It remains to be seen whether higher fees will improve the courts service. What is evident, though, is that legal advisers acting for either a potential claimant or defendant need to be flexible in the way in which disputes are handled, both in respect of how they are resolved and the funding for doing so. Heather Smith explains
On 9 March, significant increases in the cost of issuing proceedings for money claims in the civil courts came into force. The impact on the courts system remains to be seen, but it is likely that money claims of mid- to high value will be mostly affected.
The large increase in upfront costs will no doubt deter speculative claimants from commencing proceedings. For example, the fee to issue proceedings for a claim worth £100,000 has increased to £5,000, compared to the previous fee of £910. For a claim worth £200,000, the fee is now £10,000, previously £1,315. Furthermore, where the amount of damages is unknown, the maximum fee of £10,000 will be payable, even though that sum might be completely disproportionate to the damages ultimately recovered.
The changes are unlikely to have such an impact on very high-value litigation, because the court fee payable will be more proportionate to the amount of money claimed. Potential claimants pursuing such claims are more likely to have the financial resources available to pursue the matter.
Compared to other jurisdictions, the fees are high. Potential litigants could take the view that litigating in this jurisdiction is expensive, driving them away to cheaper jurisdictions like New York or Singapore.
Obstacle to justice
One potential consequence of enhanced court fees will be that some businesses will not be able to pursue their disputes through the courts system, leaving them saddled with debts they cannot afford to recover, even if they have genuine claims.
Although fee remissions will continue to apply, it is important to remember that their applicability is restricted to individuals in extremely limited circumstances, and are not available to companies, charities or other organisations.
As a result, we may see a reduction in the number of claims issued, and an increase in the number of litigants in person, as claimants reduce their legal spend to meet the new fees. The lack of involvement of legal professionals could result in a decline of the overall efficiency of the court process.
In July 2013, issue fees were introduced in employment tribunals, resulting in a significant drop in the number of claims issued. In the six months between October 2013 and March 2014, the number of claims issued was 73% less than the same period in the previous year.
If the same trend is reflected in the civil courts for money claims, the government’s aim to generate revenue from the increased fees may not be achieved if there is a dramatic fall in the volume of claims issued.
Issuing a claim: what to consider
Legal advisers advising on money claims must now be more focused on advising clients about the risks involved with the dispute at the outset.
Some claimants are not in a position to take the chance of losing such a large sum of money on court fees. A litigant is therefore going to have to focus more on the merits of their claim and prospects of success (to include more detailed due diligence on the potential defendant) before taking steps to issue proceedings.
The changes will inevitably lead to some parties being more tactical in their approach. When a claimant considers court action and sets out their claim in pre-action correspondence, the defendant may take a more robust stance on the premise that the wronged party may not be able to afford commencing proceedings.
How much to claim?
Once a claimant has decided to issue proceedings, careful consideration must be given to the amount claimed.
It is worth remembering that interest is included in the value of a claim for the purpose of calculating the fee. Claimants whose principal sum claimed is just below the £10,000 threshold (at which level, 5% of the value of the claim must be paid) will need to take a view on whether it is worth pursuing the interest element, if it is likely to significantly increase the issue fee payable.
For claims relating only to money, a 10% discount is available by using Money Claim Online instead of the traditional method for issuing claims. Legal advisers should consider using the service as a costs-saving for their clients.
The fees rise has put more pressure on claimants to quantify the value of their claims. Claims for unspecified amounts of money attract an issue fee of £10,000, regardless of the value of the ultimate claim. In such cases, consideration should be given to limiting the value of the claim to avoid paying the highest fee.
Those who think they can amend their claim later to include additional amounts, thereby avoiding higher issue fees, should beware: the court will claim the difference retrospectively or, if permission to amend is refused, a claimant’s recoverability of damages will be limited to their original claim.
Injunctions and declaratory relief
Legal advisers will need to give detailed advice on other ways of dealing with certain types of disputes, for example, initially seeking a declaration on the interpretation of a contract rather than damages for a disputed breach, or, if a claimant is issuing proceedings for an injunction, a decision may be taken not to claim for damages in the alternative, as this could significantly impact the fee payable and may not be worthwhile.
Recoverability of disbursements
Court fees are disbursements that are automatically recoverable as part of a successful claim. It has been suggested that this should mean that those with genuine claims will not be discouraged from paying the higher fees, because they will ultimately recover the money from the other party at the conclusion of the litigation. However, clients should be reminded that it is very unusual to be awarded all costs to be repaid by the losing party, together with a warning about the risk involved with actually recovering the full amount due.
Alternative approaches to resolving disputes
Parties are already encouraged by the court to consider alternative dispute resolution; however, in light of the increased court fees, more emphasis will be placed on these methods prior to issuing proceedings.
To facilitate different ways of resolving disputes, legal advisers may be required to advise on standstill agreements for those potential claims which are reaching limitation periods. Entering into such an agreement will allow the parties to explore settlement further without the cost and pressure of court proceedings.
If a claimant does decide to issue, it is likely the parties will implement a stay in the proceedings to allow negotiations to take place. The fact that the claimant has issued proceedings and incurred the issue fee may suggest that they are likely to have a good case, so settlement should be explored.
Other options besides for resolving disputes include:
• pre-action correspondence exploring opportunities to resolve differences at an early stage;
• looking to the ombudsman or similar service for a satisfactory outcome;
• for straightforward debt claims, swift action should be taken following payment default to minimise the loss and, where appropriate, a statutory demand could be served;
• mediation or without prejudice meetings could be used to facilitate a fair settlement;
• appointing an expert adjudicator to make a decision on the matter;
• arbitration action could be commenced if suitable.
If companies are regularly involved in enforcement of debts or other high-value disputes, it is worth considering including a dispute resolution clause in their terms and conditions to increase the likelihood of resolving the dispute without court proceedings and the associated costs.
Alternative approaches to funding
If it is not possible for a dispute to be resolved without the assistance of the court, legal advisers will need to ensure that clients have carefully considered how the claim will be funded.
Even though a claimant might be able to recover its costs from the defendant if successful, this will not be until the conclusion of the dispute, well after the money has been paid out at the outset, which could lead to some claimants having cash flow problems. Therefore, parties will need to consider alternative funding methods which may offer a cost- and risk-free service.
In the case of third-party funding, cases will not be backed without a thorough investigation of the matter, and a proportion of the money recovered will need to be paid to the third party (usually 30-40%). Insurance companies may also be called upon more often to meet the costs of unexpected litigation, either with before- or after-the-event insurance.
Law firms need to become more open to other methods of resolving disputes and funding claims, as even options like ‘no win, no fee’ structures would normally involve a claimant being responsible for disbursements, including the issue fee, which they may not be able to do. Some firms therefore may also consider funding disbursements on behalf of their clients, although this will simply shift the cash flow problems from claimants to their legal advisers, and large and small firms alike may not be able to facilitate this way of working.