One strike and out: Should claims be dismissed summarily for underpayment of court fees?
Published 11 January 2016
A recent High Court decision has examined the extent to which Claimants will be penalised by the courts for the underpayment of court fees and will be of interest to insurers in all classes.
The court fees payable by claimants on issuing proceedings have increased substantially over the last year (see our March 2015 Insurance Adviser Alert). At the top end, claims seeking damages in excess of £200,000 now require payment of a fee of £10,000. This has posed a conundrum for many of their solicitors – should they seek the necessary funds from their client, pay the fees from their firms' working capital, or seek to pay a reduced sum through undervaluing the claim?
A recent High Court decision has examined the extent to which claimants will be penalised by the courts for the underpayment of court fees and will be of interest to insurers in all classes.
The Claim Form includes a statement of value, which does not limit the court's ability to award a greater sum in damages, but it should reflect the true value of the claim. A reduced valuation may influence the court's decision on directions, for example limiting the amount of expert evidence permitted, and will reduce the payable court fee to a level below what should be paid.
In Richard Lewis and others v Ward Hadaway (A Firm) (2015), 31 Claimants, who had intimated various claims in which they each sought hundreds of thousands of pounds from the Defendant for alleged professional negligence, sent proceedings to the court for issue, in many occasions shortly before the end of the limitation period. The claims were undervalued on the Claim Forms, enabling the Claimants to pay lower fees (e.g. £245 instead of £1,670 on one claim, which, if issued now, would attract a fee of £10,000). The Claim Forms were subsequently amended and the correct fees were paid before the proceedings were served.
It would appear that this was a widespread practice by the Claimants' solicitors, as four unreported judgments emerged showing judicial censure of the practice. The Defendant applied to strike out the claims on the grounds of abuse of process and, in the alternative in twelve of the cases, for summary judgment on the ground that the claims were barred by limitation.
The undervaluing of the claims in the statements of value (which were verified with a statement of truth) was found to be deliberate, and an abuse of process, because it deprived the court of the fees that should have been paid at the outset and caused additional administrative work for the court. The practice also potentially gave the Claimants an advantage over the Defendant by enabling them to stop time running by paying a lower fee than should have been paid. The practice could be seen to be a deliberate breach by reference to the figures claimed in pre-action letters of claim and subsequent amendment of proceedings. The finding that this was an abuse was consistent with the unreported decisions.
Notwithstanding this, the judge decided that it would be disproportionate to strike out the claims, after weighing up the various factors involved, including the substantial prejudice that would be caused to the Claimants whose claims would be time-barred, the limited prejudice caused to the Defendant, the short duration of the period of abuse, the timing of the Defendant's application, the absence of concealment and the fact that the abuse did not go to the root of the claim. The unreported decisions had taken differing positions on the question of strike-out, and the judge took account of the wide discretion of the court and the draconian effect of such a widespread strike-out, in claims of potentially significant liability.
However, the alternative application for summary judgment in respect of limitation issues in twelve of the cases succeeded and summary judgment was entered in favour of the Defendant, with reliance on the 2012 Court of Appeal case of Page v Hewetts. In those matters, the Claim Forms were delivered to the court before the limitation period expired, but the proceedings were not issued by the court with the appropriate fee until afterwards.
When a Claim Form, the appropriate fee and a request to issue are sent to the court before the expiry of the limitation period, the claim is deemed to have been brought within the limitation period and any delay by the court in issuing the claim does not cause it to be statute-barred. However, the judge decided that, as the conduct in respect of the fees constituted an abuse of process, the fees were not 'appropriate' and the Claimants had failed to bring their claims within the limitation period. The judge found that the eleven Claimants in question did not do all that was in their power to issue proceedings correctly.
The significance of the decision will inevitably depend on how widespread the practice of underpaying court fees is, and is perhaps of particular interest following the substantial rise in court fees last year. It may well be that other Claimants, or Claimants' solicitors, will try to cut corners and delay having to pay the full fee. The case demonstrates that knowing underpayment amounts to an abuse of process, which leaves the claim being at risk of strike-out and at the mercy of a sympathetic exercise of the courts' discretion, albeit it also demonstrates that strike-out is a draconian remedy that is awarded sparingly. It also shows that where proceedings are issued, as here, on the cusp of the limitation period with the wrong fee, then there is a real possibility of summary judgment.
The decision is clearly a favourable decision for insurers. It demonstrates that even where the claim value is of significance and there are numerous Claimants involved, the courts will be prepared, in suitable circumstances, to determine cases summarily against Claimants who fail to abide by court rules concerning proper issuance of proceedings – notwithstanding that Claimants' lawyers will no doubt object on the basis that this would be a draconian remedy and an undeserved windfall for insurers. Solicitors practising in litigation should appreciate the risk management ramifications.
The relevance of this decision to claims involving personal injury has particular complications. Here, there was no question of s.33 Limitation Act applying as there was no injury. In personal injury claims, the court has a discretion to extend the limitation period and, therefore, the impact of this decision is less clear-cut.
Philip Murrin of DAC Beachcroft acted for the Defendant in this matter.