Small companies ‘priced out of the system’ by law fees increase

The Times James Hurley

Published at 12:01AM, July 20 2015

Rob Law has spent “hundreds of thousands of pounds” defending his company, Trunki, which makes children’s ride-on cases Gareth Iwan Jones
The cost of justice is in danger of allowing big companies to ride roughshod over rivalsMichael Gove’s recent warning that Britain’s “two-tier” justice system works well for the wealthy but is “badly failing” most users rang true with Nikki Turner — not that Ms Turner, who runs SME Alliance, a new organisation campaigning for fairer treatment of small companies, is holding her breath for sweeping reforms.

While she says that she “completely agrees” with the sentiment in the lord chancellor’s speech last month, she adds: “In a way it doesn’t matter what he says. The money isn’t there, so what can he do?”

A dramatic increase in court fees has exacerbated existing imbalances, leaving small businesses “priced out of the system”, she argues.

A former small business owner and whistleblower on an alleged bank fraud that is due to go to trial next year, Ms Turner says that the situation is particularly galling for those who feel they are victims of banking misconduct: “We are in a bizarre situation where the cost of bailing out the banks means most businesses can’t sue them because they can no longer afford to.”

If nothing changes, Ms Turner says that ultimately the issue will damage Britain’s international standing. “If we have no access to justice, we are going to become a laughing stock.” Not that anybody is laughing about the fact that court fees have gone up by as much as 600 per cent after the rise that was pushed through by the Ministry of Justice before the general election — except, perhaps, lawyers.

The SME Alliance is far from a lone voice, with senior judges and representatives of solicitors also expressing deep concerns.

Whether they are battling errant banks, large customers who won’t pay their bills or rivals that have stolen their intellectual property, Nick Goldstone, a partner at Gordon Dadds, a law firm, says that already he has seen prospective litigants put off by higher court fees: “For claims of between £150,000 and £250,000, a value which is not insignificant for an SME to be involved in, court fees have increased from under £2,000 to as much as £10,000. If the government wanted to curtail access to justice for small businesses, I can hardly think of a better way to do it.”

Jonathan Smithers, president of the Law Society, which represents all solicitors in England and Wales, said that the increase in fees could further upset the “balance of negotiating power” between small suppliers and their large customers, which would be confident of not being sued. He said that the government had contributed to a “two-tier” system described by Mr Gove through the higher fees, which were “very much more than in other jurisdictions”.

Last week, Mr Gove defended the changes, saying: “While the courts could never be totally self-financing, we needed to move to a basis where the fees better reflected the cost of the justice system.”

In addition, businesses have not had access to legal aid for a decade, while the high cost of litigation funding and a perceived ability by powerful opponents to “play the system” to drive up costs are also barriers, the alliance says.

The group has visited No 10 and the business department to lobby ministers on the issue. One proposal is to beef up the Financial Ombudsman Service, which deals with rows between financial services businesses and their customers.

Rob Law, founder of Trunki, a children’s ride-on suitcase business, has been locked in a legal battle since 2013, claiming that a rival infringed his company’s copyright.

Trunki lost the most recent round and is pinning its hopes on a Supreme Court hearing this year. Mr Law says that the fight has cost his company, which turns over £8.5 million a year, “hundreds of thousands of pounds”.

He is working with the government to advise on how the rights of SMEs can be protected, but as it stands, he says: “The system is broken.”

Case study
Even small claims can be trying to progress, according to Jane Herbert, the owner of Pilotmax, a Windsor-based communications business.

Ms Herbert took on a large customer who had not settled a £9,000 debt. Despite winning the case, she was £6,000 out of pocket.

She says that her experience was “appalling”, with her claim mistakenly treated as a “fast track” case, meaning she would need legal representation she could not afford. It took her seven months to get it allocated to the small claims court. Her opponent’s appeal was rejected, but it added further cost, she says.

“If another big company thinks it can walk away owing me money, will I stand up to them or simply roll over and let them get away with it, rather than go through all this again, because I have no faith in the system any more?”

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