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Commercial Litigation Newsletter: Edition 4 2016

24-08-2016

Welcome to the latest edition in which we hope you will find something to interest both you and your business. If there is anything in particular you would like to know more about in a future issue, do please let the litigation team know…

Civil Court Fee Increase: results are in!
In an earlier edition we updated you on the massive increase in civil Court fees in England & Wales for specified money cases. The hike meant that claims valued between £10,000 and £200,000 now incur a Court issue fee of 5% of the amount claimed. We predicted SMEs might be hard hit but were obviously unable to comment on the long term impact of the changes.

Some figures are now available for analysis. The Registry Trust which keeps the official register of all County Court judgments (CCJs), has accepted there is a ‘common sense’ connection between the hike in Court fees and reduction in CCJs recorded against businesses. The 42,091 CCJs recorded in the first 6 months of 2016 represents a 19% fall year on year.

The value of those CCJs was a massive £149m, which collectively is a huge sum owed by businesses and potentially to other businesses, but the fall in CCJs is just part of the picture. County Court claims may be down but many solicitors report an increase in insolvency instructions. The insolvency process is still expensive but, relatively speaking, for undisputed debts a rather quicker and cheaper way to recover your money – assuming always the debtor has funds and is not just waiting for you to put them out of their misery at your expense!

The all appears to reflect fears voiced prior to the introduction of the increased fees, namely that access to justice for SMEs has become more expensive and, for some, perhaps, no longer a viable option.

Various Senior Court Judges have spoken out against the fee increase, with Lord Dyson and some of his colleagues suggesting the ordinary person is being deterred from going to Court, and small and medium sized businesses are being put off seeking justice because of this fee increase.

Accessing justice is more expensive than it was and there is even more good reason to seek advice early. Should you need help on any litigious issue, or sensibly want to try and avoid one, do let us know and we can then give you the best advice for your situation as soon as possible.

Foreign currency proceedings: more expensive post-Brexit
Whilst the full effect and implications of the vote to leave the EU will not be known for some considerable time, perhaps one of the most widely reported and wide-reaching consequence so far is the fall in value of sterling.

The 31-year low seen in the days after the referendum, and the continuing comparative low, is already impacting businesses of all shapes and sizes. From a litigation perspective, for some of our clients with international businesses or business interests the cost of issuing proceedings here claiming in a foreign currency has already gone up substantially.

It is possible to issue claims in the English Courts seeking judgment in a foreign currency. Such claims require an attributed exchange rate to be stated and judgment will ultimately require the defendant to pay in that foreign currency. If resident here they will need to find the Sterling equivalent at the time of payment, which with the current low is an added expense.

A judgment ordering a defendant to pay a sum in a foreign currency will now cost that defendant more than it would have before 24 June 2016. A defendant ordered to pay US $200,000 in damages before the referendum result would have been set back approximately £133,333 (based on an exchange rate of £1.00 to $1.50). On mid-August exchange rates the same monetary judgment will cost the defendant approximately £153,846 (based on an exchange rate of £1.00 to $1.30).

An extra cost of £20,000 may not concern larger companies who can absorb the increase. It is likely however to have a huge impact on individuals and SMEs ordered to pay out in a foreign currency, or settle a judgment debt for the equivalent in Sterling.

This is but one immediate example of Brexit. Whether, and if so when, Article 50 is triggered remains uncertain but it is clear the referendum result is already affecting businesses and individuals in significant ways. For up to the minute information on all matters Brexit related which may affect you and your business, do follow the @GL_BrexitBrief Twitter feed.

The Proportionality Test for Costs – what will it cost you?
There is a general rule in litigation that ‘costs follow the event’, meaning if you win your case, you can expect to have a costs’ order made in your favour and payable by the losing party.

However, it is not enough simply to win your case to be able to recover the legal costs you incur: you have to show they are ‘proportionate’. This is an area which vexes the legal profession as a whole, from solicitors through to Judges and one which is understandably hard to explain to clients.

April 2013 saw the introduction of a proportionality test in relation to costs’ recovery. Whilst the rules have been in place for more than three years now, the last few months have seen some high profile cases concerning this new test.

The previous test for costs’ recovery was more simply whether they were reasonable. There was no direct correlation in the rules between what was reasonable and what the claim was worth in terms of monetary value. Thus it might be wholly reasonable to spend £50,000 in costs fighting over a claim worth £200,000, and equally £50,000 fighting over a claim worth £20,000, for the same work is generally involved whatever the number of noughts.

Commercially a business might baulk at spending £50,000 upfront to try to recover £200,000 or £20,000 but knowing such costs were nonetheless reasonably incurred and thus, for the most part, recoverable encouraged businesses to press on.

The proportionality test in costs’ recovery now requires the Court to make an assessment of the reasonable costs of the case, based on an item-by-item assessment and then, once this assessment has been made, the Court looks at the figure and determines whether that figure is proportionate to the judgment value. So if in a claim worth £300,000 you only recover £30,000, you are going to find your costs’ recovery reduced proportionately. Further, proportionality trumps reasonableness; costs which are reasonably incurred, even necessary and crucially incurred, may still not be recoverable if they are not proportionate.

When considering what is proportionate, the Court is looking at such factors as whether the proceedings were at an early stage when the settlement was reached; whether the case was legally or factually complicated; and whether the defendant’s actions caused additional legal costs to be incurred.

One recent case making headlines even outside the legal press involved the Queen musician Brian May. May and his family suffered 3 years of disruption whilst their immediate neighbour dug out a basement as part of an ongoing development project. Curiously May used direct access to engage a barrister without using solicitors and ran up costs of £208,000. After settling his money claim for just £25,000, his claim for costs of £208,000 was reduced to just under £100,000 after the item-by-item assessment, then further cut to £35,000 on the basis of proportionality.

May described this decision as a “mockery of justice”, arguing “it’s likely to make it almost impossible for the man in the street to fight back for justice against the bullies who trample all over him”. Indeed, after enduring all his family did, May was £141,000 out of pocket. He said “Where’s the proportionality in that? Where’s the justice? This absurd proportionality rule makes it impossible for any wronged party to protect himself”.

Not everyone or every business can stand to spend let alone lose that sort of money on costs. This proportionality test should and will weigh heavily in the minds of SMEs considering litigation. The costs’ Judge, opining of course well after the event, said solicitors should tell their clients in cases where costs significantly exceed damages that they will recover no more than a contribution to their costs if successful.

It seems telling that May had no solicitors. He and his wife used the ‘direct access’ route to instruct a barrister directly, and it seems at huge expense. Costs’ budgeting requires most represented parties to set out their stall in terms of what they say they need to spend on legal costs to run their case, and at an early stage a Judge rules on that budget and decides the maximum each side can recover if they win.

Such an exercise is time-consuming and costly in itself but it serves to focus minds and address expectations. It is also a good reminder that getting expert advice from the right discipline at the right time can be extremely valuable, in more ways than one. If you have any business related claims or queries our litigation and dispute resolution team will be pleased to have an initial chat.

We hope you have enjoyed reading this newsletter. We really would like to hear from you with any feedback, comments, suggestions and of course if we can assist on any specific issue you have, just give us a call.

At Gardner Leader we understand you need a law firm which you can trust, which understands your priorities and delivers practical, exceptional value legal solutions. We will work closely with you to ensure that we can deliver the results you need. Legal situations can be stressful, but we are committed to giving you peace of mind with the reassurance that your case will be handled sensitively and professionally by our legal experts. 


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