Recent reforms have paved the way for the small claims system to deal with claims of up to £10,000, having previously dealt with claims with a value of up to £5,000. The new rules came into force on 1st April 2013. Initial estimations are that the number of cases in the small claims system will increase by around 80,000 per annum. The stated objectives of the change are to improve court efficiency, promote access to justice and reduce costs; although in practice, this may not be the case.

The small claims system is essentially used to take formal action against someone who owes you money but is refusing to pay it for one reason or another. The court is largely used by litigants in person, consumers and businesses. These groups will now be able to pursue claims up to the value of £10,000 through the small claims court without the risk of having to pay the other party’s legal fees at the end of the case should they be unsuccessful. The good news for these types of consumers is that there is now more flexibility for making higher value claims which would previously have been expensive to make.

The important aspect of cases in the small claims system is that the losing party will not normally have to pay the winning party’s legal costs. This means that win or lose, and whether bringing or defending a claim, you will need to pay your own legal costs. This is not the case for claims in the £10 – £25,000 bracket and above, which are dealt with under the ‘fast track’ system, in which the winning party will often negotiate legal costs as part of the final settlement.

On the practical side, whilst the limit was set at £5000, parties more often than not chose not to take legal advice on the basis that employing a solicitor would often mean that the legal fees involved in a claim could often reach an amount that outweighed the very value of the claim. Going forward with the increased small claims threshold at £10,000, the decision about whether or not to obtain legal representation may not be as straightforward. Where higher value claims are concerned, ie. those between £8000 – £10,000, obtaining legal advice might be feasible.   However, for claims just over £5000, claimants may consider the cost of obtaining legal advice would take away so significantly from the damages that they might choose to represent themselves. Of course, choosing to represent yourself in court carries a greater risk. One option to mitigate this risk might be to obtain initial legal advice by way of a fixed fee consultation so the merits of your case can be assessed. Based on the assessment provided, you can then make an informed decision about how to proceed with the claim.

One concern about the recent changes is that they may lead to a disparity in fairness in the court room. Whilst at £5000 it was highly unlikely that either party would have legal representation, it may well be that where claims towards the higher end of the £10,000 limit are concerned, parties without legal representation may find themselves up against solicitors for the other side on a far more frequent basis.

Overall, claims that fall within the new ‘small claims’ bracket are perhaps more likely to proceed to court proceedings rather than reach settlement out of court. Where there was previously the risk of having to pay the other side’s legal costs for such cases, this risk has now been mitigated, perhaps tempting people to ‘give it a go’ in the courtroom.

We regularly receive instructions from a large variety of clients wanting to use the small claims court. These can range from businesses seeking to recover unpaid invoices; to individuals claiming for the cost of a car or damage to property. In the current financial climate £10,000 is a lot of money and the new rules will leave individuals and businesses with the tough choice of whether or not to shell out additional money for legal representation. Agreeing a fixed legal fee at the start of the case could prove to be the best option.

Although the reforms are being promoted with the aim of improving access to justice, in reality this may not be the case. Although someone might have a good case on paper, they may be precluded from making a claim due to the inability to recover their costs at the conclusion. It is thus more important than ever to obtain legal advice on the prospects of success of a case prior to issuing proceedings.

Farleys are able to offer fixed fee advice on cases; whether that be for an initial assessment and a recommendation for course of action, or full legal representation to trial. Our fixed fees will be explained to you in full prior to any instructions being taken so you are able to make an informed decision about your individual case. To discuss the merits of your case on a no obligation basis, please do not hesitate to contact us.

By Daniel Draper, Debt Recovery Solicitor