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Potential impact of intended dramatic increases in court issue fees

20 January 2015

Late last Friday afternoon came the news from the MoJ that they were intending to substantially increase court fees for issuing proceedings. It may not quite be hyperinflation, but it’s not often that you see a proposal from Government to increase a cost to the consumer by up to 660% as is the case here.

So against the background of a proposed change of that type, we need to ask ourselves how we have got here, whether in fact this reform is likely to happen, and if it is implemented, what the impact would be. After all, it cannot reasonably be thought that substantial change to this degree will not have consequences, whether they are intended or not.

Proposed changes

The Government’s intention is to radically change the system for calculating court fees when issuing proceedings. At present, there are value bands of claims which lead into the court fee payable. They are set out on the graph and in the table below. There is a maximum court fee of £1,920, reached at a claim value of £300,000. These fees have been in place since April 2014, when they were set at levels where they would in addition to fees payable at other stages of the case (mainly the allocation stage fee and  the hearing fee) meet “the full cost” of using the court process in those claims.

The new plans are to increase fees for all claims valued at over £10,000 so that the court fee is 5% of the amount of the claim, subject to a maximum fee of £10,000 which would be reached on a claim with a value of £200,000.

Fees in claims worth £10,000 or less would remain unchanged. The MoJ point out that these cases represent over 90% of all claims.

On the new basis, claims over £10k will have higher fees and the extent of the increase will be greater as the value of the claim approaches £200k, and the increase while still very large will slightly decrease as you move above £250k towards the current maximum fee of £1,920 which is set for claims worth over £300k. So for example:

 

  • A claim valued at £25k which currently costs £610 to issue would instead cost £1,250, an increase of 105%

  • A claim valued at £50k which currently costs £610 to issue would instead cost £2,500, an increase of 310%

  • A claim valued at £100k which currently costs £910 to issue would instead cost £5,000, an increase of 450%

  • A claim valued at £200k which currently costs £1,315 to issue would instead cost £10,000, an increase of 660%

  • A claim valued at £300k which currently costs £1,720 to issue would instead cost £10,000, an increase of 480%

  • A claim valued at £350k which currently costs £1,920 to issue would instead cost £10,000, an increase of 420%

This is how the increases look pictorially, with the blue bars showing the current fee for the case value shown in the band stated on the horizontal axis, and the red bars showing the proposed new fee for the claims value figure at the top of each of the value bands mentioned on the horizontal axis:

SU 200115

The detail of the new fees is shown on this table below extracted from the MoJ’s response itself:

Annex B: Schedule of fees to issue proceedings for money claims Claim value

 

 

 

Current fee

New fee

Filed at a court centre

Filed            via SDT/

MCOL      

 

Filed at a court centre

Filed via SDT/

MCOL

Up to

£300

 

 

£35

£25

£35

£25

Greater than

£300

but no more than

£500

£50

£35

£50

£35

Greater than

£500

but no more than

£1,000

£70

£60

£70

£60

Greater than

£1,000

but no more than

£1,500

£80

£70

£80

£70

Greater than

£1,500

but no more than

£3,000

£115

£105

£115

£105

Greater than

£3,000

but no more than

£5,000

£205

£185

£205

£185

Greater than

£5,000

but no more than

£10,000

£455

£410

£455

£410

Greater than

£10,000

but no more than

£15,000

£455

£410

5% of the value of the claim

5% of the value of the claim, less 10%

Greater than

£15,000

but no more than

£50,000

£610

£550

Greater than

£50,000

but no more than

£100,000

£910

£815

Greater than

£100,000

but no more than

£150,000

£1,115

N/a

N/a

Greater than

£150,000

but no more than

£200,000

£1,315

N/a

N/a

Greater than

£200,000

but no more than

£250,000

£1,515

N/a

£10,000

N/a

Greater than

£250,000

but no more than

£300,000

£1,720

N/a

£10,000

N/a

Greater than

£300,000

 

 

£1,920

N/a

£10,000

N/a

 

How we have got here

The government’s way forward on this has come from a response to a consultation which closed as long as 12 months ago. It’s unclear why they have left the issue open for so long.

In the consultation exercise they considered differentiating between claims for fixed or “specified” sums of money on the one hand, and claims for “unspecified” sums like most claims brought against insurers on the other, and thought about having a lower maximum fee of £5,000 rather than £10,000 for the unspecified claims. This approach has though been rejected in favour of a single approach affecting all money claims.

The MoJ have decided not to press ahead with raising specific new increased fees for commercial proceedings and for divorces, though this will be of scant consolation to insurers.

The purpose of the proposed changes is to go beyond where we are now where court fees in the type of cases concerned effectively fund the court system to administer them, and to reach the position where the payment of these “enhanced fees” increases the financial resources of the MoJ generally. The Government expect the fees to produce additional income of £120m annually and that is seen by them as a further contribution to the running costs of the court system. 

Forward from here

Following the example of LASPO (full name of course the Legal Aid, Sentencing and Punishment of Offenders Act) which of course had a wider remit than just the areas mentioned in its title and which introduced the wide-ranging civil justice reforms advocate by Lord Justice Jackson, so we now have another statute being used which gives rather wider powers than its name suggests.

Here, the key powers given to the government on court fees comes from the Anti-social behaviour Crime and Policing Act 2104. This permits Mr Grayling as Lord Chancellor as well as Secretary of State for Justice to bring forward measures for “enhanced fees” with the consent of the Treasury which will enable the financing of “an efficient and effective system of courts and tribunals”. He must bring forward a statutory instrument which must then be approved by both the Commons and the Lords.

The consultation response says that the MoJ intends to bring forward a statutory instrument to do just that subject to parliamentary time being made available. It wants the changes to be in place for the start of the 2015/16 financial year.

Parliamentary process

While the MoJ has not been quick to bring forward these proposals for enhanced fees, it must still be their expectation to be able to pass the statutory instrument before the end of the parliamentary term on 30 March. The government may well expect to obtain majorities in both Houses of Parliament. The Impact Assessment from the MoJ assumes a start date of the end of March 2015.

External opposition

There is however likely to be substantial opposition. Part of this may well be principled objection on the basis that surely there are obligations on the State to provide a properly funded system of civil justice, and that general taxation has a role to play in this. Why, it will be argued, where litigants (or their insurers) are already paying what is effectively the full costs of their claims, should they pay more?

The Lord Chief Justice Lord Thomas, alongside the Master of the Rolls Lord Dyson and other senior judges, oppose the changes. They point out that the increased fee might be “completely disproportionate to the damages ultimately recovered”, and argue that the evidence base justifying the reform is “far too insubstantial for reforms and increases at this level.” The Civil Justice Council also have “grave concerns” about the reforms and refer to there being insufficient evidence in support.

We will need to await developments, but it would we think be wise to see at present that there are serious prospects of these proposed reforms for enhanced fees being introduced as they stand, or something close to them.

Likely effects of the reform

What would the effects on claims be if they were introduced? The position is a mixed one and would take some time to settle down. What might the new influencing factors be?

Claims going into court proceedings

The MoJ Impact assessment assumes that the impact of claims going into litigation will be marginal at 0-2%. In other words litigation will be reduced by only that amount. The top of its range of impacts is a reduction of 10%. Will these estimates prove accurate?

Depending on business changes that may be needed on the part of claimant lawyers, and the time at which any required changes are implemented, we can see that some claimant lawyers may be more reluctant to incur a sizeable court fee in a marginal case, where say meaningful discussions are ongoing. This may impact particularly in claims worth from £50k upwards towards. A claims value of around £50k is a point at which the new fee becomes more significant. When you are dealing with a claim with a value of £250k upwards, the increased court fee begins to look less disproportionate compared to other claims costs. So the key impacts may be on claims worth £50-250k.

Alternative dispute resolution methods

When the Jackson reforms were in their infancy, there was an expectation in some quarters that new methods to resolve disputes as alternatives to litigation were worth looking at. Suggestions included a form of arbitration, neutral facilitation, and claim-life mediation. Claimant lawyers seemed attracted to some of these to avoid threats such as Mitchell v NGN and costs budgeting. Substantially increased court fees might provide another incentive.

Changes in litigation practices

The court fees if increased will still be calculated by reference to the size of the claim being brought. Where a claim settles at a lower figure, the defendant will look to argue (as they do now with the value bands for assessing court fees already in use) that the claimant should only be able to recover a fee calculated by reference to the actual settlement which may be rather less. The risk of losing recovery of part of the issue fee may well encourage more realistic statements of value from claimants.

This area is touched on in the consultation response. The MoJ say that they would like to take more time to consider whether to introduce a specific provision that it is only the issue fee payable on the part of the claim that succeeded that is recoverable from the defendant.

Defendants in turn will be keener to argue that proceedings are premature where rather more would be at stake on the issue fee. This is likely to be an important area going forward.

Another effect of the proposed change might be a greater desire to seek interim payments, out of which the issue fee could be paid.

Claimants’ solicitors’ business models

Is one way of covering the extra cost through ATE insurance which could provide cover for disbursements and interim financing of them? Or is third party funding likely to be seen by claimant operators as an option to consider in claims faced by insurers in the future, as an alternative to extending their banking facilities?

Another potential aspect of the proposed change is that it will create yet more momentum towards larger claimant legal businesses which are able to operate in a way that is able to accommodate the additional financial demands brought about by these changes. In these ways we might see external finance becoming more important, whether in groups of cases, or strategically though an ABS.

Conclusion

At the end of the day, the likely changes we are seeing here are about moving more of the cost burden of administering the court system onto the users of that system. In as much as insurers end up paying most of those costs through settled claims, much of the intended extra £120m of income for the MoJ could end up being paid by insurers if these dramatic increases are implemented. In the motor arena where the cost of insurance is under scrutiny by government, these extra costs would, if introduced, tend to add to claims costs and therefore to the costs of insurance.

We will have to await developments in the pre-Election period on this.

Contact

For more information please contact Simon Denyer on +44 (0)161 604 1551 or at simon.denyer@dwf.co.uk

By Simon Denyer

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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