On 16 January 2015, the Government published its response to the consultation on Court fees.
For those new to this topic it will come as little surprise that the consultation was about increasing rather than reducing Court fees. In fact the Government openly anticipates that the 'enhanced fees' will increase the financial resources of the Ministry of Justice by £120m annually.
However many commentators and some senior judges fear that the proposed steep increases have the potential to limit access to justice by deterring parties from bringing their disputes to Court. This is not a just a point of principle as recently raised fees for employment tribunal claims have seen such claims plummet.
The Lord Chief Justice Lord Thomas, alongside the Master of the Rolls Lord Dyson, has opposed the changes. Their Lordships have stated that the increased fee might be "completely disproportionate to the damages ultimately recovered". This could be the case particularly for unspecified money claims, especially in personal injury cases, where the valuation of the claim is not clear at the start of the case.
What will change?
The Government has decided to increase the fee to issue proceedings for the recovery of money to 5% of the value of the claim for all claims over £10,000 which will mean an increase on the current fee levels of up to 622%. The fees for claims of less than £10,000 (which represent over 90% of all money claims) are unaffected by these proposals and will remain at their current levels. The maximum fee to issue proceedings will be capped at £10,000. It is easiest to appreciate the effect of this by looking at the resulting bands and old fees:
Click here to view table.
Discounts of 10% will be apply to the new fees to issue proceedings where the claim is initiated electronically. Fee remissions will be available for those who currently qualify.
When will these new fees take effect?
The Government hopes to give effect to these changes before the beginning of the 2015/2016 parliamentary session. The Government also seeks views by 27 February 2015 on raising fees for general applications in civil proceedings.
How could these reforms affect insurers?
- The increased fees will ultimately be passed on to defendants and their insurers which are likely to put some pressure on claim values, reserves and ultimately premiums.
- There may be a flurry of claims issued over the coming months as claimants seek to issue proceedings before the new fee regime. This will put pressure on defendants to try to settle but will also be a problem for claimants who find themselves accused of issuing unreasonably quickly.
- We may see an increase in self-represented litigants aiming to cut overall costs. Whilst the court fee normally represents a relatively small proportion of total litigation costs, it has to be paid up-front and in full.
- Subrogated recovery models could be affected by the higher cost of seeking a recovery.
- Claimants may become less ambitious in valuing claims to avoid incurring higher issue fees.
- Claimant lawyers may offer to fund these costs as a disbursement to win business.
- They could act as a barrier to entry into the justice system. This could reduce total court fee income.
- Increased fees could restore some of the pressures which the old ATE regime imposed on defendants whereby a claimant could press for a larger offer threatening to issue and raise its ATE premium significantly.
- Parties that feel they are in a weaker position will try to spend more time negotiating or be slower to issue.
- If the issue fee is high the cost of a mediator may become more attractive and there could be some increase in ADR.
- Recourse to ombudsmen and similar schemes for professional disputes may become more appealing to individual claimants in particular.
There will be positive outcomes for insurers from these changes. Weaker claims will be deterred or will settle earlier and for less. We also do not believe the fears of a flood of litigants in person will materialise; in our experience many self-represented litigants do so because they don't trust professional advisers or no one will act for them rather than for costs reasons, so larger court fees would not be a factor. However for most claimants formal proceedings are only launched when there is a good chance of success and at the end of a protocol period where low or no offers are made – the pressure on defendants to settle for more pre-issue will increase. Another outcome for insurers is that the issue fee rarely impacts on reserving but adding 5% to the value of a claim up to £200,000 will be a noticeable increase - similar to the impact of interest. There will be a premium on achieving reasonable early settlements – but that is as it should be.