More civil litigation funding options for Scotland

Out-Law Analysis | 04 Jul 2018 | 10:20 am | 3 min. read

ANALYSIS: New laws introducing increased funding options for civil claims in the Scottish courts, as well as allowing solicitors in Scotland to enter into damages-based agreements (DBAs) and speculative fee agreements (SFAs), have now been finalised.

The Civil Litigation (Expenses and Group Proceedings) (Scotland) Act ('the Act') implements some of the recommendations of a review by former sheriff principal James Taylor, published in September 2013. The provisions in the Act will be implemented on a phased basis, with the detail to be confirmed in future secondary legislation. Subject to this detail, the Act offers the prospect of Scotland going from having little specific provision for litigation funding for commercial disputes to a situation where there is greater clarity, but also more flexibility of terms for litigation funding than there is in England and Wales.

The policy considerations behind the Act include a welcome focus on Scotland as an attractive place to do business, but care will be required to ensure that the flexibility and adaptability of the procedural rules of the Scottish court system is not compromised by adding rigid layers of costs rules.

There will also be concerns in some sectors of the potential consequences of some of the measures introduced: for example, insurers will want to be satisfied that the proposal to allow qualified one way cost shifting is properly thought through. On QOCS, the issue, as always, is to balance a topical focus on access to justice with not tilting the playing field too much without adequate safeguards. DBAs are in many ways the most controversial as opponents argue they make the lawyer a litigant and remove his or her objectivity.

Damages-based agreements: the Scottish approach

The Act allows the Scottish government to introduce DBAs and SFAs by way of secondary legislation.

Under a DBA, the lawyer's fee is calculated as a percentage of damages if the case is won. No fee, or a lower fee, is payable if the case is lost. Under an SFA, clients  may still be liable for the expenses of their opponents if the case is lost.

Success fees in personal injury cases must be 'no win, no fee', but commercial cases could be agreed on a 'no win, lower fee' basis. Family cases are excluded from the new regime. The maximum success fee will be capped in the regulations, although Sheriff Principal Taylor suggested that success fees be capped at 50% of the sum recovered in commercial actions.

Where damages are awarded for future losses, the Act provides that success fees should be calculated including the award of future damages if the future element is less than £1 million. If the future element exceeds £1m and is to be made by way of periodical payments, this will be excluded. If the payment for future losses exceeds £1m and is to be made by way of lump sum, the court must state that it is satisfied that a lump sum award is in the recipient's best interests. If the parties agree damages for future loss, an independent actuary must certify that a lump sum payment is more appropriate.

The Act also provides for 'concurrent' retainers, enabling solicitors in Scotland to charge part of their expenses by way of a standard client retainer and part of their expenses by way of a DBA. 'Partial' DBAs of this nature are not permitted in England and Wales.

Qualified one-way cost shifting

The Act restricts a court's ability to make an award of expenses against a person conducting a personal injury claim or a related appeal, provided that they conduct the proceedings in an "appropriate manner". A similar system of qualified one-way cost shifting (QOCS) was introduced in England under the 'Jackson reforms' of April 2013.

Costs protection will be lost if it can be shown that the litigant, or their legal representative:

  • acted fraudulently;
  • behaved in a manifestly unreasonable manner; or
  • is otherwise guilty of an abuse of process.

The Court of Session may provide in rules for further exceptions to this costs protection. The Personal Injury Committee of the Scottish Civil Justice Council is currently considering a number of potential additional exceptions, including:

  • the impact of a tender if the pursuer fails to beat that tender, recommending, in essence, that the pursuer's liability to meet the defender's post-tender judicial expenses should be limited to 75% of the damages awarded;
  • an exception to costs protection in the event of summary dismissal, but retaining the court's discretion in relation to expenses.

Further court rules will no doubt say more on this. The detail will be critical.

Group actions

The Act also includes a provision to develop a form of limited group litigation proceedings for Scotland via an 'opt-in' procedure in the Court of Session. Group actions are not currently available in Scotland.

Craig Connal QC is a commercial litigation expert at Pinsent Masons, the law firm behind Out-Law.com.