Finance companies will find that as of 9 March 2015, it became more expensive to issue (and unsuccessfully defend) a claim with a value of £10,000 or more. Indeed, for a claim of £200,000, the increase in the issue fee from £1,515 to £10,000 represents an eye-watering 576% increase!

The Ministry of Justice’s (MOJ) decision to introduce enhanced issue fees for money claims of £10,000 and over has been met with almost universal disapproval and the fear that the hike in costs will affect access to justice, particularly for individuals and SMEs.
Despite this disapproval, the legislation increasing the fees was passed through Parliament, following a heated debate, on 4 March, and came into effect on 9 March. Would-be claimants had little opportunity to issue at the lower rates and save themselves – and ultimately unsuccessful defendants – a not insubstantial sum.

Five percent issue fee

While the issue fees for claims under £10,000 have not increased, for claims over £10,000, the new issue fee is 5% of the value of the claim with a maximum fee of £10,000 – the fee payable on claims of £200,000 and over. Where claims are issued electronically using the Secure Data Transfer facility or Money Claims OnLine, there is a small discount as the fee is 4.5% of the value of the claim for claims of £10,000 and over.

These increased fees apply to both specified and unspecified money claims. If a claimant does not identify the value of the claim when issuing proceedings, because it doesn’t yet know exactly what damages it has suffered, the fee payable is the one applicable to a claim where the sum is not limited, in other words, the maximum fee of £10,000.

In addition, some claims do not specify the sum of money claimed because the claimant is seeking an injunction or to enforce proceedings or to obtain some other remedy and is not seeking damages. If the claim is purely for a non-monetary remedy, the new fees will not apply.

However, where a claim for injunctive relief includes a claim for damages, the new fees will apply. One example of this is where an injunction for delivery up of a piece of leased equipment is sought and there is also a subsidiary damages claim. The amount of damages in such claims often cannot be specified accurately at the time of issue and if that is the case, the fee will be £10,000 which may be completely disproportionate to the damages ultimately recovered.

The fee increase applies equally to counterclaims. Where there is a claim and a counterclaim both in excess of £200,000, the combined issue fees will now be £20,000 as opposed to a combined £3,030 payable before 9 March.

These substantial increases are intended to create income to enable the court’s services to its users to be improved. We shall have to wait and see if that actually occurs.

Consider mediation

Given the increase in fees, parties to litigation, including those contemplating litigation, should consider afresh the benefits of mediation and other forms of alternative dispute resolution (ADR), and, importantly, the costs consequences that can follow when one party does not properly engage in the process.

Although not compulsory, mediation can often achieve settlement of claims and should always be considered as early as practicably possible whether proceedings are contemplated or existing. A sensible resolution through mediation will avoid the costs of litigation being incurred if achieved during the pre-action period or could even simply narrow the issues that the parties then go on to litigate – again thereby saving costs.

There have been a number of cases on the perils of refusing to mediate where one party has been penalised in costs for an unreasonable refusal.

The leading case on the consequences of refusing to enter into ADR is Halsey v Milton Keynes General NHS Trust [2004] in which the Court of Appeal held that most cases are suitable for mediation. When deciding whether a refusal to engage in ADR is unreasonable, all the circumstances of the case should be considered with the following considerations being highly relevant:

The nature of the dispute
The merits of the case
Whether other settlement methods have been attempted
Whether the costs of ADR would be disproportionately high
Whether any delay in setting up and attending ADR would be prejudicial
Whether the ADR has a reasonable prospect of success.

Since Halsey, there have been a plethora of cases in which refusals to mediate have been found to be unreasonable. Of particular note are:

PGF II SA v OMFS Company 1 Ltd [2013], in which the Court of Appeal held that refusing to respond in any way at all to two invitations to engage in ADR was unreasonable, regardless of whether a refusal to engage in mediation might have been justified. The defendant was refused costs to which it would otherwise have been entitled.

Garritt-Critchley v Ronnan [2014], in which the defendants – bearing in mind the PGF decision – responded to invitations to mediate but consistently refused to mediate due to their confidence in the strength of their case and their view the parties were too far apart. They were ordered to pay the successful claimants’ costs on an indemnity basis.

Laporte and another v The Commissioner of Police of the Metropolis [2015], the most recent case, in which a refusal to mediate on the basis that the defendant thought the claimant would only accept a financial offer which the defendant was not likely to make was held to be unreasonable and resulted in the successful defendant recovering only two-thirds of its legal costs.

Comment

While mediation is not compulsory, parties to litigation need to be aware that the authorities clearly indicate a robust encouragement of ADR by the courts. Given the increase in court issue fees and the costs sanctions that can be handed out following a refusal to mediate, it would be a brave party that refuses to mediate without good reason. What seems like good reason at the time of refusal may not seem so good following trial when the court then has the benefit of hindsight. That unreasonable stance has just become more costly

Greg Standing is a partner in the finance litigation team, Wragge Lawrence Graham & Co