Member Article

SME advice on avoiding hefty court fee increase

by Rachel Crookes, Head of Litigation and Dispute Resolution, hlw Keeble Hawson

SME business owners contemplating bringing legal proceedings are being forced to reconsider following the substantial fee increase for taking civil and commercial cases to court.

The rise of up to 600% comes hot on the heels of additional increases introduced just 12 months ago, meaning that companies will now be forced to pay 5% of the value of the claim in court fees for claims over £10,000, subject to a capped fee of £10,000 for cases worth £200,000 or more.

Although the £10,000 fee is unlikely to put off a large corporate with a multi-million pound claim, it can be a huge sum to SMEs looking to recover smaller amounts. A high proportion of cases settle relatively early with limited involvement of the courts, but even these will now prove too expensive for many businesses, with much of the cost being front-loaded and incurred regardless of how quickly the case is settled.

The increases, which have been introduced to boost fee income from court users and reduce the burden on taxpayers to fund the justice system, have been implemented despite significant opposition from The Law Society and other leading legal figures.

Whilst the impact on SMEs wanting to pursue a legal claim is expected to be significant – primarily because many will now be financially unable to do so - there are several other alternatives available to them. With all of the options incurring different costs and potential results, it is important that businesses seek professional legal advice before deciding on the best course of action to pursue.

Negotiation

Whilst negotiation can be significantly cheaper than litigation, without a third party or a court timetable to put pressure on, success can be limited.

Parties have often tried negotiation before proceedings but got nowhere, resulting in the need for litigation, but negotiation can be very effective within the framework of formal litigation, and offers can be made to put pressure on the other party to settle to avoid the risk of punitive costs orders at trial.

Mediation

Mediation can achieve a higher success rate than negotiation alone. The involvement of a third party can help crystallise the issues and highlight weaknesses and strengths in a party’s position. But the outcome is very much dependent on the quality of the mediator. Parties usually split the mediator’s fees 50/50 and cost depends on the length of the mediation and value of the dispute. Costs of preparation and the mediation itself can be significant but, if settlement can be achieved, it is generally a much cheaper option than litigation. If used within existing litigation, it can assist in avoiding the cost of trial and cost savings are obviously better the earlier in the process that the mediation is held.

Expert determination

Expert determination is generally cheaper than litigation and mediation. It offers the finality of a binding decision, although the expert will not usually give reasons for the decision so there is less transparency. It can be particularly effective in disputes of a technical nature such as rent reviews or share valuations, as the expert will be appointed on the basis of their relevant expertise.

Arbitration

Arbitration can be as expensive, if not more, than traditional litigation. However, it offers confidentiality, the finality of a binding decision and, in certain circumstances, parties can agree to adopt a much speedier procedure than litigating through the courts.

Early neutral evaluation

The cost of early neutral evaluation will depend upon the choice of evaluator and complexity of the case. The decision is not usually binding but can be very persuasive in terms of subsequent negotiation and can be a catalyst for early settlement, in which case there are likely to be significant cost savings.

When a situation arises that requires legal intervention, most people assume that a court case is the only available route to take. The introduction of the court fee increases will force many to stop and consider the alternatives, which is no bad thing, however, it is important that people understand that these alternatives are not necessarily enforceable in the same way that a court judgement would be, and that before they make any decision, it is vital that they seek appropriate legal advice.

This was posted in Bdaily's Members' News section by hlw Keeble Hawson LLP .