Legally recovering what is rightfully yours just got a whole lot harder

Newcastle-based expert Niall Head-Rapson says the new court fees system is good news if you are rich or don't care too much about ethics

Niall Head-Rapson, partner at law firm McDaniel & Co
Niall Head-Rapson, partner at law firm McDaniel & Co

For any reader who is in the unfortunate position of being owed money and has taken all the obvious measures to recover it, but without success, the new court fees system which came into effect last month, make debt recovery prospects somewhat bleaker for the man in the street.

The changes are arguably much better news for those in society who shrug their shoulders when they hear words such as honourable, ethical, and trustworthy or for those who are blessed with deeper pockets than the rest of us.

So what has changed? The new fee structure the government has recently introduced – a percentage issue fee – means that in the case of money claims over £10,000 the fee is calculated as 5% of the value of the claim subject to a cap of £10,000.

With the new system, simply to lodge a claim you must pay 5% of its projected value up front, before court proceedings can begin. This means a fivefold increase for claims at that level. We can take small comfort from the fact that a 10% discount will continue to be available for those issuing claims electronically.

So what is behind these changes? Justice Minister Shailesh Vara has already announced that there will be an investment of some £375m in the courts over the next five years to modernise services so that long-term financial savings worth over £100m per annum by 2019/20 can be realised.

In addition, the government is consulting on further proposals to raise fee income, including a significant increase in application fees in civil proceedings, from £155 to £255 for a contested application and from £50 to £100 for an application without notice or by consent.

The new 5% issue fee is an “enhanced fee”, meaning that it is aimed at recovering more than the cost of the services to which it relates. The government is seeking to make a profit out of what is a dispute resolution service.

Various bodies have expressed concerns, including the senior judiciary and the Civil Justice Council, as to the potential impact on access to justice as well as London’s competitive position as a centre for international dispute resolution.

The judges warned of a disproportionately adverse effect on small and medium enterprises and litigants in person bringing claims, especially those who fund cases after the event.

The Bar Council said the latest proposals are deliberately designed to raise significantly more money from claimants than the cost incurred by the courts in handling money claims. It noted the maximum fee is to be increased by 420%, from £1,920 to £10,000. The fee payable for a claim of £200,000 is to be increased by 660%, from £1,315 to £10,000.

Bar Council Chairman, Alistair MacDonald QC, commented that, “Cash-flow is the life blood of small businesses and many end up having to pursue late payments and other debts through the court system. Imposing a 5% fee may well make many small businesses think twice before making that claim, and will certainly strengthen the hand of late payers.’

The Law Society has collected case studies from solicitors showing what impact the fees would have on ordinary people seeking justice.

One concerned a pensioner with a claim against a financial adviser for the loss of his entire pension fund, for which the fee for applying to begin court proceedings will increase from £910 to £5,000.

Another case study found that a young girl with brain damage due to a failure by doctors to diagnose meningitis as a toddler will now require £10,000 to mount any fight for a secure financial settlement.

Therefore, where especially smaller businesses, be they companies or individuals, are faced with recovering bills, they must prepare for a huge increase in the cost of issuing claims. They will think twice because it will have a further significant impact on cash flow.

This will inevitably lead to job losses at smaller businesses as larger, more cash rich businesses simply refuse to meet their obligations knowing it is unlikely that proceedings will follow. If they do commence litigation, businesses and individuals will probably act for themselves.

The real issue of course is the social effect this change will have. Any so-called advanced society needs to have in place a formal structure for resolving disputes. If none is available or are seen as distant and out of reach, it will inevitably lead to people attempting to find other ways of recovering what they think is owed to them; some will be lawful but others will not be.

Niall Head-Rapson is a partner at law firm, McDaniel & Co, based in Jesmond, Newcastle.

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