On 9 March 2015 significant increases in the cost of issuing proceedings for money claims in the civil courts came into force. It is likely that money claims of mid to high value will be most affected.
The large increase in upfront costs will no doubt deter speculative claimants from commencing proceedings. We reported on the scale of the increases in the following article here.
The changes are unlikely to have a significant impact on high value litigation because the court fee payable will be more proportionate to the amount of money claimed.
Compared to other jurisdictions, the new fees are high. Potential claimants could decide that litigating in this jurisdiction is expensive with the result that cases are issued in cheaper jurisdictions such as New York or Singapore instead.
An obstacle to justice?
The enhanced fees could mean that some businesses are unable to pursue their disputes through the courts leaving them saddled with debts they cannot afford to recover, even if they have genuine claims.
Consequently, the increases may not only lead to a reduction in the number of claims issued but also to 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.
Issue fees introduced in the employment tribunal in 2013 resulted 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.
The comparison is a useful one. If the same trend is reflected for money claims, the government's aim to generate revenue from the changes may not be achieved as there could be a dramatic fall in the volume of claims issued.
Important points to consider when issuing a claim
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 its mind more on the merits of its 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 its claim in pre-action correspondence, the defendant may take a more robust stance on the premise that the claimant may not be able to afford the issue fee.
How much to claim?
Careful consideration must be given to the amount claimed. 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 or not 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 so this option should be considered in order to reduce the fee payable.
The importance of valuing claims
There is 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 as the court will claim the difference retrospectively or, if permission to amend is refused, recoverability of damages will be limited to the original claim.
Alternative approaches to resolving disputes
The increased court fees will place more emphasis on alternative dispute resolution prior to issuing proceedings.
As a result standstill agreements may become more common for potential claims which are reaching limitation periods. Entering into such an agreement will allow the parties to explore settlement without the cost and pressure of court proceedings.
If a claimant does decide to issue proceedings, it is likely the parties will implement a stay to allow negotiations to take place. The fact that the claimant has issued proceedings and incurred the issue fee may be an indication of the strength of its case so settlement should be explored.
Settlement options include:
- Pre-action correspondence to resolve differences
- The ombudsman or similar service
- Mediation or without prejudice meetings
- Appointing an expert adjudicator
- Arbitration action
- Including a dispute resolution clause in terms and conditions
Alternative approaches to funding
If it is necessary to issue proceedings, clients must 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. Parties 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 carrying out due diligence 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.
Those involved in litigation must consider other methods of resolving disputes and funding claims. Options like 'no win no fee' structures which typically involve a claimant being responsible for disbursements, including the issue fee, may no longer be possible for cash flow reasons.
The increase in court fees will have a significant effect on the cost of litigation, making England and Wales one of the most expensive civil jurisdictions for money claims.
There may be a decline in the number of cases coming before the courts; however, as Lord Faulks reminded the House of Lords 'those who choose to litigate in our courts will continue to recognise the outstanding levels of service and excellent value for money [the courts] offer'.
It remains to be seen whether the higher court fees will have the desired impact of improving the court service. What is evident though is that parties involved in litigation need to be flexible in the way in which disputes are handled, both in respect of how it is resolved and the funding for doing so
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.