What happens if you lose in a small claims court?

Where funding agreements exist, the reason for the agreement is usually to assist the client with their legal costs incurred during their solicitor’s instructions and, for litigation proceedings, that no such legal costs will be payable to their solicitors upon the final order being made (and any subsequent appeal, if necessary).

The purpose of such arrangements is usually to roll up all such costs (and, if relevant, the underlying claim) into a sum payable by the opponent, with little or no costs to you.

• however, particularly for claimants, disbursements may have been paid by way of court fees and, potentially, barristers fees and so the proceedings have not been cost free.
• in addition remains the very live risk that, if you are unsuccessful in your claim or defence, the opponent will seek an order that you pay their legal fees.

Small claims court costs if you lose

It is important to understand the risk of losing a claim, even where funding arrangements are entered into, and what further steps can be taken to mitigate such risks. Find a list of small claims court costs if you lose:

Judgment debt and settlement

One of the more obvious small claims court costs if you lose; you will be liable for the sum sought originally plus legal costs (see below) plus, potentially, interest accruing on the sums claimed.

A good way of mitigating such risks, particularly where some degree of culpability is admitted or becomes apparent during the proceedings, is to make an offer to your opponent.

• this is particularly in claims for monetary sums as, if the final judgment goes against you but does not beat such an offer, then it may be that you are awarded the legal costs incurred after the offer was made
• this can have the double effect of eliminating your liability for their legal costs arising during this period and, additionally, enabling a set-off of your legal costs incurred during that period.

These “without prejudice” offers of settlement comprise complicated matters and advice should always be taken from your solicitor before making any such offer to protect yourself in respect of the legal costs sought.

Costs due to your solicitor

For clients who enter into a conditional fee agreement with their solicitor, typically described as “no win no fee” small claims, this agreement will provide that the solicitor’s fees are reduced to zero where the claim (or defence) is unsuccessful.

Equally, with a damages based agreement, where a share of the judgment debt recovered determines the extent of your liability for your solicitor’s fees, if no judgment is made in your favour then the solicitor again has no charge or entitlement to any sums in respect of his legal fees.

In all other forms of arrangement with your solicitor, there will be some costs incurred and due from you – whether that be on

• a fixed fee basis,
• a blended rate basis,
• a discounted conditional fee agreement,
• by way of bridging finance or
• by way of the traditional time cost retainer agreement with your solicitor.

In all of these circumstances the client’s liability for his solicitor’s costs will not be affected upon conclusion of the case where their claim is unsuccessful and the liability will remain (albeit potentially mitigated by any of these types of arrangement).

Expenses & disbursements

Disbursements are expenses incurred by a solicitor as s/he proceeds with the case management of your claim or defence. Examples of such costs include

• photocopying costs,
• court fees (which can for substantial claims be quite substantial),
• the costs of court transcripts and
• barristers fees (see further comment below).

With solicitor funding arrangements such disbursements will remain payable and fall outside of the arrangement. If you lose the case, these are not recoverable.

It may be that a third party funding arrangement will also cover these costs but in any event disbursements are not usually a considerable cost other than the barrister’s fees.

Barristers fees

Barristers fees are a disbursement a solicitor incurs and will not ordinarily be subject to any of the solicitor funding arrangement unless they are entered into separately by a barrister.

• if a barrister enters into such a funding arrangement, then the consequences may be similar to that as described for a solicitor – there is likely a bigger fee payable if the claim (or defence) is successful and there may be no fee payable if the claim (or defence) is unsuccessful.
• it can be very useful to have both your solicitor and your barrister on such funding arrangements but beware the cost at the end, as this will effectively double any share of the proceeds you may recover as part of the final judgement debt.

Liability for your opponent’s legal costs

Despite the presence of a funding agreement as regards your solicitors costs, there is additionally (and more importantly) your opponent’s legal costs to provide for.

If an opponent obtains judgment (where you are defendant) then they will additionally seek their legal costs of bringing the claim or the legal costs of defending it.

• a common way to protect against such risk is to take out after the event insurance, which provides insurance against your opponent’s costs.
• in the event you lose, there will be no cost of this ATE insurance policy and additionally the insurers will pay your opponent’s legal costs, once assessed or agreed in the proceedings.

Unfortunately, if you are successful, the premium arising as a result of taking out such insurance will become payable by you and cannot be recovered from your opponent in addition to the judgment debt.

Appeal or revocation of an order

Where an order is made on an unjust ground or is found to be wrong at law or a misfinding of fact, then there may be grounds for appealing any such order. Where appeal proceedings are commenced, enforcement of the judgment debt and the costs order may be ( but are not always ) suspended pending the outcome of such appeal proceedings.

Legal advice should always be sought from your solicitor where any appeal is considered.

At Francis Wilks & Jones we have considerable experience of funding arrangements, ATE insurance and commercial litigation and both the assessment and safeguards against such litigation risks. We will be able to advise and assist on all aspects of the above in respect of costs protection.

Please call any member of our commercial litigation team for your consultation now. Alternatively e mail us with your enquiry and we will call you back at a time convenient to you.