THE NEW LITIGATION COSTS REGIME – THE CHANGES EXPLAINED
This article sets out more detail about the Government’s proposed fee increases to civil litigation costs which may have a significant impact on anyone looking to issue legal proceedings.
Until 2nd March, those discussions were still under review and also subject to a proposed judicial review by the Law Society.However, the increases have been approved at the Delegated Legislation Committee stage by the House of Commons and are due to come in force (barring a last minute Parliamentary upset) on 9th March 2015. Originally, the earliest implementation date was set for April 2015.
The new proposals are split into 2 main monetary bands:-
Claims less than £10,000
The new proposals will not affect claims when the value is less than £10,000. In terms of the number of claims issued in England Wales, this accounts for approximately 70 – 80% of all issued claims. Of course, such claims fall within the ambit of the Small Claims Track and, as a result, the general rule is that you are unable to recover your costs from the losing party in any event.
In addition, it should be noted that claims issued through the HM Courts & Tribunals Service internet based service for claimants and defendants, Money Claim Online, will benefit from a flat 10% reduction on all Court issue fees.
We are pleased to confirm that Francis Wilks & Jones are one of the few firms who have a current registration to use the Money Claim Online system.
Claims over £10,000
This is where the proposed changes really have a significant impact. For claims in excess of £10,000, the Court issue fee will be based on 5% of the value of the claim. The 5% fee will be capped for all claims over £200,000 at a maximum of £10,000.
Set out below are some examples of how the changes will materially affect those parties looking to issues proceedings;
Current Court Fee
Proposed Fee at 5%
Increase in Fee
Discount through MCOL
In addition to the above, the fee for any interim applications will also increase by up to £70 per application.
What can you do to avoid the worst of the proposed increases?
It is true that the majority of cases issued in England and Wales are below the £10,000 limit and to that extent, the changes will not alter the decision making process on these claims.
However, with more significant claims (those in excess of £10,000) where the prospect of recoveries remains unclear, careful thought will need to be given as to whether to issue proceedings at all.
One option is to explore more carefully the prospect of a settlement without recourse to the Court, even in circumstances where the relationship between the parties appears to have broken down. At FWJ we have links to many good mediators, some of whom will charge only £850 for a full day mediation on claims up to £50,000 to see whether a sensible compromise can be reached. Our dispute resolution team at FWJ, which includes in-house Counsel Jacob Aston, is already becoming more involved in settlements pre-issue in light of the forthcoming threatened changes.
Another option would be for you to consider what potential claims they have and issue these prior to the new changes coming in so that they take advantage of the current Court fees. This will need to happen by 6th March 2015 to avoid the increased fee. However, the Court has made it clear that the parties would remain responsible for any increased fees (such as filing costs and interim application fees) incurred during the claim – even though the claim was issued prior to the changes coming in to effect.
Insolvency based recovery routes
Claimants may want to consider more closely different forms of recovery such aswinding up petitions (for companies) or bankruptcy proceedings (for individuals) as their first line of recovery bearing in mind the implications of the proposed fee changes.In the right circumstances, these can be a highly effective method of debt recovery
However, please note the government is also increasing the minimum level of debt for which someone owed money can force a person into bankruptcy from £750 to £5,000– although, the implementation date for this change is still unclear. These limits were last revised in 1986. In the event that the underlying debt is not disputed and the individual / company is able to pay then the costs incurred are generally recovered as part of the settlement process.
Review your terms and conditions
It is vital to have a good set of terms and conditions of trade. These often enable you to go down the more hard hitting insolvency based route rather than the traditional court route (which will soon have much higher fees). Well drafted terms will mean that you preclude, where possible, any potential defencesand you can recover litigation costs on an indemnity basis (i.e, need not be "proportionate" to the value of the claim and may be recovered in full from the debtor) to ensure that you maximise your recoveries.
At FWJ we have experts who can help draft or amend your terms and conditions if that is of interest.
Further articles will be posted once the full extent of the proposed changes are understood and the Law Society’s request for a judicial review of the proposed changes has been resolved.
In the meantime, if you would like any further information regarding the proposed changes, have any claims that you wish to issue via the Money Claim Online system, consider an alternative form of dispute resolution or to undertake a more formal review of your risk and recovery procedures then please do not hesitate to contact Andy Wilks,Andrew Bowden-Brown, Tim Francis or Ambuja Bose 020 7841 0390.