The enactment of the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 represents the final stage in the Scottish civil justice reforms proposed by Sheriff Principal Taylor following his review of the present system of litigation funding. The objective of the reforms is to provide greater access to justice for individuals by making the cost of litigation more predictable and affordable. This post will focus on the Scottish Government’s most recent consultation on success fees, although comment on the other aspects of the Taylor Review can be found here.
In simple terms, ‘success fees’ is a broad term that relates to an agreement between a client and solicitor, whereby payment of the solicitor’s fee is contingent upon the success of the case. No win, no fee is a term that we are all familiar with, but the consultation takes a more detailed look at the aspects of modern success fee arrangements. The advent of success fees marks a move away from the more traditional methods of funding (private funding, trade union funding or legal aid) as litigants are becoming more aware of the alternative options. In this regard, the Taylor review and the proposed reforms are largely driven by the needs and demands of the consumer.
Generally speaking, success fees can be divided into two categories: speculative fee arrangements and damages based agreements.
Speculative fee arrangements: under these types of arrangements, if a case is lost, the solicitor will not recover a fee; but if the case is won, the successful solicitor’s fee will be recovered from the other side. The element of a ‘success fee’ comes into play by the solicitor being able to charge an uplift that is payable by their client. In the context of speculative fee arrangements that uplift is limited to 100% of the fee recovered from the other side.
Damages based agreements: the solicitor’s fee is calculated as a percentage of the damages recovered. If no damages are recovered, no fee is payable. This type of success fee has seen the most development as solicitors in Scotland can now enforce damages based agreements. Prior to the enactment solicitors were prohibited from doing so, but there was no prohibition on alternative providers e.g. claims management companies, from entering into these types of agreements. As the prohibition has now been removed, and given the simplicity and established popularity of damages based agreements, it is envisaged that their use will only increase.
The question for the Taylor review was: should the level of recovery under success fees be capped?
Sheriff Principal Taylor recommended that they should, and the new legislation imposes a cap on success fees (dependent on the type of case). Personal injury actions operate on a scale with the maximum recovery being 20%. Fees on the award of an employment tribunal will be limited to 35% and commercial actions are limited to 50%.The difference in cap reflects the differences between types of litigation. There is likely to be an inequality of arms between pursuer and defenders in both employment tribunals and personal injury actions, and it is likely that the individual in these cases may be in a vulnerable position. The cap is higher in commercial actions as commercial entities do not require the same level of protection.
Given the number and variety of providers within the market, coupled with the move away from more traditional methods of litigation funding, the Taylor reforms should provide a new landscape for healthy competition between providers and ultimately more options and increased certainty for individuals looking to embark on litigation.
What Sheriff Principal Taylor noted specifically in his report is that the caps should be viewed as maximum limits rather than going rates. In stating this Sheriff Principal Taylor had regard to the level of competition in the market and the positive effect that competition will have in determining the market rate.
The consultation is open for responses until 31 January 2019. If you would like more information, or would like to submit a response, please contact Danny McClymont or your usual Brodies contact.
On December 7, 2018