"Defended debt cases" to take brunt of fixed-fee reforms

Lord Justice Jackson has now issued his final report in respect of fixed-fees, which in general is fairly (I'm trying to be positive!) good news for legal practitioners and their clients. The proposed reforms do not cut as deep as we all initially thought so for now most of us are probably breathing a quiet sigh of relief. Clients should as well, unless you are a serial defendant - in which case you might be a bit disappointed that the fixed-fee proposals didn't go further!

However, not all areas of business and the profession were winners when the report was published last week. Unfortunately it doesn't look like particularly good news for businesses instructing Solicitors to collect their debts or indeed Solicitors who represent clients in "defended debt cases" who will now (if the proposals are introduced) face tricky conversations with their clients when trying to explain that it is likely that success will not yield the net recovery they were hoping for.

It is certainly frustrating for UK businesses to read the way in which  "defended debt cases" have been classified by Lord Justice Jackson. These cases have been put into Band 1  by Lord Justice Jackson which is a banding for cases considered to be the simplest type to deal with. Consequently, these will be the ones where the least sums are going to be recoverable from opponents if you win your claim. To make matters worse "defended debt cases" are also dragged into the new intermediate track as well so this regime will apply to cases worth up to £100k; a very substantial sum for many businesses who rely on a good Court system to ensure their cash-flow remains healthy and they do not find themselves in financial dire straits.

Presumably this has been done because general debt recovery is not considered to be anything too difficult to deal with - which I completely agree with if a case is capable of being determined at a Summary Judgment hearing, a strikeout hearing or at the default Judgment stage in proceedings. If you can sort out the problem early on then of course the case is going to have been relatively simple. However, I think it is wrong for "defended debt cases" which run beyond this stage to be tarred with the same general debt recovery brush and I think the error in this report shows a real lack of understanding and appreciation of this area of the law. When a debt claim has to run beyond case allocation and there is no opportunity for a cheap and cheerful early determination then it is likely to no longer be a simple debt claim but something fairly technical.

Firstly, perhaps someone can explain to me what a "defended debt case" actually is because it is about as useful a classification as categorising all cases concerning damages as "defended damages cases." It is such an incredibly wide definition because unlike the other types of law within the bandings a debt case can throw up many a wide and varied type of defence. The last three files I have picked up today have all been "debt" claims. The first was a Social Care Act "defended debt case" for a local authority concerning a deceased's estate and the transfer of a property. The second was a "defended debt case" based on an alleged misrepresentation made by the sales agent at the point of contract and the third "defended debt case" is based on the supply of steel which is allegedly not fit for purpose because it was not shot-blasted and/or primed with a primer that meets a particular ISO standard. All 3 claims of course stem from a failure to pay an invoice but so what - the unpaid invoice is not a primary point within the context of each of those cases. The commonality of there being an unpaid invoice for each claim is actually only a secondary issue. It does not really form any part of the actual disputes I am dealing with.  

If the debt claim you are dealing with is not something that is suitable for early determination then the chances are a significant amount of work needs to be done on a case for your client to recover the sums they have invoiced for the services or goods they have provided. Pulling in such a wide and varied area of the law into a fixed-fee regime, alongside simple "bent metal" RTA claims (which have more factual similarity about them than debt claims i.e. there is always an accident, there always needs to be a duty of care, a breach of that duty and for the breach to have caused the loss!), is likely to be very damaging to UK businesses especially smaller businesses who have to provide credit to survive and have for hundreds of years relied on the threat of the loser in litigation footing their legal bill. Businesses have used this as a good way of getting their invoices paid. It was this threat which gave them adequate access to justice in the first place and it stopped the professional debtor from messing them around!

If Lord Justice Jackson's proposals are accepted then as soon as a debt case becomes mildly complicated, and there is a serious risk that the case will become uneconomical to pursue, then it will become "futile or irrational to bring a claim" which as Lord Reed put it only the other week at paragraph 96 of the Unison v Lord Chancellor case ([2017] UKSC 51) would be considered as "prevent[ing] access to justice." I suspect that UK businesses will just increase their prices and the people who do pay on time for their goods and services will be the ones made to suffer.

I appreciate the proposals have been scaled back but this does not look like a very good day for  businesses who provide credit to their customers - something which this economy is of course unfortunately built on these days. We rely heavily on credit to oil the wheels of our economy and this kind of proposal does not help.

What I think should happen is that the Courts should allow a refund in part of the issue fee in circumstances where a default Judgment is obtained or settlement is achieved at an early stage in proceedings. How can it be fair to suggest that for a Band 1 claim worth £24,999.99 a Court clerk who books a claim into their system, gives it a claim number, adds a response pack to it and files and serves it is entitled to a fee of £1,249.95 for their administrative efforts whereas a qualified lawyer who has attempted to settle a dispute, has diligently reviewed all the papers, given professional advice, drafted the claim form and sent it to Court for issuing is only entitled to recover a maximum of £500.00 for their client? How can it possibly be the case that the Court clerk's effort is worth more than twice as much? 

Just like the removal of the recoverability of success fees and insurance premiums this report simply provides another opportunity to maintain an unreasonable tax on civil justice, introducing further uncertainty for claimants which in turn erodes decent access to justice.