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Increased court fees will hit many franchises hard

Written by Ryan McChrystal on Wednesday, 08 April 2015. Posted in Legal

Last month the government quintupled court fees and it is those least able to pay that will be hit hardest

Increased court fees will hit many franchises hard

Do you have £10,000 to spare? This is exactly what your franchise would now have to fork out if it needed to recover £100,000 though the courts. As a result, businesses that have lost a significant amount of money may not have deep enough pockets to seek justice.

This is the result of the government going ahead with plans to hike up court fees on March 9 this year, despite uproar from both the business community and the legal profession. The Law Society launched a campaign against the proposed increases because of their size.

Seeking redress is more expensive than ever, and considering last year’s cuts to legal aid, you’d be forgiven for thinking that the UK’s legal system favours the rich. Many business owners will now see justice as simply not worth the hassle. 

It used to be the case that if you were going to litigate, you should either be very poor or very rich because if you were very poor then you would have legal aid and if you were rich then you could afford it anyway. “Sadly, we’re now in the situation where if you’re litigating, you just have to be very rich because even legal aid is now decimated,” says Michael Lent, insurance and litigation funding consultant at Annecto Legal.

We already have a situation where a third of UK companies with potentially valid cases don’t take action because of the financial burden and this situation can only get worse. Lent says the increased cost of litigation should be one of the main issues facing SMEs ahead of next month’s election. “This is a big chunk of money that they’ve got to find, and it comes at a time when they don’t typically have much,” he says. “The reason they’re having to litigate, typically, is because somebody did not pay them the money that they owe them.”

Lent makes the point that while the courts are experiencing a huge deficit – £100m, in fact – the government is targeting the wrong people to solve it. “The government make no bones about the fact they regard this increase in fees as a money-making exercise but they are targeting the people who can afford it the least,” he says. “Well-heeled litigants are much more capable of paying.”

There are no two ways about it; the courts do need to be better resourced. They are woefully undersupplied in terms of IT and they are still largely paper-based. However, one would think that the government can find a better way to spread the cost. “It has all the hallmarks of something that’s not been thought through,” says Lent. 

“One of the dangers is that if people can’t afford to use the legal system it encourages all sorts of other behaviours that are potentially very dangerous,” he says. “If people can’t get the results through using the courts, then all of a sudden you’re moving towards a third world situation which encourages corruption and criminality.”

Clearly the person with most money is now in a better position with the courts. “The big players are back in the position where they can behave pretty badly and make life very expensive for poor claimants who, unless they’ve got funding behind them or very deep pockets, will frankly get a bit of a kicking,” says Lent. “It’s not fair that if someone hasn’t got the right money, they just don’t have access to the courts in order to pursue their case.”

One person who knows all about just how burdensome litigation can be is Jon Welsby, director of Insolvency Assist CIC, which helps businesses understand their options when reviewing financial products. He is currently litigating against a high street bank, which he is accusing of misselling him an interest rate hedging product that had catastrophic consequences for his property business.

“Smaller businesses have been struggling with high legal fees for a long time as it is and the last thing we needed was for the government to make it harder for us to access justice,” Welsby says. “However, this is exactly what it’s done.” 

We are living in a time where businesses have ever tighter budgets. Large upfront sums – which Welbsy describes as “ridiculous” – will put huge pressure on cash flows. “How are we ever going to get the dynamic enterprise culture that the government wants and the country needs?” he asks.    

In Welsby’s view, the increase in court fees means that we are going to see a lot more of the “big boys abusing someone smaller”. In other words, big businesses can sit back with the peace of mind that they can pay a lawyer and be much be less concerned about being brought to justice. 

The solution, as he sees it, is for the government to refine its current policy. “It’s quite scary that you can’t access any form of justice just because you can’t afford representation,” he says. “There doesn’t seem to be any real concern for businesses outside a certain spectrum of wealth.”

Welsby does believe that the government are warming to the idea that smaller businesses are important and that more needs to be done to ensure they get the help they need. He echoes the views of many when he says that there needs to be a recognition that institutional, systemic, institutional fraud, perpetrated by PLCs – that kind of systemic problem that’s picking up traction in the marketplace – must be resolved without individual litigation cases. 

Lent says the current administration has taken some really big steps to disable the country’s justice system. “The Liberal Democrats in particular should hang their heads in shame, as it’s very much against their supposed approach to making access to justice affordable to all,” he says.

To be fair, Lord Tim Clement-Jones, the Liberal Democrat peer and the party’s spokesman for culture, media and sport in the House of Lords, describes the hike in court fees as “totally wrong”. Speaking at the Elite Business Event National Conference & Exhibition, he said: “Access to justice is absolutely vital; in a year when we are celebrating 800 years of Magna Carta, to start denying access by the cost of litigation would be wrong. I know many of my colleagues on all benches feel the same.”

Lent is under no illusions that a Labour-led government would repeal everything the current has done in this area, but he does believe it is the party which will most likely do something to assist access to justice. “They’re much more likely than the other two to do something for the underprivileged, and so they should.” 

About the Author

Ryan McChrystal

Ryan McChrystal

In a previous life McChrystal wrote about asset management in the Middle East. A history and politics graduate from the north of Ireland, he now focuses his efforts a little closer to home. When he's not knee-deep in journalism McChrystal fancies himself as a bit of a globetrotter. In the summer of 2014 he completed his second US road trip, spanning the east coast, but Americans will be glad to know he'll be giving them a break for a few years before returning. McChrystal is a music geek and proud parent of a dwarf rabbit named Dylan.

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