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Expansion of Small Claims

In February 2012 the Government published its response to a Consultation Paper that had been published by the Ministry of Justice. That Consultation Paper included a proposal that the limit on the value of small claims court cases should be raised from £5,000 to £10,000. The Government’s response was to confirm the increase but stated that its aim was to further increase the limit to £15,000 in the future.

The increase will result in a considerable number of additional claims now falling within the small claims bracket. Potential claimants will be faced with a choice of managing those claims themselves or instructing solicitors to do so. The disadvantage of the latter is that the costs that are recoverable from unsuccessful litigants in cases allocated to the small claims track are extremely limited. Generally a successful claimant is only able to recover court fees incurred and fixed solicitors costs prescribed by the Civil Procedure Rules.

There is therefore a very real risk that small to medium sized businesses will find themselves with an increased burden of having to either manage more claims internally or instruct solicitors in the knowledge that a large proportion of the costs incurred by the solicitors will not be recoverable.

Protection from recovering fixed costs only
So, what can a claimant do to protect itself in these circumstances? One possibility would be to write into its terms and conditions of business an appropriately worded provision making it a term of the agreement that the other contracting party would be liable to pay all legal costs that were incurred in the successful prosecution or defence of legal proceedings involving the customer.

There has been judicial support to a party relying upon its terms and conditions when seeking to recover its costs from an unsuccessful litigant. In Robert Shaw v Nine Regions Limited [2009] EWHC 3553 (QB) the High Court awarded the defendant its costs of defending a claim that had been allocated to the small claims track because the defendant’s terms of business included a term that its opponent would pay the defendant’s costs of enforcing the opponents obligations under the agreement.

The Claimant argued that the clause was unreasonable but the court disagreed as it did not cause a significant imbalance in the parties’ rights and obligations to the detriment of the claimant.

Whilst this decision is only a High Court authority and has not been cited in any other cases, it remains of useful assistance to a litigant faced with the prospect of having to try and recover its legal costs from a customer In light of the above readers should review their terms and conditions to ensure they are protected.

For any assistance in the drafting of suitable business terms please contact Ian Robertson or Gary McGonagle of Howman & Co Solicitors on 020 7629 1801.

This article does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered.