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Court Fees: Charging the User as a Way to Mitigate Judicial Congestion

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The Latin American and Iberian Journal of Law and Economics
Volume 1 | Issue 1 Article 7

2015

Court Fees: Charging the User as a Way to Mitigate

Judicial Congestion
Rafael Mery Nieto

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Mery Nieto, Rafael (2015) "Court Fees: Charging the User as a Way to Mitigate Judicial Congestion," The Latin American and Iberian
Journal of Law and Economics: Vol. 1: Iss. 1, Article 7.
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Court Fees: Charging the User as a Way to Mitigate Judicial
Congestion

Rafael Mery Nieto∗

Abstract: This paper studies the use of court fees on judicial litigation, which
aims both to regulate access to courts and reduce the congestion of the judicial
system, and cover part of the direct costs of the system. Moreover, it provides
resources to finance the administration of justice, and enables equitable access to
the court.
Assuming that the demand for legal services is not different of the demand for any
other good or service, the paper show a simple model to explain why and under
what conditions it is efficient to charge a court fee.

Keywords: Court fees, litigation, efficiency, court congestion.

I. INTRODUCTION

The judicial system is a very costly social institution, whose funds come almost
entirely from public resources. The idea that judicial systems should be financed
with public funds is justified because there is a belief that justice should be free
and should guarantee the “right of access" to courts of all citizens. This fact and
the existing environmental incentives could induce people to litigate on courts to
suboptimal levels.
As shown in the comparative experience (Dakolias, 1999), the existing
environmental incentives can induce people to litigate in courts, rejecting other
substitute goods that could be socially preferable. This is especially true in civil
litigation, so court fees analysis is more relevant in civil and commercial
litigation. Therefore, our analysis focuses on this type of litigation.
The excessive litigation or court uses on suboptimal levels is a
consequence of a difference between private and social incentives to use the legal
systems (Shavell, 1997). This difference is attributable, according to Shavell
(1997), to two externalities.
First, a negative externality occurs when an individual decides to bring a
suit using the judicial system and does not take into account the legal costs he

∗
Address correspondence to this author at the Universidad Diego Portales, School of Law, Av.
República 105, Santiago, Chile. E-mail: [email protected]
110 THE LATIN AMERICAN AND IBERIAN JOURNAL OF LAW AND ECONOMICS [Vol. 1: 1

induces others to incur into. Indeed, when the plaintiff makes a decision to bring a
suit he does not take into account -when assessing the choice of litigating to
judgment or settling privately- the costs to be incurred by the defendant and the
administration costs of justice.
Second, a positive externality because the decision about the bringing of
suits, generates social benefits that the litigant does not take into account, for
example, the associated effects of deterrence that makes the system more
predictable and allows a more informed decision about going or not to courts.
Then, the main divergence between private and social incentives to use the
judicial system is the difference between private and social costs and benefits
associated with the use of the judicial system.
This is due, among other causes, to free cost litigation. Indeed, this
practice generates levels of litigation that are not optimal from social welfare
criteria, since the social costs are higher than the social benefits generated by
litigation. In other words, a free cost judicial system encourages levels of
litigation socially inappropriate, because people do not take into consideration all
the costs involved in a litigation process when deciding to bring suit. When costs
are underestimated, because they only consider private costs, the result is that
people litigate more. Private incentives to sue are misaligned with what is socially
optimal (Cabrillo & Fitzpatrick, 2008).
Excessive litigation increases congestion and delay in the resolution of
conflicts. Thus, the larger number of cases that enter the courts, the greater the
delay in the care of new claims and the proportion of cases solved decreases over
time. Congestion and delay is -in economic terms, the cost of litigation- making it
more expensive and excluding the poorest sectors of society who end up
subsidizing with their exclusion wealthier litigants who can afford the costs of
delays.
The duration of trials affect the individual’s decision to litigate. Indeed,
individuals decide to litigate if the expected benefits of litigation exceed the
expected costs. The law and economics literature identifies the duration of trials
as one of the factors affecting the individual decision to litigate. The duration is a
result of congestion. In congested courts, like congested roads, the trials take
longer to reach the end. Delay in a dispute reduces the present value of the
potential judgment for a plaintiff thus decreasing the likelihood of litigation
(Priest, 1989). Court delay also affects primary behavior. The longer the trials the
greater the incentives to breach contracts, as court delay gives the breaching party
the chance to postpone payments. Consequently, the number of potential cases
will be larger1 (Miller, 1989).

1
Other variable that affecting the longer the trials and can increase or decrease the likelihood
of litigation is the judicial interest rate. Acciarri & Garoupa (2013) show that the asymmetric
opportunity costs for each party in a case, judicial interest rates may lead to improper delay of
2015] COURT FEES 111

Excessive litigation or excessive demand for judicial service, and

congestion, results in a lower quality of judicial decisions. The probability of
judicial errors is higher because over time damages the quality of the evidence.
To correct this situation, there are different mechanisms that can affect the
demand or supply for judicial services.
Supply policies have focused on increasing the number of judges or
improving management of courts. These measures are costly for the public sector
and can increase the incentives for litigation: a more efficient judicial system is
more attractive to potential litigants.
Demand policies, meanwhile, seek to affect, directly or indirectly, the
decision to use the judicial system. The most relevant demand policies are:
promotion of Alternative Dispute Resolution, Mediation or Arbitration, minimum
amounts of claimed liability in order to be able to litigate, “split-award” statutes
(wherein the State takes a share of a punitive damages award), regulation of
lawyer’s fees, or court fees.
This article examines the relevance of court fees, like an efficient
mechanism to affect indirectly the demand through variations in the price of the
access to justice (and their impact in congestion levels), because it achieves the
internalization by the litigant of all costs and benefits of litigation, and provides
resources to the administration of justice.
This work is organized as follows. Section 2 describes the court fees, their
objectives and critics. Section 3 discusses the economic justification for court
fees. Finally, Section 4 concludes.

II. COURT FEES

The first news about court fees can be found in the 13th century in England with
the enactment of the Statute of Gloucester during the reign of Kind Edward I in
England. This Statute came to introduce a system of tariffs for use of courts. The
reason for that was the need to raise funds for courts and discourage litigation
(National Center for States Courts, 1975).
Trough time, we can find different systems of court fees in many
countries. Indeed, today most American and European countries have systems of
court fees, and the same applies to some countries in Asia and Africa.
Design and system characteristics of court fees are specific to each
country. Comparative experience shows that the design of the optimal rate
requires a wealth of information for each particular case, which implies there is no
simple and universal "magic formula" to get the internalization of social benefits,

proceedings or the decoupling of damages from recovery. These potential results -according to
Acciarri & Garoupa- influence the number of settlements and suits.
112 THE LATIN AMERICAN AND IBERIAN JOURNAL OF LAW AND ECONOMICS [Vol. 1: 1

and the appropriate corrective policy depends on the social value of each case,
which is inherently complex (Esteller-Moré, 2002).
However, for these purposes, we understand that court fees are a monetary
charge to which litigants are obligated for provision of judicial services, in order
to contribute to cover the costs of the administration of justice.
As an example, in the U.S., the Superior Court of California for
complaints or other first papers in unlimited civil cases (amounts over US$
25,000) charges a court fee of US$ 435; US$ 370 for civil cases with amounts
over US$ 10,000 up to US$ 25,000; and US$ 225 for cases with amounts up to $
10,0002.Meanwhile, in Spain, the Law of Court Fees, approved on May 22 2012,
established a court fee as the sum of a fixed fee plus a variable fee which will
takes into account the total amount claimed in the proceedings. The fixed fee will
be € 300 for ordinary civil proceedings, € 800 when filing an appeal and € 1,200
for the cassation appeal. Meanwhile, the variable fee will be 0.5 per cent of the
total claim for claims ranging from € 0 to € 1,000,000, and 0.25 per cent for
claims € 1,000,000 onwards, with a ceiling of € 10,0003.

II.1. Court Fees Objectives

Both literature and comparative experience show that the objectives of court fees
have been mainly two: First, to regulate access to justice, creating the correct
incentives to achieve optimal levels of litigation, and to encourage or discourage
the use of alternative dispute resolution. And second, to provide resources for the
administration of justice. However, we can add a third objective or reason for
incorporating court fees: fairness and social redistribution of costs of justice.

II.1.1. Generate optimal levels of litigation

The establishment of court fees seeks to regulate access to justice, get the
internalization by the litigant of all costs and benefits of their decision to bring
suit using the judicial system. A court fee is the price for the service. Thus, court
fees make more expensive the access to justice by establishing an explicit price on
the demand for justice. In this way, the number of cases should decrease, and
avoid the excessive use of courts.
This implies the assumption that the demand for legal services is not
different (in essence) of the demand for any other good or service, and is
subjected to the law of demand, as the price of a good or service increases, ceteris
paribus, consumer demand for the good or service will decrease, and vice versa.

2
Superior Court of California, Statewide Civil Fee Schedule, January 1 2014.
3
Law 10/2012, November 2012, modified for Law 3/2013, February 2013.
2015] COURT FEES 113

Then, only the suits where court intervention is justified will enter the
judicial system, and the frivolous suits will be left out.
In the words of Santos Pastor and Carmen Vargas (Pastor, S. & Vargas,
2001, pp. 45-46), the court fees are justified because:
"The general principle that operates in our societies implies that, if
the enjoyment of a benefit by a user means a cost, the user must pay a price
to offset that cost; that is socially appropriate, discourages excessive
consumption and prevents the injustice that others should pay for it"
For Santos Pastor, the court fees play an administrator role, as a price does
when managing scarce resources in a society.
In this sense, Alejandro Esteller-Moré (2002, p.527), says:
"The rate must discourage those trials unlikely to be favorable for
the litigant, in exchange for others to suffer a shorter delay or for the whole
of society to subsidize, through taxes, the access to justice for cases whose
social benefits are lower than their social costs, or for which there are
cheaper extrajudicial processes"
A court fees system is a potential deterrent mechanism that causes a
reduction of litigation by increasing the costs to the litigant, and so reducing court
congestion. Court fees are necessary to deter frivolous litigation or to channel
different types of cases to appropriate courts or other non-judicial dispute
resolution forms, such as counseling, mediation, or arbitration.
2.1.2. Provide funding for the administration of justice
A second objective of introducing court fees is to provide resources to
finance the administration of justice.
Court fees can help to increase the budget of the administration of justice,
without diverting funds from other items in state budgets or raise taxes on
citizens.
Given that courts are a limited and expensive public resource to operate, it
is appropriate to seek recovery from users of some of the costs of their operation.
Almost every country levies some charge for the use of its courts. Table 1, in
APPENDIX A, shows the percentages of contribution of court fees to judicial
budget for some European countries in 2008 or 2010, based on information
published by the European Commission for the Efficiency of Justice, and show
that the average of all countries of the Council of Europe is at 28.3%, and the
median at 27.9%.

II.1.3. Equitable access to the courts

A system of administration of justice funded from public resources, without

discrimination of any kind, is benefiting the legal defense of big users (firms,
114 THE LATIN AMERICAN AND IBERIAN JOURNAL OF LAW AND ECONOMICS [Vol. 1: 1

banks and financial institutions), that go to courts with thousands of cases every
year, mainly for the payment of their debts.
Gratuitousness of justice can be seen like a benefit to rich users. Public
spending on justice would be an unfocused and/or regressive expenditure, because
it finances the richest sectors of society with public resources. The
underprivileged users are left out of the courts. They can't pay and the excessive
use of court produces congestion and delay, putting them at the end of the line.
Enabling equitable access to the court is a key consideration in structuring
court fees. Under principles of equity, the judicial system should be fair and
accessible for all, including those facing financial and other disadvantages. For a
well-functioning judicial system, access to the courts should not be dependent on
capacity to pay and vulnerable litigants should not be disadvantaged4.
Therefore, a system of court fees should consider matters that, for reasons
of fairness, should not pay fees. This occurs, for example, in cases of
constitutional protection, family law or criminal trials.

II.2. Court Fees Problems and Critics

Court fees have problems.
First, there are problems in the design of the optimal rate for the difficulty
in assessing or estimating the social costs and benefits of litigation. The estimate
of the social benefits requires lots of information about each case. The main
problem is to estimate the "deterrent effect" that a suit produces. Each case is
different, and different cases consume different amounts of the court system’s
resources.
Second, there are problems of social acceptance. However, the court fee
has an effect of discouraging frivolous lawsuits, reducing congestion and making
faster the administration of justice. In addition, court fees can achieve a more
equal distribution of income. This, because the higher the income, the lower risk
aversion is, and -ceteris paribus- more likely to access justice, and therefore,
resorting to justice is positively correlated with income.
Finally, it is often said that court fees result in a price structure which acts
as a barrier for entry to potential litigants who cannot afford it, making it
incompatible with the guarantee of “right of access" to the courts. The idea is that
the provision of judicial services is not on a cost-recovery basis. It is a
fundamental element of maintenance of the rule of law in a civil society that
citizens have fair and reasonable access to the courts.
Therefore, from a constitutional perspective, incorporating court fees
requires to answer the question about the compatibility of this measure with

4
The court fee system is not incompatible with legal aid provided by public funds for those
that cannot afford the necessary legal advice and representation in litigation proceedings, besides
court fee's exemption.
2015] COURT FEES 115

certain fundamental rights such as the "effective judicial protection" and equality
before the law. In other words, the main question is: are court fees a limitation or
restriction on the guarantee of right to effective judicial protection?
The "right of access" to free justice, internationally recognized, is not an
absolute and unlimited right. It´s a state obligation and a legal right, whose
content and specific exercise is conditioned and therefore, delimited by
legislature, taking into account public and private interests involved, and budget
availability.

III. ECONOMIC JUSTIFICATION FOR COURT FEES

According to economists, the user charge on judicial litigation (court fees), is

justified for the existence of negative externalities that each user (litigant)
generates to society. This is generated by the existence of incomplete markets,
where the private benefits of litigation differ from social benefits. The charge has
to match both benefits (private and social) and reach a social optimal equilibrium.

III.1. Incomplete Markets, Not Exclusion and the Tragedy of the Commons

A market system is considered to work as a set of competitive markets that

generate an efficient allocation of resources. This efficiency is defined as Pareto
optimality, which implies that it is impossible to allocate resources without
hurting someone. However, by empirically studying the markets it is possible to
verify that on many occasions this does not happen. If so it is said that the market
fails. Economic theory has identified three sources of market failures: market
power, information asymmetries and incomplete markets.
In the latter case the problem arises because it is not possible to establish
property rights. As a result, activities that generate positive externalities for
society will be provided in a less than socially optimal amount, and those that
generate negative externalities will occur in more than the socially optimal
quantity. This is because in the first case, those that produce positive externalities
cannot enjoy all of its benefits, while those producing negative ones do not
internalize costs.
Some markets fail due to the nature of the goods being exchanged. The
problem is when it is impossible (or very expensive) to exclude any individual
from consuming the good.
Hardin (1968) identified that problem and introduces the notion of the
“Tragedy of the Commons”. The idea is that when there are common resources,
for which there is no private owner; the incentive among rational users of that
resource is to exploit it to its fullest potential in order to maximize their own self
gain before the resource is depleted. A similar tragedy of the commons is
116 THE LATIN AMERICAN AND IBERIAN JOURNAL OF LAW AND ECONOMICS [Vol. 1: 1

inevitable whenever self-interested individuals have free and unlimited use of a

finite commonly held resource.
In technical terms, it is said that when the social marginal benefit diverges
from marginal private benefit, private agents have no incentive to internalize the
marginal social cost.
Access to the courts can be framed within this type of problem. This is a
service guaranteed to every member of society, so in principle, exclusion is not
possible, but as more people come to these, the smaller the possibility of access
for the rest of the citizens. Consequently, over-consumption, or excessive
litigation, would clearly be a problem in incomplete markets, specifically, it
would be a problem of the so-called "tragedy of the commons", where the agents
do not consider the costs they cause to society, either through the administrative
costs generated by the judicial system or congestion costs imposed by each new
process to resolve the remaining lawsuits.

III.2. Justice, Efficiency, and Court Fees

Alejandro Esteller-Moré (2002) develops a simple model to explain why and

under what conditions it is efficient to charge a court fee. The argument is that
when private litigation costs are less than the social costs, there will be an
inefficiently high level of litigation. The opposite can happen if the private costs
outweigh the social costs. Therefore, the court fee can be positive or negative, i.e.,
it may be a bill to lower the levels of litigation, or it may be a subsidy, in order to
increase it, if they are inefficiently low from the social perspective. Whatever the
case, the court fee has always the same goal: to reconcile the social and private
incentives to litigate.
To illustrate this argument, consider next model, where a risk-neutral
litigant and without congestion costs, decides to bring suit if and only if:

      
 1 

    
     
[1]

where
is the probability of winning the case;  is the litigant income;  is the
recovery on the claim;  is the litigation costs;  1 is the congestion costs
(higher congestion cost, lower recover on the claim); and, 
is the risk
aversion. The expression (1) establishes the private condition for litigation. The
left side is the expected value of litigation, and the right side is the value not to
litigate. This, if the expected value of litigation is greater than not, will be held.
The social condition will be given by:

    
 1 

  
       
 ∆
    
[2]
2015] COURT FEES 117

where  and  are the opportunity cost of litigation for the plaintiff and
defendant; ∆
is the economic assessment of the overall effects of increased
congestion in the judicial system;  is the marginal cost of the new suit; and  is
the social benefits of the precedent effect.
If we cleared the probabilities values from expressions (1) and (2), we
obtain the limits from which it is profitable -privately and socially- to initiate a
suit, like equations (3) and (4):

 

′  
[3]

    
 ∆
   [4]

′′ 


There will be an excessive litigation if
′′ 
′ . To solve this inefficiency a tax can
be charged on the suit, which is derived from expressions (3) and (4).

    
 ∆
      
  [5]

where is the court fee. Solving equation (5), the value to be charged as court fee
is:
      
 ∆
      
[6]

Although this is the ultimate goal of a court fee, it also has desirable side effects,
like the decrease in incentives to initiate frivolous lawsuits.
We understand by frivolous lawsuits those who have a very low
probability of winning. This occurs when the expected benefits are much higher
than the legal costs, and it is convenient to risk. So then, court fees would reduce
the level of litigation, as can be seen in the next graph:
118 THE LATIN AMERICAN AND IBERIAN JOURNAL OF LAW AND ECONOMICS [Vol. 1: 1

The graph shows that with court fee () only cases that have a higher probability
of a win go to court. In other words, the court fee will discourage frivolous
lawsuits, unfounded, and with low probability of success, that in the absence of
court fees initially would go to courts.
In short, the court fee has the effect on litigation of discouraging frivolous
litigation; it must incorporate the marginal cost of the judicial service, and
negative externality valuation caused by the trial. Also, the court fee must
incorporate the social benefits (), excluding the costs incurred by the plaintiff
( ).
However the difficulties of assessing the social benefits, a good
approximation is the monetary amount claimed (). Thus, the court fee will be a
function of  and other variables such as trial characteristics, plaintiff
characteristics (firm or person), etc.

IV. CONCLUSIONS

In a judicial system without court fees, the litigants only cover their private costs
and the State finances the system's costs. That generates excessive litigation,
increased congestion and delay in conflict resolution. The charges of court fees
permit the internalization of litigation costs, and serves as a barrier to entry into
litigation. This is achieved by approximating the social costs to the private costs.
In general, there are good reasons for using court fees: First, to achieve
internalization by the litigant of all costs and benefits that their decision causes on
2015] COURT FEES 119

society. Secondly, it regulates access to justice and helps avoid excessive

litigation. Thirdly, it provides monetary resources for the administration of justice.
In fourth place, it provides incentives for the use of substitutes, like Alternative
Dispute Resolution, Mediation or Arbitration. Last, in fifth place, when the rate is
determined as a percentage of the claim, the litigants’ claims are more truthful and
the judge's decision is easier.
However, it is not only on the grounds of efficiency that court fees should
be preferred. It is also possible to find equity reasons for this. Indeed, it has been
shown that the main effect of free access to justice is that the underprivileged are
excluded from this service. Gratuity generates an unintended effect: exclusion.
This is a result of understanding justice as a public good and so the marginal cost
of providing an additional consumer is not zero. Instead, a new user prevents
others from using it and demanding justice.
So, when thinking about making more efficient the judicial system, we
must look not only at the supply of judicial services (better process rules, more
judges, advances in management of courts, etc.). We must face the problem of the
demand for justice. The main incentives for people to use the courts and not other
mechanisms of dispute resolution must be identified. Just from this, it's possible to
design a set of public policies that lead litigation (and congestion) to socially
optimal levels.
Any judicial system must provide the right incentives for all those
demanding justice and that require effective protection of their rights. It should
also discourage frivolous litigation, whose aim is not justice, but a different
objective whose satisfaction must not be resolved in the judicial system.
Therefore, court fees are a good public policy. However, this must be done
without forgetting other relevant issues about incentives to use the judicial
system. For example, the rule for allocation of legal fees, the method of
compensating lawyers, and the promotion of Alternative Dispute Resolution.

CONFLICT OF INTEREST

The author confirms that this article content has no conflict of interest.

ACKNOWLEDGEMENT

The author wish to acknowledge the editor and the anonymous reviewers for their
detailed and helpful comments.
120 THE LATIN AMERICAN AND IBERIAN JOURNAL OF LAW AND ECONOMICS [Vol. 1: 1

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 2015] COURT FEES 121

APPENDIX A

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