I had to take legal action to get a client to pay. The dispute went to court. after a year of protracted legal wranglings in which the other side may no effort at all to settle.
My lawyer advised me that even if you win the court won't award 100% of your costs (typically a 1/3rd deduction). And I'm told this is to stop lawyers inflating their fees, so the principle seems sound.
In my case I won the full £7k I was claiming (ie too large for small claims court), but the legal fees of both sides were circa £12k. However as expected the court refused to award 100% of the costs, and instead only 2/3rds hence I had to pay £4k of my costs, hence my net "win" was £3k of the £7k claimed even though the court found 100% in my favour.
I've spoken to other lawyers since and this is standard practice. Why allow courts to penalise the winning side? Surely if the deduction is sto stop lawyers overcharging then make the lawyers refund the 1/3rd of their fees to their winning client.
Why is this idea important?
SME's have no incentive to recover their unpaid invoices when a client won't pay if the amount is over £5k (the small claims court limit) unless the sum is so substantial that the deduction of costs makes the remaining sum worthwhile.
e.g. if I had been claiming £100k then the legal fees would have been the same and I would have received a net £96k
This "tax" just lines the pockets of the lawyers who know that they will get their full costs whatever the outcome, it's jsut how much is paid by the winner and how much by the loser.