Raising the bar

From a review of the government's consultation Solving disputes in the county courts: creating a simpler, quicker and more proportionate system, dispute resolution practitioners are right to anticipate a radical overhaul in the way litigation is conducted in the small claims courts.

Come April 2012, the small claims threshold is set to rise from £5,000 to £15,000, ushering in new economic considerations for parties looking to bring a claim. With proposals also for the automatic referral of small claims to mediation before they are eligible for trial, parties are set to be subjected to a greater degree of compulsion in the conduct of their claims.

The changes are a natural evolution in the post-Woolf world of civil litigation, where parties are encouraged to resolve disputes quickly and view recourse to litigation as a last resort. In the current economic climate also, the reforms do make commercial sense; not only for the courts which are overstretched and underfunded, but more so for SMEs, for whom litigation is invariably expensive and consumes significant management time.

The proposed reforms look good on paper, and any measure that shields parties from the high costs associated with litigation is rightly encouraged. However, on closer inspection, it is arguable that the reforms may in fact emasculate parties' access to the courts, bringing with it the danger of parties being compelled to settle disputes to their disadvantage.

Higher threshold

As the current £5,000 small claims threshold was set back in 1999, many cases that would have fallen into the higher end of the small claims track are now, as a result of inflation, falling into the fast track. This often results in disproportionate costs being incurred compared to the actual value of the claim, as parties engage with the more the onerous set of standard court directions on the fast track, as compared to those in the small claims court.

Of course, the standard provisions as to costs recovery will apply in the fast track, but, with government figures showing that more than three-quarters of all claims allocated to the fast and multi-tracks settle between allocation and trial, parties are often left with irrecoverable costs spent in undertaking disclosure and preparation of witness statements etc.

Yet it is the issue of costs recovery that represents the most serious concern over the raising of the small claims threshold, as the small claims court is restricted under the CPR to awarding only the fixed costs of commencing the claim and limited expenses to the successful party. Where the claim is a simple matter of an unpaid invoice, this is not too much of a problem. For higher value and more complex claims, however, a greater degree of legal input is often required, with practitioners needing time to fully understand the issues in dispute and how best to plead their client's case. If all a party can recover is the fixed costs of commencement, parties will need to think twice before engaging legal representation to help resolve their dispute '“ raising fresh concerns over access to justice.

Mandatory mediation

The courts look set to get tough on the message that litigation should be a last resort. For too long, parties have been deemed to be 'getting away' with paying mere lip-service to attempting early settlement and considering ADR, resulting in too many cases unnecessarily entering the court system. In response, the courts appear set to introduce a new stage into the small claim litigation, being the requirement for all cases to be submitted to attempted settlement by mediation, before being considered for a hearing. While the government accepts the compulsive element in this, it argues that the best way of promoting mediation in small claims is simply to expose the parties to the benefits of the mediation process.

The government repeatedly makes the point in its consultation that compulsory mediation can only be good news for business, as parties can surely expect to make significant savings in time and monies spent in resolving disputes. What seems to be overlooked, however, are the concerns of parties that make them reluctant to engage in mediation. These typically centre on the quality of mediator and their ability to understand the issues in dispute, or going up against a 'bigger party' who, with greater financial resources, may pressure them into agreeing a settlement that is far lower than the amount claimed or that may be awarded at trial.

There is also the danger that, with mandatory recourse to mediation, momentum is lost in the litigation process, as the focus of the parties shifts from dispute resolution to procedural compliance, to avoid a possible costs sanction should they succeed at trial. It is fair to say that with less claims entering the court system as a result of compulsory mediation, parties can expect a more streamlined and responsive service from the court should their case proceed to trial. However, for the cash-strapped party which is forced to incur expense in mediating for mediation's sake, this will be of little consolation.

Is it not arguable that the current regime as to early settlement of disputes as enshrined in the CPR is already proportionate and sufficient? The potential costs consequences of failing to attempt settlement already gives plenty of incentive to parties to attempt the same on their own accord, so that those cases that do go onto trial (most notably debt recovery proceedings), do so for want of an alternative.

Further, by raising the small claims threshold and bringing into play the issue of fixed-cost recovery, parties will naturally veer towards alternate methods for settling their disputes, making the case for compulsory mediation even more doubtful. Tack on the argument that such measures may, in real terms, amount to an obstruction to court justice, and the response to the government's consultation on compulsory mediation would be to think again.

By the proposed reforms, we are seemingly being pushed into a brave new world aimed at driving a stake into the compensation culture, and forcing parties away from the court as the forum for settling disputes. Undoubtedly, parties and practitioners will need to be more flexible in the conduct of claims and in the methods by which they are resolved. In many cases, this may result in significant savings for parties, which, in the context of the current economic climate, the government is right to encourage. However, while such good intentions clearly lie behind the move toward compulsory mediation, there are genuine concerns that the net effect may actually put claimants at a disadvantage, with litigation costs actually being driven upwards.