Friday 30 January 2015

Law Society says civil court fee hikes spell disaster for access to justice

Following on from my last blog on the imminent increase to Court fees, see below the recent statement from the Law Society:


The Law Society has heavily criticised the government's decision to increase court fees for some civil cases. Law Society president Andrew Caplen said:''Court fee hikes introduced by the government from April spell disaster for access to justice.'


Read full statement

Thursday 22 January 2015

Get in quick to avoid imminent increases in Court fees

Hot on the heels of my last blog which recommended filing any insolvency proceedings before the CFA and ATE insurance changes affecting that industry arrive in April, the Ministry of Justice have announced this week that, as of March 2015, Court fees will increase.


From March 2015, Court filing fees for all money claims with a value of £10,000 or more will increase to 5% of the value of that claim. However, the filing fees will be capped at £10,000. Thus, for a money claim of £10,000, the Court fee would be £500. For a claim to the value of £100,000 - £150,000 (a common money claim value in the SME market), the Court fees would be £5000 - £7500. This represents a substantial increase in Court filing fees. One silver lining is that claims lodged via the Money Claim Online system shall enjoy a 10% reduction in filing fees. This is unlikely to reduce the Court fee substantially in larger claims though.


These changes have caused some controversy, not least amongst the judiciary, who are concerned that this increase in fees will reduce access to justice. Interestingly, Employment Tribunal fees were introduced in the summer of 2013 and were also greeted with much controversy. Last year official figures revealed that Employment Tribunal claims have reduced by around 80% since fees were introduced. Some would argue that this heralds a general move by the Ministry of Justice to increase settlements. Interestingly, the official line is that these measures will unburden the Courts which are increasingly swamped with claims that would be more suitable for settlement or Alternative Dispute Resolution such as mediation.


Importantly, the increase in Court fees will not relate to Commercial Court or divorce proceedings. However, the Ministry of Justice has just announced a new consultation to consider raising Court fees in applications in civil proceedings and for the recovery of land.


It may be that this heralds a move to higher Court fees in all proceedings in England and Wales, but for those that are considering money claims, it would be advisable to file such claims before March and avoid the unwelcome fee hike.



Friday 9 January 2015

A Free Pass for Fraudsters? Funding Reforms to Affect Insolvency Litigation


The last two years has witnessed major changes to the civil litigation regime known collectively as the ‘Jackson Reforms’. These reforms, sculpted by Lord Justice Jackson, have had a major impact on the litigation landscape, especially regarding costs and funding. Most of the reforms came into effect in April 2013. However, insolvency litigation has been exempt from the Jackson Reforms until April 2015. Now that the due date approaches, this piece explores the changes and their probable impact for insolvency proceedings.

The reforms relate to Conditional Fee Arrangements (CFAs) and After the Event Insurance (ATE). CFAs are an agreement between lawyers and those wishing to litigate where payment of a lawyer’s fees are only triggered if the litigation is successful. This is designed as an incentive for those who wish to litigate but do not have the requisite funds. The incentive for the lawyer is that, on top of their fees, they can also receive a ‘success fee’ payment if the litigation is successful.

ATE is a further incentive for those wishing to litigate who are concerned about having to pay the other side’s legal costs if they lose the litigation (a standard rule in civil litigation). ATE provides the prospective litigant with an option to secure insurance to protect against having to pay the other side’s costs if they lose.

A significant proportion of insolvency professionals use CFAs and ATE to fund insolvency litigation, including many of our own clients. Importantly, the Government believes that insolvency litigation is in the public interest as it acts as both a deterrent and a regime to punish fraudulent directors who deliberately wind-up their companies in order to avoid creditors. Such creditors are often HMRC so insolvency proceedings also provide a mechanism for the Government to recover tax. This public benefit is the main reason why insolvency proceedings have remained exempt from the Jackson Reforms, until now.

From April 2015, success fees deriving from CFAs and ATE premiums will no longer be recoverable (by lawyers and insurance companies respectively) for insolvency proceedings. This has caused controversy in the insolvency profession who unsuccessfully lobbied for insolvency proceedings to be exempt from these reforms. They argue that the abolition of the recoverability of success fees and ATE premiums will discourage insolvency litigation which will allow fraudulent directors to profit and the public purse, as well as private creditors, to suffer accordingly.

In April 2014, Professor Peter Walton published ‘The Likely Effect of the Jackson Reforms on Insolvency Litigation – an Empirical Investigation.’ This research was supported by many organisations with an interest in this issue, such as the Insolvency Practitioners Association.

In his report, Professor Walton argues that the Jackson Reforms are not applicable to insolvency litigation as their main aims were to address the disproportionality of legal costs to the value of the claim (such claims often being frivolous) and the ‘cherry picking’ of only the strongest claims by lawyers. In contrast, Walton argues that insolvency litigation, as it is in the public interest, is never frivolous nor the costs disproportionate as it allows the public purse to be reimbursed.

The statistics in the report also suggest that the Jackson Reforms may have a negative impact on the insolvency industry. For example, insolvency proceedings currently backed by CFAs enforce claims of approximately £300 million per annum. Of that figure, up to £70 million is money owed to HMRC.

Spring Law specialise in the SME market and, worryingly, it is the small to mid-market that may be most vulnerable to the actions of fraudulent company directors. The report points out that the majority of insolvency claims realise £50,000 or less. The concern is that due to the reforms, these smaller value cases are less likely to be pursued. This could have the unsavoury side-effect of giving fraudulent directors a carte-blanche to deliberately fold companies which owe creditors £50,000 or less and avoid any recourse through insolvency litigation.

It has yet to be seen how these reforms will impact insolvency litigation but if the problems outlined above do come to bear, then the Government may be forced to introduce amendments to these reforms. Spring Law work with providers of litigation and ATE funding and they have informed us that insolvency practitioners will need to move quickly to file claims before April 2015 in order to retain CFAs with success fees and ATE insurance. If you would like more information on how to bring such a claim or attain litigation insurance, please contact Andrew Day or Rory Lynch in the Dispute Resolution team.