Small Claims, the English Rule and Contingency Fees: the End of an Era?

It’s always been a bit of a myth that UK costs rules are so very different from US costs rules. The so-called English cost rule, that costs follow the event, has for some time only applied to a minority of disputes dealt with by courts (compare the numbers of family disputes and disputed small claims to the number of contested civil claims in the fast track or above; the former outweigh the latter). The minority status of the English rule is even clearer if one considers tribunals of course. Most UK disputes have for some time been governed by a US-style cost rule: each party bears their own costs. The myth looks like being further eroded as a result of yesterdays announcements for civil justice (‘Solving Civil Disputes’ and the proposals to reform the funding of civil justice implementing the Jackson reforms). Not only is qualified one way costs shifting to be brought in for personal injury and clinical negligence cases, but the small claims limit appears about to be significantly increased.

I want to suggest briefly here that the latter may lead to unforeseen consequences. In particular, the small claims court may be about to change profoundly if its limits go from £5,000 to £15,000 as proposed in the Government’s latest justice Green paper. By any standard, this is a significant jump upwards (although I understand it does not apply to personal injury and housing disrepair cases). Whilst commentators will be tempted to ask whether such claims are genuinely small, and therefore fit to be dealt with under small claims procedures where (it is presumed) parties are typically unrepresented, I believe that response misses a major point. It is reasonably common already for small claims hearings to involve one or more represented parties. The shift upwards in the limit will increase the willingness of parties to gain representation for such cases and the economic incentives available for firms to do so. Assuming contingency fees will be allowed in such circumstances, genuinely US-style contingency fees will operate in the small claims court as opposed to the hybrid Ontario-style fees that are envisaged in ‘proper’ litigation. It’s not clear to me, on a quick perusal of the MoJ consultation papers issued yesterday, that the Ministry has considered whether this is what it plans to do. It will be very interesting to see what impact increasing the limit, removing costs recovery and (perhaps) encouraging US-(as opposed to Canadian) style contingency fees has on the number of cases in the small claims court, levels of representation and the judicial resources that need to be expended on them. The small claims jurisdiction may be about to change significantly.

2 thoughts on “Small Claims, the English Rule and Contingency Fees: the End of an Era?

  1. Richard – I suspect they haven’t a clue…!

    If they do allow full-on contingency fees let’s hope there is no artificial cap on the %.

    In it’s dying throes, and as a final sop to the Trades Unions in the Equal Pay litigation mess, the last Govt. introduced a rule of allowing a max of 35% in Employment Tribunal claims. This has resulted in me (and I know other lawyers) turning down some genuine cases simply because the time/risk/reward ratio isn’t right – esp. when (the now higher rate) VAT is included within that limit.

    The problem is particularly acute in either smallish claims (when it’s the value element that creates the problem) or discrimination claims, when it’s the likely prep/hearing time.

    What was/is so wrong with a free market in the % fee?

    I seem to recall your own research suggested that there was actually no problem before, and clients were generally very happy with the outcomes…

    Trying to explain to a desperate client that I can’t take on their case, even when they suggest allowing us a higher %, makes the law seem like an ass…

  2. Jon – thank for this. I argued against a cap on the fee at the time. What I argue for is a requirement of simplicity and clarity in the fee. Contingency fees should be inclusive of VAT and disbursements and paid on net recovery. Some contingency fee lawyers do this and some do not. The benefit of clarity and simplicity is that it enables consumers to know the price and so competition might then be more likely to take place (it doen’t at the moment) and might then act as sufficient restraint on percentage fees without the ‘need’ for a cap. Of course, this puts more of the cost and the risk on the lawyer but I would argue they are better placed to assess and bear that risk than the client and can price it into their fee.

    My research actually found that contingency fees were probably cheaper than hourly fees which raises the question: why have a cap at all or, in the alternative, if you cap contingency fees for client protection, then why don’t you cap hourly fees? The reason appears to be that Jack Straw, the press and the trade unions wanted it. Evidence based policy is a wonderful thing!

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