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By Guy Pendell & Iain Quirk KC

Fixed costs, local courts, or online dispute resolution?

Civil litigation around the world is a complicated business.  Each country has developed its own rules of procedure, with many different underlying traditions, leading to a complex mosaic for any business to deal with.  As technology enables ever smaller businesses to undertake more international trade, it would be wrong for business, and economic productivity, to be stifled by a myriad of hard to understand rules and procedures accessible only through local lawyers.  

In England & Wales - a jurisdiction generally well respected for its legal processes - there are different courts and different ‘t°ù²¹³¦°ì²õ’ depending on your case.  Outside of the small claims court, there are now three ‘t°ù²¹³¦°ì²õ’: the fast track for cases up to £25,000, a new intermediate track for cases between £25,000 and £100,000 and the multitrack for larger cases.

In litigation, many countries also operate a ‘loser pays’ principle.  It means that whoever loses the case ends up bearing not only their legal costs but also the legal costs of the successful party.  That does discourage unmeritorious, abusive or vexatious litigation, but it can also discourage legitimate claims and impose a significantly greater (and sometimes disproportionate) financial burden on the losing party, particularly where the cost of litigation is high.

Amid concerns that litigation in England & Wales was becoming too expensive, Sir Rupert Jackson conducted an in depth review of the costs of litigation in England & Wales in 2017.  His included recommendations that led to the introduction of fixed recoverable costs (known as FRCs).  The concept is simple enough.  For cases below a certain value, costs can still be claimed in the proceedings, but the amount that can be recovered from the losing party is fixed (and may only be a small proportion of the actual costs incurred by the successful party).  If both parties cut their cloth accordingly, that could work very well, but what happens if a party is prepared to spend more on the litigation than they can recover in costs?  It can result in an uneven playing field, which might result in both parties feeling compelled to incur more costs, in order to keep up with the other.

From , the FRC regime was extended to apply to most cases valued up to £100,000, and it may be increased further in the future.

Good news?  The changes have not been welcomed by parts of the .  Concerns are understandable.  If it will cost more to bring a claim than can be recovered in the proceedings, is that fair for either party (or even their lawyers)?  The hope, presumably, is that the FRC regime will force parties to find ways to reduce the costs of those proceedings, where they know they will have to bear a large part of their costs whatever the outcome.  An admirable ambition, but is that achievable when the average case still takes over a year to complete, coupled with the understandable motivation to try to ‘win’ a legal dispute?

More likely, parties will be discouraged from bringing claims at all where the claim is of modest value.  Litigation may be even less attractive where the legal costs (that cannot be recovered) inevitably eat into any recoveries actually made.  In other cases, a settlement of unmeritorious claims might be forced because the real cost of defending it will not be proportionate to the amount claimed.  In those cases, that is not access to justice, it's not justice at all.  It is also bad for businesses that are more likely to prosper where they can operate on a level playing field where all are held to the same commercial standards regardless of size and access to lawyers.

Lawyers undertaking this work will have to change their practices.  What are the options?  When litigation takes over a year (and in many cases much more than that), lawyers might have to assign more junior staff to those cases, undertake less work, or simply accept that the work is no longer profitable and find something else to do.  That might work for reducing case volumes in court, but it is not a real solution.  A better way to make justice accessible and proportionate is to re-engineer the process to make the actual time and cost of the process proportionate to the dispute.  Where both parties have to operate to timetables - short enough for the parties, and their lawyers, to keep focussed on the case until its resolution - a fairer, cost effective and more efficient process should benefit everyone.  It might even make justice more accessible.

To meet this need, a new LawTech start up, , has launched an online dispute resolution platform, with bespoke (arbitration) rules for B2B disputes.  Parties can have their disputes determined in just 8 weeks.  The entire process is far quicker and more efficient than any alternative binding process - whether it is arbitration or litigation.  It also works for parties in different countries, as it is based on arbitration - a process that is now standard for most businesses all over the world, where the award can be enforced almost anywhere, just like a local court judgment.

For some, the idea of a legal process concluding in 8 weeks may seem surprising, but that perhaps highlights how ingrained the idea is that the process has to take a long time.  It is, however, a matter of choice for parties.  Legal transactions (contracts) usually take far less time to complete - because all parties have a common interest to get the legal work done so that the contract can start.  Unfortunately, interests are rarely as aligned when a dispute arises.  If that has to go to court and the machinery allows the parties to extend time - that is usually what happens.

What is much less understood is that expedited procedures in court and arbitration are becoming more common.  Courts will often order expedited trials in preference to interim injunctions, and many traditional arbitration institutions have introduced the relatively new concept of the emergency arbitrator.  Although an emergency arbitrator provides only an interim binding decision, user experience has been positive and, in some cases, the emergency arbitrator’s decision can provide a complete resolution to the dispute.  However, a pre-requirement for all those processes is some form of urgency.  Perhaps understandable when hundreds of millions are at stake, but where commercial law should serve the interests of business, quicker timescales, particularly for lower value disputes, ought to be commonplace.

In pinqDR proceedings, parties may still incur legal costs (if they wish) and they can ask the pinqDR arbitrator to decide how those costs should be allocated, but because the whole process only takes 8 weeks from commencement, those costs should only be a fraction of the realistic cost of running a case in court for over a year.

For more information, see pinqDR’s or contact them at hello@pinqdr.com.