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Increased court fees will hit SMEs hard

Written by Ryan McChrystal on Tuesday, 07 April 2015. Posted in Regulation, Legal

Last month the government quintupled the cost of litigation and lawyers say that SMEs have cause for concern

Increased court fees will hit SMEs hard

Do you have £10,000 to spare? Well, this is exactly what an SME now has to fork out should it need to recover £100,000 through the courts. This presents a real danger that small businesses won’t have deep enough pockets to seek justice.

Unsurprisingly, the government’s hike in court fees on March 9 this year has sparked uproar from both the small business community and the legal profession. 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 entrepreneurs will now see justice as simply being not worth the hassle.

As it stands, a third of UK companies with potentially valid cases don’t take action because of the financial burden and this proportion only looks likely to increase. Michael Lent, insurance and litigation funding consultant at Annecto Legal, 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 in the first place.”

Lent makes the point that while the courts are experiencing a huge deficit, the government is targeting the wrong people to solve it. “They are turning to the people who can afford it the least, which is the individuals and SMEs, whereas well-heeled litigants are more than 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 could 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 then it encourages all sorts of undesirable behaviour. “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,” says Lent.

Increasingly, the person with most money is in a better position. “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.

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 accuses of misselling him an interest rate hedging product that had catastrophic consequences for his property business.

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

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 and re-investigate its current policy. “It’s quite scary that you can’t access any form of justice just because you can’t afford to get representation," he says. “There doesn’t seem to be any real concern for businesses that are outside a certain spectrum of wealth."

Welsby does believe that the government is warming to the idea that SMEs are important and that more needs to be done to ensure they get the help they need. Lent is, however, clearly less understanding. He 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 and 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, and I know many of my colleagues on all benches feel the same.” Unfortunately, as a backbencher, he doesn’t have much to do with the policy.

Lent is under no illusions that a Labour-led government would repeal everything the current one has done in this area but he does believe it is the most likely party to do something that would assist access to justice. 

Whoever makes up the next government, it really does need to sort out this mess and ensure litigation is accessible to all. 

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. 

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