Small Claims Limit not so small anymore

 “As from 1 April 2013 the small claims limit for claims other than personal injury, increase from £5,000 – £10,000.”

Interestingly, the limit remains £3,000 for claims in Northern Ireland and Scotland.

For any business, £10,000 in today’s climate is not an insignificant sum, especially when cash flow is difficult and there is less access to funds.

To counter this change, funding alternatives have been set up to allow solicitors to help clients in the Small Claims Court. As when the limit was £5,000 the position will remain that costs are not usually going to be recoverable if a winning party is able to recover their claim having been represented by solicitors. On rare occasions costs can be recovered if it is shown that a party has acted unreasonably or pursued a claim or defence that is misconceived. This means it could be disproportionate to the solicitors to be instructed on claims up to £10,000. This is particularly important as “proportionality” is now a central pillar to all future litigation and the cost of recovering any claim must be proportionate to the size of the claim. In other words it will be disproportionate to spend £10,000 in legal costs to recover £10,000.

So what are the options and pros and cons for claimants in the future?

Instruct A Junior Fee Earner Within A Firm Of Solicitors To Bring The Claim?
Pros – A Junior’s hourly rate would be cheaper than that of the senior fee earner.
Cons – Would that person be experienced enough to run a case all the way through to a trial including appearing before a district judge at a final hearing and presenting evidence.

Instruct Your Solicitors To Undertake The Case But Agree With Them On A Fixed Rate Of Costs For The Whole Of The Claim Up Until The Final Hearing?
Pros – With the courts pushed to fix legal costs, so they do not run away with themselves, this could be an option.
Cons – It’s likely that an experienced fee earner will deal with the case and they would still be looking to refer the matter to a junior who may assist in the presentation of the case and may still lack experience and sufficient knowledge to deal with the claim. Also it is unlikely that an experienced fee earner would want to take on low value litigation unless it was on the basis that they will be receiving many instructions to pursue such cases making it cost efficient.

Instruct A Specialist Debt Collection Agency?
Pros – They’re usually cheap and charge on results.
Cons – They can be impersonal and sometimes lack the understanding and legal knowledge required in these cases. It is also unlikely you will ever meet the person who is dealing with your claim on a face-to-face basis. This can cause problems in conveying details about your case, in particular, the evidence, which is vital for you to be successful at a final hearing.

Instruct Your Solicitors To See If The Claim Can Be Pursued Using A “Damages Based Agreement”?
These are new funding arrangements which have been introduced from 1 April 2013 to allow solicitors to recover costs from the amount which they are claiming on behalf of the client. This means that, for example, on the claim of £8,000, a solicitor acting for a claimant can claim a maximum of 50% of the damages if they are successful so as to cover their costs, which would equate to £4,000 in this case.
Pros – The client runs little or no risk in pursuing the claim.
Cons – Even if you are successful you will not recover all that you are owed.

Act For Yourself?
Pros – You will know all the facts and the background of the claim.
Cons – You will need to undertake all your own preparation in respect of court documents, check the law, and be prepared to spend considerable time and effort in the preparation of your case up to and including a trial before district Judge. You then have to present your case before the court and undertake cross-examination and all the rigours of advocacy.

Mediation
Of course to avoid litigation the courts encourage parties all costs to try and resolve their disputes by way of alternative dispute resolution. Mediation services are widely available and for the majority of claims it makes perfect sense that parties explore mediation as it is certainly a lot more cost-effective than litigation. A solicitor will often agree to fix their charge for representing you at mediation. Unfortunately, with the advent of the increase in the small claims court financial limit it is more and more likely that litigants in person will be pursuing claims without the guidance of lawyers. Therefore, individuals and businesses alike must be aware of the alternative means of funding litigation whether you are the claimant or defendant.
In conclusion, litigation in the future must be cost-effective, efficient and, most importantly, proportionate. Notwithstanding these changes, we are still here to help and can provide a service to your needs. We will consider the different forms of funding arrangement with you at the very start and our aim is to help you in the current environment when all efforts need to be on your business.

For further information please contact Paul Harrington in Dispute Resolution team at Rix and Kay Solicitors Brighton & Hove office on 01273 329797 or email paulharrington@rixandkay.co.uk

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