Winning a Court Case Isn’t Always a Financial Win: Understanding Litigation Costs
When litigants consider bringing their claims to recover sums of money from others, their primary focus is usually on how strong the case could be. It is a humanistic trait to be pre-occupied with thoughts around whether the other party, usually a Defendant, has wronged enough to justify taking formal legal action which often requires a legal cost outlay.
Before starting or defending a case, it is worth asking a different question: what is the likely financial outcome, even if I “win”? If both parties understood from the outset how much of their legal costs they might recover, or how much they might have to pay if they lose, would that change their attitude to bringing or defending a claim? Having this information at an early stage can be invaluable.
The rules governing legal costs are set out in the Civil Procedure Rules (CPR), which also determine how claims are allocated between different court tracks. This is important because it can affect both the way a case is managed and the amount of legal costs which may be recoverable. The rules governing legal costs have changed significantly in recent years.
In particular, the introduction of Fixed Recoverable Costs aims to give greater certainty around how much of a successful party's legal costs can be recovered from the other side. As part of these reforms, the Intermediate Track was introduced in October 2023 for claims valued between £25,000 and £100,000. This sits between the existing Fast Track and Multi-Track and has its own rules governing costs recovery. Understanding which track a claim is likely to fall into can therefore be an important factor when assessing the overall risks and benefits of litigation.
Why litigation costs matter
Litigation can be expensive; there are lawyers’ fees, experts fees and other costs associated with the preparing and progressing a case for trial.
Beyond the financial aspects, litigation can require a significant amount of time and energy. There can also be wider consequences, such as disruption to day-to-day operations, strained business relationships and the diversion of valuable resources away from other priorities.
The true impact of litigation is often not fully appreciated until later in the process, particularly where a claim is discontinued, settles later than anticipated or costs begin to outweigh the value of the dispute itself. What may initially appear to be a straightforward route to recovering money can quickly become more complex, time-consuming and costly than expected.
It is important to consider at an early stage whether pursuing or defending a claim is proportionate and commercially sensible. The value and complexity of a dispute may influence which track it is allocated to and, in turn, the amount of legal costs that may be recoverable at the conclusion of the case.
Understanding the different court tracks
1. The Small Claims Track
This is for general money claims of not more than £10,000 in value (there are special limits for personal injury claims).
This track is designed for litigants in person and Costs recoveries are generally not permitted but may be ordered in exceptional circumstances.
2. The Fast Track
This track is for claims of between £10,001 and not more than £25,000 in value. The court must consider whether the case can be tried in no more than one day with restricted oral expert evidence.
Typically, this track is for moderately complex cases. Costs recovery here is subject to FRC; meaning that the successful party’s recoverable legal costs are subject to fixed caps. The amount of Fixed costs in the Fast Track, and the recoverable costs vary according to assessment of the Complexity Bands which cases falls under. There are fixed costs which correspond with defined stages of work that are typically carried out in the running of the litigation here.
This framework is designed to promote a high degree of certainty as to the costs that may be recoverable. Many assume that if they win, the other side will pay all of their legal costs. In reality, a successful party may still need to cover a portion of their own legal fees. This is why understanding the likely costs and recoverability of those costs at the outset is just as important as assessing the strength of the claim itself. An experienced solicitor will be able to guide their client on when it is appropriate to exceed the recoverability thresholds.
A Fast Track example
In a Fast Track claim, if proceedings are issued but a case settles, or it is discontinued before trial, either on or after the date that the court issues a claim, but before the date that the court allocates the claim, and if the claim falls under complexity band 1, a claimant would only recover £2,168 toward their legal costs for that stage.
Under complexity band 4 they would recover £3,097 plus an amount equivalent to 40% of the damages. By this stage, your solicitor may have spent considerable time investigating the claim, reviewing documents, preparing legal papers and negotiating a settlement. However, even if you achieve a successful outcome, the amount you can recover towards your legal costs from the other side may be limited by the Fixed Recoverable Costs regime.
3. The Intermediate Track
This track generally applies to claims worth between £25,000 and £100,000 that are more complex than Fast Track cases but do not require the extensive case management of a Multi-Track claim.
Like the Fast Track, the Intermediate Track is subject to the Fixed Recoverable Costs (FRC) regime.
It allows for higher caps that scale appropriately with to the higher value work and workload. This track is split into four complexity bands - with the recoverable costs increasing in line with the complexity bands and the various stages of proceedings outlined.
Although the available cost recoverability is generally higher than on the Fast Track, successful parties may still find that they cannot recover all of their legal costs from the other side. As a result, it remains important to weigh the likely costs of pursuing a claim against the potential benefit of doing so.
4. The Multi-Track
The minimum value for a case to be allocated to the multi-track is generally £100,000. The Multi-Track is designed for more complex cases involving intricate legal or factual issues that require extensive case management. Cases requiring more than three days of trial or involving more than two experts per party for oral evidence are generally allocated to this track.
There is automatic allocation to this track for certain types of cases such as:
- those arising in the Technology and Construction Courts;
- high value complex disputes; and
- where multiple experts may be involved.
In Multi-Track cases, recoverable costs are assessed based on whether they were reasonable and proportionate to the dispute. Unlike the Fast and Intermediate Tracks, these claims are not usually subject to Fixed Recoverable Costs, meaning there is greater flexibility in the amount of costs that may be recovered from the unsuccessful party.
Why does Track Allocation matter?
The claim a track is assigned to can affect the way the court manages the exchange of and the giving of evidence, the trial length and how the case is managed and the legal costs which may be recoverable. Depending on the track assigned, some procedural requirements may be relatively straightforward, while others can be considerably more detailed, time-consuming and costly.
The Civil Procedure Rules (CPR) governs the allocation and management of all claims. Their overarching objective is to ensure that litigation is conducted fairly, efficiently, and proportionately. The latest costs regime intends to give parties greater certainty over potential costs and to encourage disputes to be resolved in a cost-effective manner. However, the reality is that litigation can still become expensive, even where a party is successful.
At the beginning of a case, two key considerations should be considered:
1. What is the value of the claim and what is the likely cost recoverability for me or against me if I win or lose?
2. Does the other party have financial means to satisfy any judgement made against them?
Alternative Dispute Resolution (ADR) should be explored, where appropriate, in the first instance. Attempting to settle matters early, through negotiation, mediation and other forms of settlement without prejudice discussions can often resolve disputes more quickly and cost-effectively than formal litigation. Our practical aim is to avoid situations where costs increase while costs recovery is limited resulting in a significant (and avoidable) financial loss.
While litigation is sometimes unavoidable, early advice from an experienced lawyer can make a significant difference. At TSP we begin every matter with a careful assessment at the outset, to help clients understand the true value of a claim, identify where costs are likely to be incurred, and explore suitable funding and insurance options to mitigate the risk of adverse costs orders. Equally, through effective use of ADR and the costs-shifting mechanisms available under the CPR, many disputes can be resolved at an earlier stage, reducing both financial exposure and the wider burdens of litigation.
So, who really wins?
In many cases, the most successful litigant is not simply the one who wins in court, but the one who approaches the dispute with a clear understanding of the risks, costs and commercial realities from the outset.
Before bringing or defending a claim, it's important to look beyond the legal merits alone. Understanding the likely costs, the extent of any recoverable costs, and the track your claim may be allocated to can have a significant impact on the overall outcome.
Our Dispute Resolution team at Thompson Smith and Puxon can guide you through your matter from the outset. Contact us today for clear, practical advice tailored to your circumstances.