless reasonably confident that it will avoid further costs. Even though the allowances on the Intermediate Track are fairly modest, they should be sufficient to allow the parties to consider mediation but they may be tempted to consider a short-form, four hour or half day session.

When will be the best time to mediate under the Fixed Recoverable Costs regine?

The sooner the better. Claimant lawyers have always been under pressure to shave their fees to encourage their client to settle for a fixed sum (particularly if this is on a costs-inclusive basis). The pressure to do this under an FRC mediation is likely to increase. Since most lawyers agree that the scales do not reflect the work that still has to be done to progress the case, generally speaking, the longer it is before settlement the greater the shortfall between costs incurred and those that are recoverable. 

It seems that cases settled shortly after issue but settled pre-CMC and before allocation will now have to resolve the basis for assessing costs as well as the underlying dispute. Therefore, if settlement involves payment of costs to be assessed, the parties will need to agree the track and the band.

Post allocation to track and determination of complexity, the scales are clear but how will they influence the behaviour of claimants and defendants. 

• It is possible that claimants (and their lawyers) may be tempted to get further through the stages for the minimum of effort, in order to increase the fees. This would be a gamble since it would certainly not make it easier to settle.
• Meanwhile defendants complain that they cannot formulate any sensible offers because the claimants have not provided sufficient details of their claim.

Satellite litigation

Most commentators agree that allocation and banding arguments are going to become more important and will lead to satellite litigation (which will further increase the costs). This may be another incentive to settle early. Until these guidelines are established, in addition to disputes about tracks and bands, we will certainly see arguments suggesting the existence of “exceptional circumstances”. It seems certain that many disputes will arise in practice. Avoid them if you can. Settle early.