Litigation - Winter 2013

Attachments of Earnings

According to recent figures, the UK finds itself now on the brink of what some say will be a third recession.  With increasing numbers of people finding themselves in financial difficulty and unable to repay their debts when they fall due, it has become more appealing for creditors to apply for an attachment of earnings order against their debtors than issuing bankruptcy petitions as they are more likely to get paid, even if it is in small instalments over a long period of time.  It has been reported that there has been a 15% increase in the use of attachment of earnings orders in the past year to June 2012. Legal information provider Thomson Reuters Sweet & Maxwell revealed that creditors made 61,648 applications in the courts for attachment of earnings orders over the year between June 2011 and June 2012, up from 53,451 applications in the previous 12-month period. 

What is an Attachment of Earnings Order?

An attachment of earnings order (AEO) provides that a percentage of a judgment debtor’s earnings be deducted by the debtor’s employer and paid to the judgment creditor until such time as the judgment debt is paid in full.

In determining the sums to be paid the court presently looks at the income and expenditure of the debtor, the judgment sum and will then apply a percentage to be deducted from their salary.  However, this system is expected to be amended by Section 91 and Schedule 51 of the Tribunals Courts and Enforcement Act 2007 (TCEA) (when it is implemented) which will allow deductions to be made on the basis of a fixed rate, similar to the scheme already used for Council Tax arrears.

Why is an Attachment of Earnings Order an appealing option?

The short answer is because it is inexpensive and straightforward to obtain and operate.  An AEO allows for the automatic deduction of wages by the employer and payment directly to the creditor thereby not relying on the, already unreliable, debtor making payment.  As many of us know only too well, a number of debtors make empty promises when it comes to agreeing a payment proposal, but then failure to deliver on this promise. An AEO is one way to avoid this scenario happening again. 

The obvious limitation to an AEO is that it requires the debtor to be in paid employment. As is often the case, employment instability may be the reason for the bad debt history in the first place. In addition, it might take several years for a judgment debt to be paid back in full but even small regular payments may be more attractive to a creditor than nothing.

On the upside, an AEO may be a useful negotiating tactic; where a judgment debtor does not wish his employer to know that he has an outstanding judgment debt, the threat of such an application might be enough for payment to be made in full immediately.

When can you apply for an Attachment of Earnings Order?

It is not possible to obtain an AEO as a first debt repayment step. You can only apply for an AEO after you have obtained judgment, but there is no time frame when this must be done, so an AEO could be used where a judgment ordering payment has been unsatisfied for some time. It should be noted however, an AEO will not be made unless the court is satisfied that:

  • The judgment debtor is behind with at least one payment towards the judgment debt, and
  • The amount he owes is £50 or more.

What should you remember when an Attachment of Earnings Order is sought?

In addition to the above two requirements, it is important to remember that an AEO is only a remedy available to be used against an employed (which excludes self-employed) individual.  There is an exception from AEO if the debtor is in the armed forces or a merchant seaman. The reason for this is that these people are not permanently residing in the UK and it would therefore be difficult to serve the relevant court application on them. However, arrangements can be made for compulsory deductions from pay through the Defence Council, whether the judgment debtor is stationed in the UK or not under specialist legislation: section 151A Army Act 1955, section 151A Air Force Act 1955 and section 128E Naval Discipline Act 1957

Furthermore, the judgment debtor needs to have an identifiable employer. Therefore, you will need some co-operation therefore from the debtor to ascertain the name and address of his employer and will need to verify the information the debtor has given you with that employer before making your application to avoid the costs of a wasted application.

What is capable of being attached as “Earnings”?

The following can be attached as “earnings” after deduction of tax and National Insurance contributions:

  • Any sums payable to a person by way of wages or salary (including bonuses and overtime)
  • Pension (including annuities)
  • Statutory sick pay
  • Earnings of a company director, provided that the judgment debt is the director's personal liability, and not a debt of the company.

What is not capable of being attached as “Earnings”?

The following cannot be attached:

  • Tax credits
  • Armed Forces pay
  • Self-employed earnings
  • State "old age" pensions
  • Disability pensions
  • Benefit payments

Looking to the Future

The Tribunals Courts and Enforcement Act 2007 (TCEA) intends to makes changes to various methods of enforcement, including AEOs but the relevant sections of the Act are not yet in force. Despite being on the statute books since 2007 the implementation of substantial parts of TCEA continues to be delayed with no clarity as to when the provisions will come into force. For now, all we can do is wait and see.  In the meantime, the old rules continue to operate. As written, the TCEA does not affect the procedure for applying for an AEO but it remains to be seen if amendments made in any future implementing regulations.

In Part 4 of TCEA fixed tables are introduced for AEOs based on a percentage of salary replacing the current, system of the court determining a percentage described above together with a system making it easier for creditors to track employees who change jobs, for example section 92 of TCEA will allow HM Revenue & Customs to provide the court with new employer's details. The present system relies on debtors providing up-to-date information to creditors and this is considered unsatisfactory due to the fact that very few debtors will inform the relevant parties for the obvious reasons indicated above. 

The FWJ litigation team is well versed in all aspects of debt recovery and the enforcement of judgments. We can advise you on the most appropriate way in which to recover your money and how to go about securing your position as creditor.

Written by: Joanne Brown, Solicitor

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Mediation update

The following changes in 2013 to the use of mediation as a mechanism for dispute resolution are likely to impact all litigating parties but in particular those who deal with the lower value and more everyday court claims. 

Increase to the small claims track limit

The recent Solving Disputes consultation committed to raising the upper limit of small claims (except for personal injury and housing cases) within the county court from £5,000 to £10,000. It has now been confirmed that from 1 April 2013, the lower limit for fast track claims will rise to £10,000, however the lower limit for multi-track claims will remain at £25,000.

The rationale was that more consumers and small businesses would benefit if the financial limit was increased. This benefit is questionable, however, given that more claims will be forced into an environment where the majority of legal costs will not be recoverable by the successful party and the use of a number of other litigation tools where costs may not be such an issue is uncommon. Another aim is that many claims currently dealt with in the fast track, and that incur costs which are seen as disproportionately high, could be dealt with more quickly and effectively using the small claims procedure.

It appears inevitable that, with these new claims limits, numerous cases will be forced into alternative dispute resolution (“ADR”) and mediation so that parties can avoid significant legal bills which they will not be able to recover through the court process. Although the courts have previously appeared to be unwilling to force parties into mediation, the forthcoming increase in the small claims limit appears to have the same effect but it will be achieved by stealth.

Use of mediation and other forms of ADR in higher value cases

In terms of cases above the small claims limit, the introduction of Mediation Information and Advice Meetings (MIAMs) was by the government as an option in the Solving Disputes consultation. However, the responses received to this proposal showed a lack of overall support for their introduction and this idea has been unfortunately shelved. 

Notwithstanding the lack of promotion of MIAMs, it is still felt that, in many cases, individuals and businesses are litigating without giving proper consideration to the use of mediation or other forms of ADR to their detriment. This remains an area that the government remains keen to promote and address. The government continues to recognise that there is a need for better and more targeted information on the benefits and suitability of mediation in resolving disputes and is working with the Law Society to reinforce the role of the legal profession in promoting mediation. It is open to debate whether this will have the government’s desired effect in the short term, but such a significant change to dispute resolution will take time. It is highly desirable that the government continues to analyse and assess how public awareness of mediation is changing and to promote the idea that the use of the court should be as a last resort, as mediation and ADR can benefit so many parties by avoiding protracted and expensive litigation by finding a palatable solution to the parties and preserving value in a claim.

If mediation is new to you, and you would like to know more about how it can help you resolve a dispute quickly and cost effectively, please contact one of FWJ’s accredited mediators.

Written by: Nick Stockley,  Associate  - Accredited commercial mediator and member of the UK Register of Mediators

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Jackson Reforms - Court of Appeal Supports Fair Case Management Decisions

As the date for the implementation of the wide ranging reforms to the conduct of civil litigation proposed by Lord Jackson moves closer, we look briefly at some signs that the courts are already embracing the emphasis on good case management practices.

Mannion v Ginty [2012] EWCA Civ 1667

This case involved a dispute over the ownership of a flat occupied by the appellant. The respondent agreed to purchase the flat and to allow the appellant to live there rent free for 3 years, following which title was to be transferred to him. On the expiry of the 3 year period, the appellant refused to transfer the flat, claiming that the purchase price had been gifted to her by the respondent.

The respondent commenced proceedings in 2008. There followed a series of procedural defaults on the part of the appellant which eventually led to her defence being struck out, and judgment being entered for the respondent. The appellant’s application for relief from sanctions under CPR 3.9 was dismissed. However, the appellant was given permission to appeal to the Court of Appeal on the grounds that the sanction was arguably disproportionate in that it involved an infringement of her Human Rights.

The Court of Appeal dismissed the appeal. It was ruled that the when making his decision the judge had taken all relevant factors into account. Referring to the “appalling delay” throughout the proceedings, the Court of Appeal stressed that it is vital for robust but fair case management decisions made by first instance judges to be upheld, and the need to stop the culture of tolerating delay and non-compliance with court orders.

Stokors SA v IG Markets Ltd and another [2012] EWCA Civ 1706

This case involved an appeal against an order for security for costs and an order granting the defendant leave to amend its pleadings just months before trial.  Rather than adjourning the trial, the court ordered a partial trial of liability.

The Court of Appeal concluded that the judge's exercise of discretion was "quintessentially" one that should not be interfered with. The Court of Appeal also clearly endorsed Jackson’s vision and emphasised the very limited circumstances and high threshold to be met before the Court of Appeal will interfere with a case management decision by a first instance judge.

Written by: Marguerite Webster, Solicitor

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