Who pays the price for commercial debt recovery claims?

Forbes Collect Article

13 December, 2017

If you are faced with the situation where you have to take one of your clients to Court to recover your unpaid invoices, then it helps to know the legal costs and potential recovery of those costs in bringing a claim. This include but are not limited to:

  • Court fees
  • Disbursements
  • Solicitors Costs

Who pays these costs?

Pre-litigation

In many cases, the claim will settle without the need for issuing proceedings. As part of Forbes Collect debt recovery service, we seek to recover interest and late payment fees which are added to the debt. If the debtor is an individual, statutory interest is added at 8.5% per annum. In addition, when the debtor is a business late payment fees are also added to each invoice outstanding. The amount depends upon the value of the invoice outstanding as follows:

Invoice value less than £1000 £40.00 per Invoice

Invoice Value less than £10,000 £70.00 per invoice

Invoice Value £10,000 or more £100.00 per invoice

These late payment fees and interest can go a long way towards your debt recovery charges.

Small Claims Track

If proceedings are necessary, and your claim is under £10,000, the claim will usually be allocated to the Small Claims Track, where, generally speaking, only court fees and modest fixed costs (under Part 45 of the Civil Procedure Rules) are recoverable from the debtor.These costs may fall short of fees incurred in acting on your behalf but the interest and late payment fees will often make up the difference and sometimes mean that the net recovery is greater than the original debt.

In some circumstances, if the Defendant has acted wholly unreasonably the Court may order them to pay further costs. However, such orders are rare and are entirely at the Court's discretion.

Fast Track Claims

Your case will usually be allocated to the Fast Track if:

  • The value of the claim is more than £10,000 but less than £25,000
  • The hearing is unlikely to take longer than one day
  • The case doesn't involve any technical or complex issues

If your claim is successful, the Defendant will usually be ordered to pay any disbursements you have paid, along with a proportion of your solicitor's fees. However, these costs can be limited by both the fixed costs recoverable for trial and the fact that the Court will assess the costs at the end of the hearing and only award what is reasonable and proportionate to the case in question and the required work.

The costs allowed for the trial advocate itself are strictly limited to an amount up to £1,035, but the Court will summarily assess the remaining costs provided that all the other rules have been complied with.

Multi Track Claims

Your case will usually be allocated to Multi Track if it does not fall into either the Small Claims Track or the Fast Track. The Multi Track is the usual place for claims valued at more than £25,000 or that have unusual or complicated aspects to address.

Like on the Fast Track, if your Multi Track claim is successful the Defendant will generally be ordered to pay a proportion of your solicitor's fees, as well as any disbursements you have paid.

Generally speaking, in Multi Track cases, the Court will make a cost award after the main judgment. That tends to be that the losing party pays the winning parties costs to be 'subjected to detail assessment in the absence of agreement'. The usual order if for 'standard costs' to be allowed although the Court can penalise what it perceives as unreasonable conduct by awarding 'indemnity costs' which tend to be higher than the standard costs.

This means that, unless the parties agree the amount of the costs to be paid, they (the costs) will be subjected to the process of Detailed Assessment. This involves having a 'bill of costs' drawn up by a costs draftsman detailing every item claimed and commencing a process through the Court that involves each party putting forward their submissions as to what should be allowed and why. If agreement still cannot be reached, a Costs Judge or Court Officer will review the claim for costs and the respective submissions before deciding what he thinks is reasonable and proportionate having regards to proportionately, conduct of parties prior and during the proceedings, complexity of the issues and the value of the claim. Each item claimed is subjected to this process and can be allowed, disallowed or reduced down dependent upon the view taken as to the reasonableness or proportionality of the task undertaken.

Whilst each cost assessment is different and depends upon the approach taken by the representatives and the Court, generally speaking the outcome of a standard costs order is recovery of around 60-80% of the overall costs incurred, with recovery on the indemnity basis something in the region of 10% higher.

The process of detailed assessment goes hand in hand with the relatively new concept of 'cost budgeting' that most Multi Track debt claims are now subject to. This process allows the parties and the Courts to monitor the costs throughout the process and agree budgets that should not be exceeded through the proceedings without good reason. These budgets tend to assist with and promote agreement on the amount of costs payable prior to detailed assessment.

Adverse Costs

It should also be borne in mind that, as the 'costs follow the event', an unsuccessful claim will usually result in a costs award against you meaning you would have to pay the Defendant's costs on the same basis set out above.

What should I do if I'm concerned that the Defendant won't pay?

If you are concerned that the Defendant may not be able to pay the costs, you can, at the end of the trial, apply for an order that the Defendant pay a proportion of the costs incurred to you within a short timescale, often 14 days. This is known as an interim payment and is at the discretion of the Court. Typically, though, interim payments of 50-70% of total costs claimed are not uncommon, especially when budgets have been agreed.

What happens if I offer to settle?

At any point, while the case is proceeding, you can make a formal offer known as a Part 36 Offer to bring the case to an end.

The rules surrounding these types of offers are complex but, from a Claimant's perspective, if you make an offer that is not accepted and you ultimately beat that offer at trial, you may receive enhanced damages, indemnity costs and punitive interest on the costs.

What are conditional fee arrangements and other fee options?

There are a number of ways that your legal costs and fees can be funded including:

  • Hourly rates - this is where you pay for the time spent by your representatives on your case, payable whether or not the claim is successful. This is the traditional fee structure for most solicitors.
  • Conditional fee agreements - this is where you only pay fees if your claim is successful and, if so, an additional amount called a success fee. The amount you pay is based upon the hourly rates and time spent on the case, with the amount of the success fee generally determined by the perceived risk of the claim not being successful.
  • Damage based agreements - this is another fee structure where you only pay where the claim is successful. In this instance the solicitors take a percentage share of the successful claim.
  • Fixed fees - this is where an agreed amount is payable to represent you on a claim or a stage of a claim and are payable whether or not a claim is successful.

The above options are subject to an initial review of the claims and will be discussed in more detail with your solicitor if required.

To speak to our debt collection team about debt recovery for your business contact Forbes Collect on 0800 689 4176 or email us on forbescollect@forbessolicitors.co.uk.

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