Fee reforms may out-price litigants

Derek O'Brien and Pamela Abrams believe that new proposals on court fees could reduce the volume of willing litigants. Derek O'Brien and Pamela Abrams are senior lecturers at the University of Westminster School of Law.

The Lord Chancellor's Department (LCD) has published a discussion paper on the proposed introduction of a new regime of court fees. The underlying aim of the proposals is to reflect the cost to the Government of running the civil courts.

At present, court fees represent a mere proportion of the total costs of running the civil justice system. The remainder is borne by the taxpayer.

The discussion paper identifies a number of deficiencies in the present system which the restructuring exercise aims to eliminate, mainly that:

there is an unsatisfactory degree of vertical subsidy of court fees because litigants in one category of case are subsidising litigants in the same category whose cases progress further.

For example, while 100 litigants may pay a setting down fee, only the litigant whose case reaches trial will benefit from the fees paid by the others;

there is an unacceptable degree of cross-subsidy whereby litigants in one category of case subsidise another category.

For example, the fees generated by 100 personal injury litigants whose cases settle prior to directions, may be charged in excess of the value of the service they receive. This may be to subsidise 10 medical negligence cases which settle only after exchange of expert evidence and receive a greater service;

finally, the current automatic exemption according to eligibility for a means-tested benefit takes no account of the merits of the case, favouring means-tested litigants above those who are required to satisfy a merits test. The system also favours the unsuccessful opponent who does not have to meet the fees of a litigant with an exemption; those fees remain irrecoverable.

The paper considers whether fees should reflect the cost of the actual service provided in each case. But this is rejected because of the time and cost involved in calculating individual fees.

The LCD favours instead a fee system based on the average cost of the court service at the relevant stage of the proceedings, creating levels of charges according to the service input.

Proposals for fee increases in some areas, for bulk users for example, is also rejected on the basis that it might deter litigants, leading to a drop in income and the inability of fee income to meet court costs.

Instead the option apparently favoured by the LCD is a pay-as-you-go scheme with higher fees for successive stages.

A key element of this proposal is a daily hearing fee with fees payable in advance by the party requesting the court service, with the defaulting party being ordered to reimburse the fee at the conclusion of the case.

A major concern for the LCD is protecting the litigant of modest means. Rather than target subsidies at a specific category of case or specific stages of a case, the proposed alternative to the existing system of exemptions and remissions is a legal aid fund fee subsidy, allowing the recovery of fees by the legal aid fund from the unsuccessful opponent.

Additionally, liability to pay court fees will be deferred until the conclusion of the case, based on an assessment of eligibility at the outset.

The successful eligible litigant's deferred fees would then be recoverable from the opponent while the fees of the unsuccessful eligible litigant would fall as now, on the taxpayer.

For those who view the cost of maintaining the civil justice system in the same category as the NHS in that all should pay even if only some receive benefit, the LCD's proposed restructure raises some serious constitutional issues regarding the duty of the Government to maintain the civil justice system.

However, if one accepts the principle that only those who use a service should be obliged to pay for it, and if adequate provision is made for those who could not otherwise afford to pay the increased court fees, the argument for a radical overhaul of the present system will seem very compelling.

Nonetheless, the pay-as-you-go scheme, which the LCD appears to favour, is bound to have a significant impact on a number of key areas which affect the way that litigation is conducted.

The first of these areas is that of access to justice. In order to achieve this aim, Lord Woolf concluded in his report that, as well as making litigation quicker, it was necessary to make it cheaper.

The elimination of vertical subsidy would certainly mean that the cost of issuing proceedings will be cheaper, which should encourage more litigants, but from that point on each stage of the litigation will become progressively more expensive, culminating in a daily hearing fee of £900 in the county court and £1,800 in the High Court.

Given the speculative nature of litigation it is an economic truism that anything that increases the cost of litigation to the plaintiff will have a corresponding deterrent effect on the plaintiff's desire to pursue that litigation.

This is particularly true under a pay-as-you-go scheme where, quite apart from their own lawyer's fees, plaintiffs will have to find an additional and not insignificant sum of money in advance in order to defray the court costs of pursuing their claim.

As the author of the LCD discussion paper candidly acknowledges, the danger of such a scheme is that it will deter many litigants with meritorious claims.

The next of these danger areas is that of the conditional fee agreement (CFA). Under CFAs the only liability a client incurs in the event that s/he is unsuccessful is the cost of their indemnity premium and their disbursements.

Thus, part of the undoubted attraction of CFAs from the client's point of view is that the money which they need to find "upfront" in order to pursue their claim is kept to a minimum.

Such an incentive is bound to be adversely affected by a pay-as-you-go scheme. No doubt the LCD's response to this problem will be to encourage (and possibly require) solicitors to pay these disbursements on behalf of the client and to reflect the negative cash flow consequences to solicitors by way of an enhanced success fee.

However, under the present system of CFAs the defendant is liable only for the plaintiff's basic costs and the success fee has to be paid for by the plaintiff out of the damages which they recover.

Increasing the level of the success fee to take account of the additional disbursements imposed by higher court fees will inevitably reduce the net damages recoverable by the plaintiff.

One of the principles underpinning Lord Woolf's initial suggestion for a restructuring of the court fee system was his desire to see court fees structured in a way which would encourage settlement sooner rather than later.

If court fees increase with each successive stage of the litigation, the pay-as-you-go system will undoubtedly have such an effect. This may result in a significant transfer of wealth from plaintiffs to defendants.