Next month, litigants will be charged up to £1,000 a day in hearing fees for multi-track cases. Is this the beginning of a system of court fees that will make England the only large Western nation to charge trial fees? Dominic Carman speaks to the silks and solicitors leading the debate

During a BBC Newsnight interview in 2002, Lord Phillips of Worth Matravers, then Master of the Rolls, told Jeremy Paxman: "The civil justice system is creaking at the seams because of a lack of resources. The Treasury has introduced – without any parliamentary debate or discussion – a complete change. Yes, it is the job of the state to provide a health service and to provide education. It is not the job of the state to provide a civil justice system. The litigant has to pay in court fees for the cost of maintaining these buildings and for the judges. I do not know any other country where this full cost recovery is imposed. It has dire consequences for an effective civil justice system."

Paxman is still with us; likewise Lord Phillips, now Lord Chief Justice. So too, of course, is the civil justice system. Meanwhile, the cost of running the civil and family courts in England and Wales for the last financial year was £550m. Of this, almost 80% was funded through court fees. Isolate the figures and you will find that from a net fee income of £335.9m, the civil courts made a 13.5% profit – £45.5m. Not bad – a Treasury accountant might argue – for a creaky system.

Cost recovery

But what do court fees mean for litigants, for lawyers in the commercial courts and for the administration of civil justice? The government's latest consultation on civil court fees took place between April and June 2007. The results will be published on 1 October, the same day that several new court charges are introduced – arguably throwing into question the purpose of the consultation. The principle of whether it is correct for the state to base the civil court fee system on the objective of full cost recovery provokes much debate.

"We do not agree with the starting point of the government that the civil justice system should be funded entirely by end users," says Simon Davis, Clifford Chance litigation partner and president of the London Solicitors Litigation Association (LSLA).

The theme is developed by Graham Huntley, partner at Lovells, and Davis' immediate predecessor as LSLA president: "There is no Western civil justice system which we can regard as a competitor that imposes trial fees. We would be standing out alone. Why do we need to do something that none of our competitors do? The answer lies in the true cost of litigation. Through accounting approaches, we are inflating the cost to end users, bringing back cash which is not going to fund civil justice, but is going back into the Treasury."

Jonathan Sumption QC, head of Brick Court Chambers, suggests that logic is spurious: "For more than two centuries, the Treasury has argued that there are no specific revenues to be used for a particular purpose – it is one general pot. The only question that matters is how much they put in compared with what they take out."

Giles Goodfellow QC of Pump Court Tax Chambers argues that the state is shedding a prime function onto consumers: "Not only do you pay tax,
but when you avail yourself of a service that the government used to provide for free – i.e. a core state function to resolve civil disputes – you then have to pay again."

Daily fees

So what do the increases mean in reality? The new hearing fees – £500 for fast-track and £1,000 for multi-track – are widely thought to be calculated on the basis of what a day in court will cost. "It is the thin end of the wedge for daily hearing fees.' says Davis. 'To be able to say that courts here are free is a plus. For international litigants to be told there will be fees – straws and camels' backs spring to mind."

The question, he argues, is whether litigants are made to feel welcome: "Are we setting out to market English courts as a place where they should come? The message with court fees is that they are not welcome."

"While one cannot ignore court fees," says Daniel Alexander QC of 8 New Square, "in general they are small in comparison to the fees charged by professional representatives. A typical patent trial would probably cost each side close to £1m-£2m. If litigation is being driven away by cost, it is more likely because of lawyers' fees than court fees."

"Fees are a relatively small proportion of the total cost," agrees Goodfellow. 'I cannot think it is going to be a determining factor for litigants – not when the charging rate of a partner at the magic circle firms is something like £800 an hour plus an assistant clocking up £350 an hour, plus a silk's costs."

Lawyers' responsibility

The reduction in the number of claims being issued over the past decade, suggests Khawar Qureshi QC at Serle Court, is because the overall costs of going to law are prohibitive: "Plainly, lawyers must accept a large responsibility for this," he says. 'They must be more responsive to the need for legal costs to be reduced and some sense of proportion adhered to between those costs and the value of a claim."

Sumption echoes the point: "Court fees are absolute peanuts compared to other costs of litigation, which are generated by the labour-intensive nature of the process on the solicitors' side. It is not that they are inefficient or extravagant, but discovery of documents is incredibly heavy on administration. If costs are a deterrent, it is because of the extremely intensive nature of English litigation."

"It is often described as a Rolls-Royce system," Sumption suggests, "but that may be a bit generous since it is dependent upon the production of vast piles of written material. Here, it differs from most continental systems. If anyone was going to make a rational decision on cost grounds between English courts and other jurisdictions, they would be more influenced by the expensive nature of English procedure, rather than by court fees."

Nevertheless, City firms are anxious. "It is a vicious circle," says Ted Greeno at Herbert Smith. "If court fees are put up more and more, litigants will be discouraged, and revenue will fall. When the number of claims falls, they put up fees. If we carry on this way, then access to justice will decline, and there will be a bigger push towards arbitration, which is not good because people think they get a fairer service from the courts than from arbitration. In the long term, there is a real risk that it erodes the desirability of the English court system compared with other jurisdictions."

Standard of courts

Do increased fees therefore mean better courts? Not necessarily. Large multi-track cases have, in fact, seen a deteriorating service – it can often take more than three months for a listing to be secured.

"The fees would be acceptable," says Goodfellow, "if they went hand in hand with an improvement in the level of service given by the court service in terms of speed, making sure that skeleton arguments got to judges at the right time, and so on. But there is no connection between fees and the level of service provided – it is just a contribution to the Treasury – and the actual provider of the service remains completely immune from the demands of the consumer."

Another area of particular concern is the commercial court. In 2010, this will be re-housed in the Rolls & Arnold Building in Fetter Lane, at a cost of £25m.

Earlier this year, the LSLA, the Commercial Litigation Association (CLAN), and the Chancery Bar Association criticised the court for lack of resources.

After attracting litigants from all over the world, numbers are now in decline – because of the perception of cost and delay. "It is ironic," says Qureshi, "that we have had a significant increase in the number of commercial court judges, but no similar increase in the volume of litigation being dealt with by them. If the commercial court is to attract high value claims, it must compete with other international dispute resolution centres, and also provide greater value for money than international arbitration."

"For a lot of cases, New York is a real competitor," says Greeno, "on the basis of cost and speed. In relation to the commercial court, the government's lack of value that they see in the court service will continue to erode the quality of the commercial legal system. [Former Governor of the Bank of England] Eddie George said that the single most important factor in the success of the City was English law – and this is being potentially eroded."

Call for a re-think

The latest LSLA report concluded in June: "So much time, money and effort has been devoted towards making the civil justice system self-funding. This overlooks the public and commercial service that the commercial court in particular offers, and thus the huge contribution that it makes to the economy as a whole. It involves putting forward inherently contradictory proposals and promoting reforms which risk seriously damaging the attractiveness of our Civil Justice system. The LSLA urges the Government to think again.'

On daily fees at least, they did. The Ministry of Justice had proposed to pilot daily hearing fees in 2008. But after meeting with fierce opposition from lawyers and judges in consultation, Jack Straw announced in July that the idea would be shelved for another year. "The government has listened," says Davis "and is going back to the drawing board. The points we have raised – that they are a disincentive to users, particularly overseas parties – seem to have won the day, for the moment. But we need to watch this space very carefully."

Huntley is more circumspect: "The fees being proposed in October are relatively modest – the real point is that the door has been opened and can become wider and wider. What will happen? There will be a degree of mistrust between the court users and the Treasury. It can only make litigation less attractive and we will see less litigation. It is inevitable that some will decide that arbitration is a more appropriate vehicle on the basis of cost, as well as flexibility of forum and confidentiality."

"That is not likely – arbitration is prodigiously more expensive," concludes Sumption. "You not only have the expense of the parties but also the arbitrator. Judges are cheap. In terms of civil justice, a service that is heavily subsidised, I do not see why litigants should not pay for it."