The MoJ recently announced plans to raise revenue from the court system by introducing a new structure for fees for bringing money claims over the value of £10,000. The announcement can be found by clicking here.
Under the proposed system, the court fee to issue money claims over £10,000, will be calculated as 5% of the value of the claim (subject to a cap of £10,000). The Civil Justice Council has indicated that court fees on a claim worth £200,000 will, following the introduction of this change, go up by £8,725 from £1,275 to £10,000.
In this instance the type of legal claims affected, includes recovery by a small business of a debt from a buyer of goods or services. Some SMEs are forced to begin legal proceedings when buyers delay payment, as these actions can have a devastating impact on the cash flow of the business. A recent example of this practice can be seen in the tactics used by large supermarket chains and food producers to delay payment to smaller British farmers.
Such fee increases can actually be prohibitive, and this will deter people from lodging claims altogether, thereby denying them access to justice. We are concerned about the impact these proposals could have on many of our clients, particularly small businesses. We consider that it will have a wider detrimental impact on the UK economy. Very few businesses (particularly SMEs) will be able to afford to issue claims to pursue outstanding debts and they in turn have their own creditors to pay. We also anticipate that we will see an increase in serial debtors as they will simply order goods and services knowing full well that they may not be pursued as it will not be commercially viable to do so. As cash flow will be seriously hampered, we anticipate that we will simply see an increase in the number of businesses being liquidated. This in turn will of course lead to loss of revenue to the Government in respect of VAT recovery on invoices written off and the tax generated by the businesses themselves.
As an example of how the proposed fees will have a serious effect on an SME, we are currently dealing with a claim valued in excess of £200,000 for a small company. It is already a financial strain on this business to finance the litigation in the current regime. They are out of pocket to the tune of over £200,000, but now have to pool resources to attempt recovery of this sum from the debtor. If the new proposed fees regime is implemented, we doubt very much that they would even have sufficient funds to issue the claim and instead would have to consider liquidating their company as they will then be effectively insolvent themselves as they have been prevented from being able to pursue a debt which is genuinely owed to them and the debtor has obtained goods and/or services for free! Not many SMEs have £10,000 just to issue a claim when they are owed a significant amount of money already. Clearly the proposed fee increase will obstruct access to justice.
Another important point to take into consideration is that the work involved for the Court to issue a claim is minimal. It is simply a case of logging the case onto the system, sealing the Claim Form and Particulars of Claim and serving it on the Defendant. We cannot see how a fee of several thousand pounds can be justified for such a routine service. The real cost of running a Court is incurred in respect of interlocutory Hearings, and particularly Trials. If Court fees have to be increased, then it would be far more equitable to increase the cost of a Hearing or a Trial, than it would for the simple logging and service of a Claim Form. Less than 2% of the claims that we handle for debts in excess of £10,000 go to Trial. It would be manifestly unfair for a business to have to stump up a Court fee of several thousand pounds for a case that the Defendant does not defend. Moreover, it could become a considerable bar to settlement if a Defendant is not prepared to pay such a high Court issue fee once proceedings have been issued.
We also understand it may also hamper trade with overseas businesses. Currently, our court system is highly regarded as relatively cost effective and efficient compared to court systems based in other jurisdictions. This encourages overseas enterprises to do business with enterprises in England and Wales and agree that such contracts are subject to this jurisdiction. They have the reassurance that if any issues arise out of those contracts they can be dealt with relatively cheaply and quickly using our court system. However, if the new fee proposals come into play, we presume that this will no longer be the case. Overseas trade may look elsewhere and the UK loses its position as a global financial centre.
We are also concerned about the evidence that the MoJ used to come to its decision to increase court fees. The department claims that 90% of money claims will not be affected, but it is clear to us that the potential impact is much more serious than anticipated.
In light of the above and the serious impact the proposed court fees increases will have against you as a business, we are inviting all our clients to consider lobbying against the proposed changes.
We suggest that you write to your local MP and to the Secretary of State for Justice, Chris Grayling expressing your concerns. We are hoping that in this way the sheer weight of public opinion is most effectively forced home.