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Commercial Litigation: Frightening fee rises proposed

About The Author

Chris Bridges (Executive Editor)

Chris is an IT and Data Protection solicitor at a top 20 full service firm and the founder of Keep Calm Talk Law. He also contributes to Computers and Law and other sector specific publications.

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The Ministry of Justice have recently expressed concern that under the current court fee scheme the full costs of litigation are not being covered, creating a deficit of over £100 million per year. Consequently, the government have launched a consultation on the topic of court fee reform that closes later this month, on 21st January.

The government’s reforms aim to ensure that in all cases the full cost of the court proceedings are paid for, and that in some cases parties “should pay more where they can afford to do so”. In the Ministerial foreword Shailesh Vara (Parliamentary Under-Secretary of State, Ministry of Justice) states that the Lord Chancellor will still be responsible for protecting access to the courts. He must therefore consider whether enhanced fees are necessary, and if they might damage the UK’s competitive edge in the legal services market. (MoJ Proposals for Reform - PDF Document)

It has been the general policy of the government that courts should recover all costs of proceedings. However, this has not been happening in practice. Combined with the current fiscal deficit and the desire to reduce said deficit, the MoJ feels change is needed and state:

For these reasons, the government believes that it is preferable that those who can afford to pay should contribute more to the costs of the courts, so that access to justice is preserved and the cost to the taxpayer is reduced.

-Page 6, Proposals for reform

To put the rise in commercial fees into perspective, I will also highlight the changes in fees for non-commercial proceedings.

The proposals to date come in two distinct states. First, to move from the current deficit arising from civil and family proceedings to a situation where the fees reflect the cost of the service provided. The second stage would be the introduction of ‘enhanced fees’, which would not be limited to the cost of the service.

The first stage is relatively uncontroversial and largely reflects changes in the court structures, which render the current accounting system no longer efficient. The initial premise for these reforms is that it is no longer possible to treat the different parts of the courts as separate entities as many of these parts now share resources (including shared administration centres, back offices, courtrooms and staff). The changes proposed will in theory simplify fee structures across the civil courts thereby reducing the current deficit. The estimated cost base of the civil courts is £625 million. Under the current fee scheme, there is an income of only £505 million (creating a £120 million deficit). Under the new scheme, income would rise to an estimated £610 million, reducing the deficit to only £15 million. These changes would be implemented in the coming months via secondary legislation.

To me, this makes sense; at least if arguments of subsidising court services to increase justice are not taken into consideration.

Therefore, the second stage of the MoJ’s proposals are more interesting. Under current policy (set out in ‘Managing Public Money’), public bodies should charge no more than the cost of providing a service. However, the government feels there is rationale for departing from this rule in certain cases, and wish to introduce a power for the Lord Chancellor to do so into the Anti-Social Behaviour, Crime and Policing Bill, which is currently before parliament.

It is believed that this will be reasonable where the parties involved can afford to pay a fee that better reflects the value of the proceedings to them. The proposals for reform highlight four key areas where they see this to be the case including money claims both specified (e.g. loans of a fixed amount) and unspecified (e.g. personal injury claims), commercial proceedings, and divorce proceedings.

Money Claims

The rationale for change is that under the current arrangements the fee as a percentage of the value of the proceedings is far higher than that of larger valued claims. Claims at the bottom end are charged at least 11.5% of the value, whereas at the higher ender (over £300,000) fees are capped at £1,870 representing at most ~0.06% of the claim’s value.

Therefore, the government propose a fee that represents 5% of the value of the proceedings, subject to a minimum and maximum fee. The minimum fee would be no less than that dictated by the first stage of reforms, and the maximum fee £10,000 for claims of £200,000 or more. These changes would generate an estimated additional court income of £45 million per year for specified amounts. For unspecified claims, in order to protect vulnerable negligence victims, the maximum fee would be £5,000. No prediction of increased profits is provided, perhaps due to the unpredictability of unspecified claims.

Commercial Proceedings

The justification for charging increased fees for commercial litigation is multi-faceted. The Rolls Building as you may or may not know can justifiably be described as a ‘super court’ and is the largest specialist commercial court in the world with super-modern facilities and the very best specialist judges. The costs of commercial litigation are therefore high. (The Rolls Building is well worth a visit for any aspiring commercial solicitor, if you have not been already, I strongly advise visiting and sitting in on a hearing next time you are in London.)

Furthermore, the parties involved are often wealthy multi-national organisations or very wealthy individuals, and a high proportion of proceedings involve a foreign party that have chosen the UK as the designated jurisdiction. To put this into perspective, UK legal exports are worth in excess of £4 billion a year.

Given these considerations, the government believes it to be fair that such parties should pay more than they would under regular money claim rules. The government has made two alternative proposals. First, the proceedings be charged on the same fee structure as any other money claim, but with the addition of a separate hearing fee based on the length of the proceedings. Second, simply apply a higher maximum fee to commercial proceedings. These reforms would apply nationwide, not just to hearings heard in the Rolls Building (apart from Mercantile Courts).

The first proposal tackles the great variance of court time occupied. The proposals for reform document states, on P35 that between 2009 and 2013:

40% of trials were listed for one day, and 80% were for five days or fewer. However, a small proportion of trials last much longer: one case occupied the court for 103 days.

The latter mentioned case would therefore be vastly more expensive than the typical trial. To put this in perspective, the estimated cost of a one-day hearing in the Rolls Building is £1,067. Therefore, 40% of trials cost £1,067 or less, whilst the longest running trial cost an estimated £109,901, £99,901 more than the aforementioned maximum fee of £10,000. Considering this, not imposing a daily hearing rate seems nonsensical; why should the taxpayer subsidise court proceedings of commercial entities that can afford to pay in full? This would only weaken the MoJ’s ability to ensure access to justice for all, especially those on the lowest incomes. The government therefore proposes a hearing fee of £1,000 per day for commercial cases. If a trial were to take less than half a day, this would be reduced to £500.

The second proposal is to impose higher maximum fees of either £15,000 for claims of £300,000 or more, or £20,000 for claims of £400,000 or more.

Divorce Proceedings

The government believes that those involved in divorce proceedings can often afford to pay higher fees, and will likely have no problem in doing so. Under the first stage of reforms, the cost of a divorce petition would remain £410. The predicted average cost of an uncontested petition is around £270; however, the government wish to charge £750 (around three times the average cost).

This would generate an estimated additional income of £30 million per year.

Are the reforms fair?

Whilst some may see the changes to divorce petition fees a little unfair, few will dispute that the changes to the other non-commercial matters are relatively small increases and ones that should not have any great impact on access to justice. The increase in commercial fees could however be huge, depending on which reform is adopted, and in the case of the imposition of daily hearing rates, how long the proceedings take.

Whilst the ‘headline figure’ of a £103,000 increase in court fees for the longest commercial hearing may seem shockingly high, this must be put in perspective. In 80% of cases, the supplementary hearing fee would be only £5,000, and in 40% of cases less than £1,000. The other 20% are likely, in more cases than not, extremely valuable to the parties concerned making the additional cost, even if £103,000, relatively small.

Let us examine the worst-case scenario, if the first proposal was to be adopted and a case lasted 103-days:

We can work out a very conservative estimate of costs, based on barrister fees for time in court alone. If a party was to instruct a silk and a junior at £500 and £300 respectively, based on 6 hours in court a day, daily barrister fees for one party would be £4,800. Assume the opposition matches this. £9,600 a day. Multiply by 103, equalling a total of £988,800 on barrister fees. A court fee of £113,000 (£10,000 maximum + hearing fee) no longer seems that great. Going further, taking into account time billed outside court, and that it is not unknown for some silks to charge in excess of £1,000 an hour, this increase seems even more reasonable. Moreover, these figures do not take into account the cost of the instructing solicitor, or the potential failed arbitration that preceded the court hearing. Taking these additional things into account costs would likely be in excess of £2 million, and are quite probably a vast amount more than this.

If a commercial entity is willing to spend this amount on litigation, the outcome is clearly extremely valuable to them. Either for the award of the sum in question, or for the side effect it might have on their arch-rival who just had to pay out.

Furthermore, when commercial entities derive such huge benefits from litigation, why should they not pay a premium and subsidise the court system? We are very familiar with fiscal redistribution of income, so why should similar principles not apply to court fees?

Time can only tell what consequences these reforms may have if implemented. I believe, as the government proposals suggest, that negative effects will be limited; and I also believe the benefits derived from the suggested reforms could be substantial. If the MoJ was able to turn a £120 million court deficit into a £120 million profit, we could potentially see much needed improvements elsewhere in our justice system.

It is no great secret that UK courts (with the exception of the newer facilities such as the Supreme Court and the Rolls Building) are technologically backward. These new profits could be just the stimulus the UK courts need. Furthermore, by ensuring the justice system is not running at such a large deficit where it should not be, the MoJ might be able to increase its legal aid budget, removing the need for further cuts.

This of course relies on the government and the MoJ making the right decisions, which is unfortunately not something we can always depend on. It is however hoped that these reforms are a step in the right direction, and the advantages certainly seem to outweigh the disadvantages.

Further Reading

Ministry of Justice, 'Court Fees: Proposals for reform'. (PDF Document).

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Tagged: Commercial Law, Courts, Legal Business

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