How the new revolutionary reforms to recovering legal costs might impact your business

read time: 2 min

In May 2022, The Legal Services Board estimated that approximately 33% of small businesses experience a legal issue annually. However, only 25% sought professional advice and half either attempted to resolve the matter themselves or took no action.  Undoubtedly concerns over costs would have featured in the decision as to whether or not to instruct lawyers. 

From 1 October 2023, those making budgetary decisions should in theory have an easier task in determining whether a claim is worth pursuing. New rules will fix from the outset how much a winning party will be entitled to recover from their opponent if they are successful in the litigation.    

What’s Changing?

The majority of claims issued at Court on or after 1 October 2023, where up to £100,000 is in dispute, will be subject to a radical new cost regime. The new rules will fix the costs a winning party in litigation is entitled to recover from the losing party. Broadly, this means that with the benefit of some well informed assumptions, a lawyer ought to be able to advise a claimant or defendant, the precise figure they will be entitled to recover from the losing party in the event of success.

How Will it Work? 

There will be a semi-streamlined process for these claims to (in theory) enable efficiencies for lawyers as importantly, the rules only fix what can be recovered, not what can be charged. What can be recovered will be decided by (amongst other variables) reference to the value of the claim and its complexity - each claim will be rated for complexity in accordance with four bands which range from disputed debt claims through to complex professional negligence claims). 

The potential for certainty comes at the price of complexity. The new rules are intricate and will not be found in one place in the Court rules. Decisions made about the claim and how it is presented from the outset will likely influence how the costs will be fixed so it is vital that parties’ lawyers are familiar with the rules and how to deploy them to their client’s advantage. For example if a sensible settlement offer is made in accordance with the new rules, this could lead to a 35% uplift in cost recovery. 

Next Steps 

Whilst the introduction of these rules are subject to legal challenge, it is very likely they will be introduced as planned. If you have a claim (or might have to defend a claim against your business) that is expected to be valued between £10,000 - £100,000, it is likely that the new fixed cost rules will apply.  This should be embraced as a positive, not least for the certainty it brings. You will be able to, before taking any steps whatsoever, know what costs you could expect to recover so that you can determine from the outset, if the juice is worth the squeeze.

For more information, please contact Liam Tolen.

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