The small claims track limit for non-personal injury and housing claims has risen which will reduce the number of cases where legal costs can be recovered. The government has also indicated that it wishes to encourage parties to mediate such cases. Solicitors should examine how they might offer mediation services as an alternative to traditional litigation services for such cases.
Proposed rise in smell claims track limit
Most civil disputes up to a value of £5,000 which are issued in court were previously allocated to the small claims track (although personal injury and housing claims, where general damages are expected to exceed £1,000, were assigned to the fast track). In 2011, the Ministry of Justice consulted on extending the small claims track limit to £15,000. Following the consultation ("Solving disputes in. the county courts: creating a simpler; quicker and more proportionate system': CP6/2011) the government decided that initially the small claims track limit would rise to £10,000, with an intention of a further rise to £15,000 after full evaluation of the increase to £10,000. The increase to £10,000 was implemented on 1 April 2013. If and when the threshold is increased to £15,000, government statistics show that up to 83% of all defended cases, currently allocated to a case management track, would fall within this new limit.
The small claims track is governed by the Civil Procedure Rules and is an abbreviated, less formal form of the normal court process. Directions are more flexible, but there is still usually some limited disclosure of documents and exchange of witness statements may be ordered. There is high reported user satisfaction - 78% according to Small Claims, Big Claims, Consumer Focus 2010.
The intention is that small claims trade proceedings are relatively informal so that legal representation should be unnecessary. However, many claimants still seek legal advice. Even though the value may be relatively low, cases often involve similar complexities of fact and law as higher value claims. If instructed to act, solicitors' costs are usually borne by the parties themselves. There is limited cost shifting, with the winner usually only recovering limited disbursements (eg, an expert's fee not exceeding £200) and the reimbursement of court fees. In the case of a claim for £4,000, the court fees will total £240 (the issue fee of £100, the allocation fee of £40 and the hearing fee of £100). About 40,000 cases proceed to a small claims hearing each year and they take an average of 30 weeks from issue to resolution (see www.justice.gov.uk/statistics/courts-and-sentencing/judicial-quarterly). According to Small Claims, Big Claims, 29% of respondents thought the process took too long.
Mediation in the small claims track
The government's consultation paper also considered the extension of alternative dispute resolution (ADR), including mediation. Although the small claims track is more informal, the government indicated that it still wanted disputes to be resolved by ADR wherever possible. Ideally, the government felt "this should take place as early as possible, and before any claim is issued". However, initially the government has proposed that all cases issued in the small claims track be referred for court-based mediation. The court mediation service is free, often conducted by telephone by trained court officials, supplemented by civil and commercial mediation providers under contract with the Court Service.
There must, however, be some doubt as to whether available resources will in fact enable a high proportion of small claims track cases up to the new limit to be mediated through the Court Service.
A major problem with court remedies, including the small claims track, is the enforcement of judgments. This is recognised by the government in its response to consultation (Cm 8274, February 2012): "In civil cases, people ordered to pay a court judgment have little or no incentive to do so if they know there is no effective means of enforcing it. Unless there is prompt and effective enforcement, the authority of the courts, the authority of the court order and public confidence in the justice system are all undermined. The effective operation of enforcement is therefore crucial to a successful civil justice system."
However, it is not possible for the court to order enforcement other than by a recognised court order. One additional benefit of mediation is the responsibility of the mediator to ensure that mediated solutions are "road tested" as part of the mediation process. This involves the mediator ensuring that the parties come up with a workable mechanism for implementing the settlement as part of the settlement agreement. No mechanism can protect a party against another party who is deliberately unwilling or financially unable to settle. But where both parties have chosen to engage in the mediation process to reach a settlement, there is a greater likelihood that both will also engage in how any settlement is to be implemented. This is in contrast to the enforcement of a court imposed judgement where inevitably one party has won and the other party has lost and where the loser may have less inclination to co-operate.
Civil representation or civil mediation?
Claimants are increasingly resistant to paying solicitors on an hourly rate basis for bringing or defending a small claim and indeed, most law firms will find that many potential claimants do not proceed once they are made aware that legal costs are not usually recoverable. Arrangements such as '"unbundling" - where the client agrees to undertake much of the work themselves, engaging lawyers for discrete parts of the case - agreed fixed costs or damages based agreements (DBAs) present opportunities which may help overcome this resistance to using lawyers. However, any fixed fee has to reflect the anticipated cost of the time to be spent and inevitably comes out of any award and a DBA will be calculated as a percentage of an award.
The government's consultation paper said: "There are many cases which could be better resolved through mediation and do not necessarily require judicial intervention. It is these cases that fall into the court system often for the wrong reasons, sometimes because people are unaware of alternatives and have not been informed of any alternatives when receiving legal advice or information, or sometimes because people pursue cases with an intention of punishing the other side, rather than actually being focused on resolving the problem at the heart of the conflict."
With this in mind, new callers to our family department are given the option of either instructing the firm to act for them in the traditional way, or to be appointed by both parties as mediator.
For general civil enquiries, where the claim is for less than the small claims track limit, law firms could consider introducing an option for new callers to instruct the firm jointly with their opponent as mediator, rather than as the litigation solicitor for one party. "New call" handlers would be instructed not to advise, but simply record basic facts. If the mediation option was chosen instead of litigation, the firm could write to both parties offering to mediate the dispute.
This could be on a fixed fee basis to be paid in equal shares upfront, the fee and anticipated time set by reference to the amount in dispute. It is unlikely to be cost effective for the very smallest disputes, or appropriate for largely undisputed debts, but, for many claims, there would be a saving of the small claims track fees and the prospect of a speedier resolution than the current 30-week average (an average which is highly likely to increase thanks to the rise in the small claim track limit and the inevitable constraints on court finances as a result of the government's austerity programme). It is also possible that parties will be more willing to engage in a mediation process when neither of them has yet "upped the ante" by the issue of court proceedings. There may be a better prospect of enforcement of a mediated agreement.
This proposal would deliver on the government's intention that small claims be mediated prior to issue of proceedings. It would also provide a remedy to clients who presently feel that because there is no cost-shifting in the small claims track, they cannot afford to instruct a lawyer.