Payments into court in satisfaction of claims (PinS)
Proposals for change
This paper sets out for consultation proposals for the future of payments into court to support offers to settle claims (payments in satisfaction). The consultation is aimed at court users including claimants, defendants, insurers, legal professionals, advice agencies and consumer associations in England and Wales. This consultation is being conducted in line with the Code of Practice on Written Consultation issued by the Cabinet Office. It falls within the scope of the Code. The Code criteria set out in Annex H have been followed.
An initial impact assessment indicates that claimants and defendants are likely to be affected. The proposals are likely to lead to additional costs or savings for the affected groups. A partial Regulatory Impact Assessment is attached at Annex G.
Copies of the consultation paper are being sent to:
amongst others.
Please send your response by 12 November 2001 to:
Ken Lewis-Allagoa
Lord Chancellor's Department
Civil Justice Division
Third Floor
Selborne House
54-60 Victoria Street
London SW1E 6QW
Or by e-mail to: ken lewisallagoa
Representative groups are asked to indicate which people and organisations they represent when they respond.
The Department may wish to publish responses to this consultation document in due course. Please ensure your response is marked clearly if you wish your response or name to be kept confidential.
Confidential responses will be included in any statistical summary of numbers of comments received and views expressed.
Further copies of this consultation paper can be obtained from at the above address or by phoning 020-7210 0683.
Views are sought on the following:
Streamlining the payment in satisfaction process
Alternative financial arrangements
In 1999 the Lord Chancellor launched the Quinquennial Review (QQR) of the Public Trust Office (PTO), an Executive Agency of the Lord Chancellor's Department. Ann Chant CB was appointed to conduct the review.
The review consisted of a thorough examination of the performance of the Agency since its launch in 1994, including a 'prior options review'. The review considered:
One of the QQR's recommendations was that the PTO should take a strategic decision to move away from providing specialist client services directly by its own staff in the areas of Trust, Protection and Receivership and the investment of clients' funds.
The Court Funds Office (CFO), which was part of the PTO provides some of these specialist client services and the report contained a series of recommendations relating to the CFO. The CFO is the office of the Accountant General of the Supreme Court and its functions include a straightforward banking service, receiving, investing and administering funds deposited in court. This includes payments into court in satisfaction of claims. On 1 April 2001 the CFO was transferred to the Court Service.
This paper sets out, the current system for payments in satisfaction, the CFO investment process and seeks comments upon specific proposals for implementing reform to the current system. Annex A outlines the recommendations contained in the QQR relating to payments in satisfaction, including subsequent commitments. Annex B, key points from the current system. Annex C, some European comparisons. Annex D provides facts and figures about the current system and Annex E contains process maps of the system for payments in satisfaction in the CFO. Annex F provides a list of the payments in satisfaction working group membership. Annex G provides a partial regulatory impact assessment.
In any claim for debt or damages, the defendant may pay money into court to support an offer to settle a claim. This could be tactical (for example, to encourage the claimant to settle for a lower but secured figure) or to limit the defendant's exposure to costs. The Civil Procedure Rules Part 36 allow 21 days for a payment into court to be accepted. The claimant may accept the sum paid into court in full satisfaction of his claim. If the claimant does not wish to accept the payment into court, the claim will continue. The payment will normally continue to be held by the court, but will earn interest (see below). The payment into court is not regarded as an admission of liability and, therefore, it does not prejudice the future conduct of the defence.
If the case proceeds to trial and the judge awards the claimant a sum in excess of the payment in, then the claimant is said to have beaten the payment in and will be awarded costs against the defendant in the usual way. If the claimant is awarded a sum at trial which is equal to or less than the payment in, then the claimant has failed to beat the payment in and will be entitled to costs only up to the date of receipt of the notice of the payment in. After that date he must normally bear his own costs and, in addition, the costs of the defendant.
Payments in satisfaction were available prior to, and considered as part of, the major reform of civil procedure in April 1999. Lord Woolf in his interim report: Access to Justice recommended that the system of actual payments into court in satisfaction of a claim should be discontinued. The report recommended instead that a Calderbank letter [Endnote 1] should be used in all cases. However, in response to representations, including those from the Law Society, in his final report Lord Woolf decided to retain payments into court as a way of assuring claimants of the substance of an offer.
At present, the system for dealing with payments in satisfaction in the Royal Courts of Justice (RCJ) is different to the system in District Registries and county courts. For cases in the RCJ, payment is made directly to the CFO. In District Registry and county court cases, the money is paid to the court, which forwards it to the CFO if the offer is not accepted within 21 days (see process maps at Annex E).
After the 21 day period for acceptance has expired, the money lodged for payments in satisfaction is invested by the CFO (see below). The return on the payment, by way of interest, may be an important incentive for litigants to use the payments in satisfaction system. Without it there would be a cost to the defendant either in terms of interest foregone or in the use to which the money may otherwise have been put (the 'opportunity cost'). It is not clear how far a lack of some degree of return would reduce the incentive to make a payment in satisfaction.
All monies received by the CFO, including payments in satisfaction, are paid into a current account at the Bank of England. 'Payments out' from the CFO are made from this account. On a daily basis the CFO balances its payments and receipts to determine how much money it will have in its current account at the end of the day. If there is any surplus money it is transferred to the National Debt Office (NDO) of the Treasury for investment. (CFO is just one of the NDO's clients). If additional resources are required to meet outgoings, money is transferred into the current account by the NDO. By its nature the NDO is a non-profit making organisation. The NDO will expect to recover from the investment:
(such costs are calculated annually).
For RCJ payments interest is earned from the date of lodgement, although it does not accrue to litigants until after the 21day period for acceptance of the offer.
The CFO currently pays 5.25% compound interest on payments in satisfaction. The Lord Chancellor sets the rates in concurrence with the Treasury. In practice, CFO monitors the rates paid in liaison with NDO and will recommend a change if it is felt that returns from NDO and market forces warrant it.
At times money will be held by the CFO, including payments in satisfaction where a case has remained dormant for some time, despite the fact that all reasonable steps have been taken to trace the rightful beneficiary. Originally the period for which dormant funds would be held was 15 years. This was subsequently reduced to 5 years, which increased the number of claims against the UBF. It subsequently transpired that, in many cases, proceedings were still ongoing after 5 years and the money was only claimed when the case was settled. As a result, the CFO recently amended the dormancy period to 10 years. Where a claim is made from the UBF in accordance with 57(7) of the Court Funds Rules 1987, simple interest at the basic rate, prescribed at the date when the fund is closed, is paid for the period of time the sum has been in the UBF.
The extent to which payments in satisfaction contribute to effective resolution of disputes is not clear. Lord Woolf initially recommended that the system be discontinued, but was persuaded by users of its value. In the light of the QQR, it is appropriate to review the need for the system. The function is contained in Part 36 of the Civil Procedure Rules, which now allows claimants as well as defendants to make offers of settlements. Anecdotal evidence suggests that the rate of settlement has increased as a result of claimants making offers.
The absence of payments in satisfaction funds in court does not affect the core judicial function of determining liability and assessing quantum. Cases proceed regardless of whether a payment in satisfaction has been made and the availability of funds to settle any award is not a prerequisite. It is arguable, therefore, that the administration of payments in satisfaction is not central to effective judicial determination of disputes.
It is also questionable whether the acceptance of a payment in satisfaction equates with justice. Claimants might accept payments in court simply because the money is readily available, secure and accessible. It can also be argued that knowing the payment is in court allows the claimant to pursue a case, which he should perhaps settle, for longer because he knows that he is in effect a secured creditor. But the potential costs consequence, if the claimant fails to beat the money in court, goes against this argument.
Without the payment in satisfaction function some defendants would make spurious, unsupported offers. Payments in satisfaction encourage early settlement of disputes - where the sum offered is accepted by the claimant and the claim is compromised, it avoids the need for trial thus saving time and leading to a reduction in litigants' costs and public funding. About 60% of claims in the multi track settle/withdraw before the hearing day (mostly following acceptance of payments in satisfaction). The Court of Appeal in the case of Amber -v- Stacey (see paragraph 20) recently emphasised the importance of having a system for making offers and payments into court under Part 36 of the Civil Procedure Rules. The function is practical and effective. We, therefore, consider the function desirable.
| Views are invited on whether this function should be retained in any form. |
The Civil Procedure Rules allows for an offer to be made in writing without a payment into court being made. The court has discretion to allow a written offer to benefit from the costs provisions of Part 36, if the offer is rejected and not beaten at trial (i.e where the final judgment is for less than or equal to the amount of the offer). This system has the advantage of simplicity, but also has the hurdle of being dependent on the court's decision about whether such offer should be treated as a Part 36 payment into court under the rules. This may act as a deterrent to the use of written offers. (Written offers can be made under Part 36, without a payment into court, where there is no money claimed in any event. This will benefit from the costs provisions of Part 36, but for the purposes of this paper we are considering claims where money is involved and a payment into court is possible only.)
Written offers, however, do not offer the claimant the same security as a payment into court. It could result in unsupported and misleading offers being made, where there is no real prospect of the claimant being paid, which would require enforcement proceedings and involve additional costs. There are also psychological factors in favour of actually paying money into court. The case of Amber -v- Stacey [Endnote 2] underlines the significance of a payment into court. The Court of Appeal found 'there were compelling reasons of both principle and policy why those prepared to make genuine offers of monetary settlement should do so by way of payments under Civil Procedure Rules Part 36 rather than by way of written offers. Part 36 payments offer greater clarity and certainty about genuineness, ability to pay, whether the offer was open or without prejudice and terms on which the dispute could be settled'.
| Views are invited on the possible use of written offers instead of payments into court (see also paragraph 21 below). |
The Civil Procedure Rules could encompass the current payment into court system in tandem with a modified written offer system for claims involving money. The rules could be amended to allow written offers to be treated as Part 36 payments under the rules, which do not require the permission of the court for the costs provisions to apply. The written offers would then have automatic costs protection, as is the case in the current payment in satisfaction system. Litigants would have a choice - to make paper offers or pay money into court to reassure the claimant of the genuineness in the offer and ready availability of the funds. We recognise that for publicly funded litigants, who decline an offer of settlement, the liability to pay any costs awarded against them if the offer is not beaten at trial would fall to the Legal Services Commission. Contracted solicitors are, however, under a duty under the Funding Code to report to the Commission where the funded client has declined to accept an offer to settle and justify proceeding with the case.
For some cases a payment into court may continue to be appropriate. A large number of personal injury cases, especially those involving a NHS Trust as defendant, have the claimant, who may be a child or patient, acting by his or her Litigation Friend. In such cases, monies cannot be accepted in satisfaction without the consent of the Court, even if the case does not proceed to trial. Often, any monies awarded are then directed to be invested for the child or patient in the CFO, or transferred to the Court of Protection. If no monies were deposited with the CFO until settlement of the claim, there is likely to be a delay in investment with consequential loss of interest for the claimant whilst the defendant deals with the necessary paperwork etc. At present, because in a large number of cases monies are already lodged in Court, the claimant gets the benefit of special interest from the date of the order. It is also quicker to process any payments required following the order.
Anecdotal evidence suggests that these cases can go on for a number of years before settlement. This is not necessarily because of any 'heel dragging' by the defendants, but because, especially with birth injuries to children, it is not possible to fully assess the extent of the injury at an early stage in the child's life. With these cases, knowing that there is some money in Court, which can be accessed for interim payments for example, does give the Litigation Friend some reassurance.
| Views are invited on the use of a dual system of payments into court and written offers in claims involving money under the Civil Procedure Rules. |
The Court Service could continue to retain responsibility for payments in satisfaction in a streamlined CFO (as set out in paragraphs 25 to 30 below). The advantages include:
| Views are invited on whether the Court Service should retain responsibility for the payments in satisfaction system. |
As mentioned in paragraph 9 above, there are currently differing systems for handling payment in satisfaction lodgements at the RCJ and those made in county courts / District Registries. In considering alternative arrangements for payments in satisfaction it is essential to provide a process which will apply to both the High Court and county court. Having two systems can be confusing for litigants, costly to administer and inhibits improvements to service. We consider a single system should apply. The options are:
The county court and District Registry system
Existing county court procedures result in considerable duplication of effort in the county court and in the CFO. Monies received by the CFO from county courts have already been subject to receipting, banking, etc before transfer to the CFO. These processes are largely duplicated in the CFO. Interest on county court lodgements is earned only after 21 days when the monies are transferred to the CFO.
RCJ system
Defendants make payments in satisfaction direct to the CFO.
The way forward
CFO specialises in this work; direct payments to the CFO would offer prospects of improved service for county court litigants. It would be cost effective for the Department and would not entail the double handling identified in the county court system. Interest is earned from the date of lodgement, for the litigant interest only becomes payable after 21 days.
Direct payments to CFO would necessitate enlargement of CFO. However, streamlining may justify this. The benefits of direct payments to CFO include:
Any change needs to take into account the programme for Modernising the Civil Courts. It is at the forefront of the MCC programme that certain non-core duties performed by staff in courts should be done centrally, or by a third party. Payments in satisfaction account for about 19% of payments into county courts and require a significant administrative effort to process them. Changes under MCC will relieve court staff of this type of task, allowing them to concentrate on other work. There is likely to be a move to centralised money handling using electronic transfer of funds (although people who do not have access to electronic media would be able to pay by conventional means).
| It is proposed that a streamlined process for payments in satisfaction be adopted. Litigants or their representative would send payments, to support offers to settle claims, direct to the CFO. Courts (whether RCJ, District Registry or county court) would provide a simple envelope system to enable litigants to send payments direct to the CFO. Views are invited on making payments direct to the CFO. |
Direct payments could also incorporate Banking Automated Credit Services (BACS) transfer. The current rules allow the Accountant General a discretion to accept payments direct to the Bank of England only and the present CFO computer system - Funds Accounting System (FAS) was not designed to link to the BACS system. The issue of ongoing computer support and the development of a new system are currently being looked at by the Court Service.
The QQR recommended that payments into court in satisfaction of claims should be replaced by an alternative system, which must provide claimants with as much reassurance in the existence and availability of the payment on offer as the present arrangement does. Bankers' orders and Escrow accounts were suggested as possible alternatives.
There have been many changes in financial services over the last few years that have resulted in a wider range of investment opportunities becoming available. The QQR found that "there is considerable scope for changing practices in the payment of funds into court that are based on assumptions made in the dim and distant past".
Central to any decision about alternative financial arrangements for payments in satisfaction is whether alternative methods of lodgement or investment can provide equivalent security and ready availability of the funds on offer (and comparable interest rate), as the present arrangement does.
We considered not only the options contained in the QQR, but other options also. The options include:
Bankers' orders / guarantees
These are essentially bank drafts. They would be drawn by the defendant and retained either by the CFO or another institution that is used to handling securities. However, some litigants may be unable to obtain bank guarantees and there will be costs associated with the security of bankers' orders, its subsequent conversion, or the conversion of a guarantee. No interest is earned on bank drafts to offset these costs and there would also be 'opportunity costs'. Although the funds would be secure and released on the issue of a court order there is a risk that the bankers' orders / guarantee could be subject to loss or interference, regardless of where it was held. As no interest is earned, there would appear to be no financial benefit to the parties, nor would it be possible for the CFO to recoup running costs, if the orders were held by the CFO. We do not recommend the use of bankers' orders / guarantee. Moving to this system would not be financially viable for the parties and would be administratively burdensome and costly for the Department.
| Views are invited on whether Bankers' orders / guarantee would be a suitable alternative financial arrangement for payments in satisfaction. |
Escrow accounts
Escrow is where monies are held by a nominated bank / institution pending the performance of a specific act. The funds will only be released once one of the parties had taken an agreed step. Escrow may be used in the courts at present in family matters. They are unusual accounts, rare and appear to be more suitable for big companies and contractors as opposed to small volume, multiple transaction business. At present, it appears to be uncommon to have money held in escrow for multiple claimants.
The use of escrow has advantages for the parties, but this depends on how the escrow system would operate. The bank would not make payment without an order of the court. Interest would be earned and the funds would be secure. Escrow accounts may provide a similar degree of independence from the parties, as the CFO currently provide. If the escrow account is set up correctly, the defendant would not have access to the account and it would survive any possible bank liquidation, as it would be clear that the bank does not own the funds. There are two possible options: individual escrow for each matter or one escrow account handling all payments in satisfaction.
Individual escrow accounts
Currently, local branches of the major banks do not operate local escrow facilities - since they are so rare, they are dealt with centrally. Centralisation, while more efficient, might well restrict access. Financial institutions may be prepared to offer local facilities, but this is likely to increase the cost of the account (it is estimated that it would cost about £50 to set up an account). If local accounts were possible, the accounts could be with the defendant's bank. However, this could cause concern for claimants and to provide a greater feeling of security for the claimant, the account could be with another bank. The following disadvantages apply to individual escrow accounts:
One escrow account handling all payments in satisfaction
This would be a central account with systems in place to handle all payments in satisfaction, so litigants would have one point of contact and the same terms would apply for all payments. The account would be easier to monitor with potentially lower costs and higher interest rates. Defendants would not negotiate the basis for the account in every case.
The following disadvantages apply to all types of escrow arrangement for payment in satisfaction:
| Views are invited on whether escrow accounts would be suitable alternative financial arrangement for payments in satisfaction. |
Credit Cards
There are two potential methods; the use of credit cards within available credit limits to make a payment and the use of credit card impress (where a payment slip is completed, but not authorised for payment at that stage) to support or guarantee an offer to settle a claim. We consider that accepting payments by credit card could reduce delay where funds are immediately approved, available and transferred as opposed to credit card impress.
However, there appear to be significant disadvantages to the use of credit cards and credit card impress to support or guarantee an offer to settle a claim. These include:
| We do not recommend the use of credit cards or impress, but views are invited on whether credit cards or credit card impress should be used, to support or guarantee an offer to compromise a claim. |
The QQR recommended that: "the Lord Chancellor's Department make the necessary amendments to Court Funds Rules and Regulations to allow the requirement to make actual payment of in satisfaction offers into court to cease. Alternatives, which must of course provide claimants at least as much reassurance in the existence and ready availability of the payment on offer as the present arrangement does, can include payment into escrow accounts or bankers' order".
The Review considered that new arrangements must be consistent and offer quick settlement if the payment is accepted no matter where the claimant lives. The court could still order a cash payment into the Court Funds Office if it did not believe any alternative could be relied upon in a particular instance, but such situations should only occur rarely.
On 11 April 2000 the Lord Chancellor announced a programme of fundamental reform of the PTO, which will build upon the platform of the QQR and improve the services received by clients.
Key changes included transferring the Court Funds function of the PTO to the Court Service by April 2001. There was a commitment to wide consultation on the future of the current payment in satisfaction procedure, to establish whether there is scope to replace the current system with alternative financial arrangements. This could include the use of escrow accounts operated by other financial institutions.
There are to be clear lines of ministerial accountability for those functions remaining within the Lord Chancellor's Department. The Lord Chancellor is to establish and monitor clear standards of service provision both for those functions remaining within the Department and for those services provided in future by other parts of the public sector and in the voluntary and private sectors.
The court rules relating to payments in satisfaction are set out in Part 36 of the Civil Procedure Rules (CPR) and the practice direction supplementing that Part.
Key points include:
Payment into court may be made or increased at any time after service of the claim on the defendant on notice to the claimant and any co-defendant
A defendant who makes a payment in must file with the court a notice which:
A claimant may apply to the court for an order requiring the defendant to clarify the terms of a payment in
Except under the Libel Act 1843, or where tender is pleaded, the fact and the amount of payment in satisfaction must not be disclosed in the statements of case or communicated to the trial Judge or the Court of Appeal until after liability and damages have been tried
A payment in satisfaction made more than 21 days before the start of the trial may be accepted within 21 days after it was made without the permission of the court
A payment in satisfaction made less than 21 days before the start of the trial cannot be accepted without the permission of the court unless the parties agree what the costs consequences of acceptance will be
Payment into court may be made or increased after the trial or hearing of an action has begun
Acceptance of payment in satisfaction can be made only with the permission of the court in the case of children and patients or in the case of a payment in made under the Fatal Accidents Act 1976 or where tender is pleaded or where one or several defendants makes the payment in
The claimant may pay into court in satisfaction of a counterclaim in the same way as the defendant does in relation to the claim
In every case where there has been a payment in satisfaction, the costs are in the absolute discretion of the court
A payment in satisfaction may be withdrawn only with the permission of the court
Where a payment to a claimant following acceptance of a payment into court would be a compensation as defined in section 1 of the Social Security (Recovery of Benefits) Act 1997, the defendant would obtain from the Secretary of State a certificate of recoverable benefits and file the certificate with the payment notice. The claimant would normally receive the sum in court net of recoverable benefits.
Although most EU countries appear to operate civil codes with inquisitorial rules as opposed to the common law with adversarial rules in England and Wales, the survey findings of a study commissioned by Tokio Marine & Fire Insurance Co. Ltd. [Endnote 4], which compares civil procedures within EU member states, show that paying money into court in satisfaction of a claim is available in only five of the 13 jurisdictions surveyed: England and Wales, Denmark, France, Ireland and Italy. The amount of information available on the various schemes is limited.
Denmark - The settlement amount is usually paid to the claimant (if necessary without prejudice to the outcome of the trial) with a reservation to seek reimbursement for any amount overpaid. The court will take such payment into consideration when deciding the issue of costs.
France - There are two methods:
Traditionally, a defendant who admits that he is to some extent liable, but who is not sure of the quantum can deposit the money in a government financial institution. If the claimant wishes to accept the amount deposited this will be the end of the matter. If he does not, but the judgment is for the amount deposited or less, the defendant will not pay any costs (and may be awarded his costs).
More usually, an application would be made to the judge for the appointment of an independent person who will keep the money according to the judge's directions.
Ireland - A defendant may pay money into Court prior to the trial, but there is no procedure for such payment during trial. The defendant must make the lodgement when he enters his defence. In the High Court the defendant has the added option of making the lodgement up to a period of four months from the date of the service of notice of trial. The claimant may accept within 14 days of payment in. If the case goes to trial and the claimant is awarded less than the amount lodged in court, although the claimant's case succeeds, he must pay his own costs and the costs of the defendant from the date the money is paid into court up to the date of judgment.
Italy - The defendant may pay money into court any time after proceedings are served upon him. The claimant then has the choice of accepting the money and dismissing the claim or accepting the sum and continuing with the claim. In the first case the claimant is entitled to his legal costs; in the second he is entitled to his full legal costs only if the level of the final award is higher than the money paid into court by the defendant.
Greece - if the defendant admits liability he may deposit the amount admitted in a loans and deposit account.
Scotland - a party wanting to settle would submit a formal document stating the sum he wants to pay.
Belgium, Germany, Luxembourg, The Netherlands, Portugal and Spain have no payment into court system. The survey findings did not suggest the existence of other financial arrangements for payment in satisfaction in these countries.
As indicated in the main paper the procedures for handling payments in satisfaction in the High Court and county court are different. Note that in interpreting the information, the introduction of the Civil Procedure Rules in April 1999 resulted in a decline in the number of claims overall. There is, therefore, likely to have been a consequential reduction in the number of payments in satisfaction.
The number of payments in satisfaction received and accepted within 21 days
The following information covers the years 1998 to 1999. Not all of the information is solely related to payments in satisfaction. Nevertheless the information has indicative value. The financial accounting system for the Court Service does not provide separate data on the value of the payments in satisfaction.
| County Court Payments in Satisfaction | ||||
|---|---|---|---|---|
| Year | Payments received: in satisfaction, court order payments, minors' settlement | Payment accepted within 21 days | Payment transferred to CFO | Payments out following a decision |
| 1998 | 132,731 | 38,134 | 55,999 | 85,899 |
| 1999 | 124,323 | 45,752 | 67,333 | 82,904 |
Notes about the data:
Table 1 indicates that in 1998 around 28.7% of payments (majority of which were payments in satisfaction) were accepted prior to transfer to CFO. This proportion rose to 36.8% in 1999. Over the same years 42.2% and 54.2% of payments were transferred to CFO. Because the payment in and the payment out may be made in different years it is not possible to directly relate the two. However, the proportion of payments out expressed as a proportion of payments made in the same year remains broadly the same in the years at about 65%.
| Financial year | Number of payments (rounded to nearest 1000) | Value of money invested | Average Value of payments (Rounded to nearest £) |
| 1998/1999 | 67,000 | £835m | £12,452 |
| 1999/2000 | 39,000 | £612m | £15,775 |
Table 2 reveals that the value of the payments in satisfaction is significant. It also shows that payments declined between 1998/1999 and 1999/2000, by 42% [Endnote 5]. Although the number of payments and the value of those payments were lower in the second year it is notable that the average value of payment increased by almost 27%. However, some payments in satisfaction are very large and may distort the picture. A separate check was made of payments in satisfaction, which exceeded £500,000 (see below).
| Payments in Satisfaction investments over £500,000 | ||||
|---|---|---|---|---|
| Financial year | Number of payments (rounded to nearest 1000) | Value of money invested | Average Value of payments (Rounded to nearest £) | |
| 1998/1999 | 191,000 | £212m | £1,109,000 | |
| 1999/2000 | 184,000 | £171m | £931,000 | |
Table 3 indicates that in 1998/1999 0.3% of payments accounted for 25% of the value. The equivalent figures for 1999/2000 were 0.5% and 28% respectively. The relatively high number of relatively low value claims might have implications for administrative costs and returns on the payments.
| Accounts held | ||||
|---|---|---|---|---|
| Financial Year | Number of accounts (rounded to nearest 1000) | Value of money withdrawn | Average withdrawn | Number of withdrawals |
| 1998/1999 | 83,000 | £350m | £7,377 | 47,510 |
| 1999/2000 | 73,000 | £96m | £8,485 | 11,334 |
More than one payment in satisfaction may be made in respect of a claim (for which there may be more than one defendant) and there may be more than one claimant involved. Payments are held in accounts, where appropriate, an account holding several payments. In a similar way multiple payments out may be made either to one claimant or to multiple claimants. Whilst the computer system collects information about payments in and out it does not do so by the number of claimants or defendants.
Table 4 indicates that there are more accounts than lodgements, this is because some accounts will exist for a number of years. Conversely, some accounts are opened and closed within the same three-month period. The number of accounts opened in 1998/1999 and 1999/2000 have declined, but as indicated above this may be related to the reduction in the number of claims. The table indicates that significant sums of money are paid out each year. Note that payments out may be in respect of a payment made in an earlier year.
How long a payment is invested affects the amount of interest attracted and the overall amount of the CFO's income. At present information is limited about the duration for which accounts are normally open.
Conclusion
Payments in satisfaction cover a wide range of situations, from payments of relatively low value held for a relatively short period of time to some large payments held for a considerable time, but there will be cases where the situation is reversed. Overall the amount of money and the number of transactions involved are significant. Work is in hand to obtain this information.
| John Tanner | Lord Chancellor's Department (Civil Justice Division) (Chair) |
| Senior Master Turner | Judiciary |
| District Judge S Hasan | Judiciary |
| Anna Rowland | Law Society |
| William Mason | British Bankers Association |
| Paul Docker Pat Reed Ken Lewis-Allagoa |
Lord Chancellor's Department (Civil Justice Division) (Secretary) |
| Amanda Edwards | Court Service |
| Tricia MacDermott | Court Funds Office |
| Keith Fairweather | Court Service (Royal Courts of Justice) |
| Mike Holloway | Lord Chancellor's Department (Internal Assurance Division) |
| Janet Cholewick | Lord Chancellor's Department (Resources and Planning Division) |
| Alistair Cook | Court Service (Modernising the Civil Courts) |
The Treasury also received copies of the relevant documents.
Purpose
In any claim for debt or damages the defendant can offer to settle the claim. The defendant can support the offer by paying money into court for the claimant to accept or reject. The claimant has 21 days to accept the funds paid into court by the defendant. If the claimant does not accept the payment, the case will proceed in the usual way. But if the judgment sum (assuming the claimant wins) is equal or less than the amount rejected, the claimant will be responsible for his/her and the defendant's costs from the date he was notified of the sum paid into court by the defendant.
Offers supported by payments into court are made for early resolution of disputes, which save both claimant and defendant time and litigation costs.
Current System
The processes for payments in satisfaction in the High Court and county court [Endnote 6] are currently different. In the High Court payments are made directly to the Court Funds Office (CFO). In the county court defendants pay to the court and if it is not accepted within 21 days, it is transferred to the CFO. The proposals aim to provide a simple process, which would apply to both High Court and county court and set out various alternative arrangements for handling payments in satisfaction.
Risk assessment
Having different systems in the High Court and county court, for paying money into court to support offers of settlement, leads to confusion for litigants; is costly to administer; and inhibits improvements to the service provided for litigants and other court users. County courts receive and hold payments for county court cases before they are transferred to the Court Funds Office (CFO). Mistakes do occur in the processing of payments in the county court. In contrast High Court payments are made direct to the CFO. The proposals will allow county court litigants to send money direct to the CFO.
In the Quinquennial Review of the Public Trust Office (QQR) questions were raised about the rationale for the CFO to administer payments to support offers of settlement. Without an examination of the need for payments in satisfaction, and the alternative arrangements which may be possible through modern financial services and business practices, the Department would be open to criticism, as such payments might be unnecessary or better administered in the private sector.
However, payments in satisfaction are made voluntarily and the recommendations in the consultation paper would not translate to regulations, with which litigants (including businesses etc) must comply. Defendants have absolute discretion and choice whether or not to make an offer of settlement.
Options
We considered options for streamlining the existing system (which could be a short, medium or long-term option) and changing to an alternative arrangement. The sequence for the options below does not follow the sequence in the consultation paper - Access to Justice: Payments into court in satisfaction of claims.
The options for alternative arrangements were:
Apart from option 6 below, alternative arrangements would provide labour saving for the county courts and CFO. But it is difficult to quantify this benefit. It depends on the number and grade of staff employed to process payments in satisfaction, and the daily number of hours engaged with this task. We estimate that 4 staff work on payments in satisfaction in the county court and they spend 35% of their time on payments in satisfaction. For the CFO we estimate that about 40% of Administrative Officer equivalent grade (of a total of 49.5), 43% of Executive Officer equivalent grade (of a total of 23), one Higher Executive Officer equivalent grade and 0.6% of one Senior Executive Officer equivalent grade, work on payments in satisfaction.
Option 1
Abolish payments in satisfaction
| BENEFITS | COSTS |
|---|---|
|
|
Option 2
The use of written offer (Calderbank letter [Endnote 7] type offer) - if defendants make written offers without paying money into court to support the offers, the costs and benefits would be as follows:
| BENEFITS | COSTS |
|---|---|
|
|
Option 3
The use of a payments into court system together with a written offer system. It is difficult to quantify the benefits and costs of this proposed scheme as the number of litigants that would make paper offers and those that would continue to pay money into court under the proposed regime is unclear. The potential total private legal costs is also unclear. However, the costs and benefits would be as follows:
| BENEFITS | COSTS |
|---|---|
|
|
Option 4
The use of Bankers' orders / guarantees.
We do not recommend this option, as funds would not earn interest and there are additional costs to litigants.
Option 5
The use of Escrow accounts [Endnote 8]
If the Escrow account option is adopted the benefits and costs would be as follows:
| BENEFITS | COSTS |
|---|---|
|
|
Option 6
The use of credit card impress - this would not involve lodgement of funds in court, but a payment slip is completed (but not authorised for payment at that stage) to support or guarantee an offer to settle.
We do not recommend this option, as the risk of fraud and default creates additional costs and uncertainty in using this method.
Option 7
Court Service to retain responsibility for payments in satisfaction
| BENEFITS | COSTS |
|---|---|
|
|
A system of payments in satisfaction seems to offer litigants significant benefits in providing a means by which defendants can make a guaranteed offer and thus either achieve an early settlement or create a disincentive for litigants to bring or prolong vexatious claims. Under a streamlined system the costs of administration would be reduced. Defendants also receive a higher level of interest when funds are deposited with the CFO than would be available if the funds were lodged with a private financial institution.
Options for streamlining the current dual process were:
Option 1
Do nothing and retain the current dual system (the costs and benefits of this are dealt with below under alternative arrangements for handling payments in satisfaction - Court Service to retain responsibility for payments in satisfaction).
Option 2
All payments in satisfaction to be handled in the local court before transfer to the CFO. We do not recommend this option, as it would entail double handling.
Option 3
All payments in satisfaction to be sent directly to the CFO.
We recommended option 3 - if all payments went directly to the CFO the costs and benefits would be as follows:
| BENEFITS | COSTS |
|---|---|
|
|
The potential scale of financial benefit from streamlining under option 3 as recommended would be:
| Total staff cost for
processing in the county court - Payment in satisfaction receipts Payments not accepted and thus transferred to the CFO Payments accepted before transfer to CFO | £ 367,057 486,211 81, 337 934,605 [Endnote 9] |
Compliance costs for businesses, charities and voluntary organisations
The recommendations in the consultation paper would enable businesses and other organisations as claimants or defendants, to achieve quick and cost effective resolution of disputes, mainly without litigation. As there would be no regulations with which litigants must comply, there will be no additional burden to legitimate business.
Consultation with small business - The litmus test:
The Small Business Service (SBS) was invited to comment on both the likely benefits and costs, although we do not expect the recommendations in the consultation paper - Access to Justice: Payments into court in satisfaction of claims to impact disproportionately on small firms. The views of the SBS have been taken into account.
Identify any other costs
None
Consultation
The recommendations have been informed by views of the working group on payments in satisfaction. Other interested parties including businesses and consumer groups are invited to comment on the recommendations. Responses will be carefully considered and would better inform the regulatory impact.
Summary and recommendation
The function of payments in satisfaction is desirable - it is an effective mechanism for early settlement of disputes, thereby reducing costs to litigants. The procedure is voluntary yet used in majority of cases. This would suggest that litigants are satisfied with the benefits. The consultation paper recommended that all payments in satisfaction should be sent directly to the CFO, this would streamline the process and provide a better service for users. The advantages and disadvantages of alternative arrangements for handling payments in satisfactions were also set out in the paper. The paper did not recommend: the abolition of payments in satisfaction; the use of written offers (Calderbank letters) in place of payments into court; the use of bankers' orders/guarantees; and the use of credit card impress. However, responses to consultation would suggest the best alternative.
Contact point:
If you have any queries or comments about this partial Regulatory Impact Assessment which would inform the final Regulatory Impact Assessment please send them to:
Ken Lewis-Allagoa
Lord Chancellor's Department
Civil Justice Division
3rd floor
Selborne House
54-60 Victoria Street
London SW1E 6QW
e-mail: Ken Lewisallagoa
The criteria in the Code of Practice on Written Consultation issued by the Cabinet Office is as follows:
Timing of consultation should be built into the planning process for a policy or service from the start, so that it has the best prospect of improving the proposals concerned, and so that sufficient time is left for it at each stage.
It should be clear who is being consulted, about what questions, in what timescale and for what purpose.
A consultation document should be as simple and concise as possible. It should include a summary, in two pages at most, of the main questions it seeks views on. It should make it as easy as possible for readers to respond, make contact or complain.
Documents should be made widely available, with the fullest use of electronic means (though not to the exclusion of others), and effectively drawn to the attention of all interested groups and individuals.
Sufficient time should be allowed for considered responses from all groups with an interest. Twelve weeks should be the standard minimum period for a consultation.
Responses should be carefully and open-mindedly analysed, and the results made widely available, with an account of the views expressed, and reasons for decisions finally taken.
Departments should monitor and evaluate consultations, designating a consultation co-ordinator who will ensure the lessons are disseminated.
If you have any complaints or comments about the consultation process, you should contact the Lord Chancellor's Department's consultation co-ordinator, Bruce Eadie, on 020-7210 1344 or e-mail him at Bruce Eadie.
Alternatively, you may wish to write to him at the address below:
A letter sent by one party to a civil case, in which a remedy other than debt or damages is claimed, to another offering to compromise the claim on terms specified in the letter. The letter is sent on the basis that its contents cannot be referred to at trial except on the question of costs.
CA (2000) 150 NLJ 1755
See Modernising the Civil Courts. A Consultation paper (January 2001) issued by the Lord Chancellor's Department
Civil Procedures in EC Countries - An Industry Report (Prepared by David McIntosh and Marjorie Holmes of Davies Arnold Cooper) Lloyd's of London Press Ltd. 1991
The decline may be attributed to the fact that CFO ceased to get direct lodgements for District Registry cases.
The process in the county court is the same as that for District Registries, so all references to county court process would include District Registries.
A letter sent by one party to a civil case, in which a remedy other than debt or damages is claimed, to another offering to compromise the claim on terms specified in the letter. The letter is sent on the basis that its contents cannot be referred to at trial except on the question of costs.
Where monies are held by a nominated bank pending the performance of a specified act e.g. acceptance of an offer of settlement.
Data from Court Service Resources and Planning Division - This saving would be transferred to litigants. The overall saving could be higher, as the figure does not include the cost of accommodation, stationery etc
