Following the introduction of the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 (the "2018 Act"), group proceedings (otherwise referred to in other jurisdictions as "class actions") can be raised in Scotland, specifically in the Court of Session.
Before, or alongside, applying to bring group proceedings, a person must apply to the court to be declared a representative party. The Court will consider whether the proposed representative party has demonstrated sufficient competence to litigate the claims properly, including showing whether they have "financial resources to meet any expenses awards." Therefore, it is a prerequisite of raising any group proceedings that parties establish how they intend to fund the legal costs associated with the action and show the courts that this funding is (a) secured at the application stage, and (b) covers not only their own costs but any adverse costs they may be liable for should they be unsuccessful.
Funding Arrangements – the current law
Prior to the introduction of the 2018 Act, agreements whereby solicitors contracted with their clients to take a percentage of the damages awarded to them (known as "success fees") were not enforceable.
However, "success fees" are now permitted under the 2018 Act. This, arguably, removes the financial barrier to access justice. The financial barrier to raising group proceedings was particularly steep given the costs associated with raising these proceedings are higher than usual, due to the additional procedural hurdles to overcome before substantial proceedings can commence.
How would this arrangement work in practice?
Solicitor – Success Fee arrangements
The associated Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 (Success Fee Agreements) Regulations 2020 introduced a cap on the proportion of any successful award handed down by the Courts that a solicitor can claim. The cap means a solicitor can receive a maximum of 50% of the damages awarded in Commercial cases and 35% of the damages awarded in Employment Tribunal claims. In personal injury matters the cap is incremental, with the percentage reducing as the award increases.
One of the key purposes of the 2018 Act was to bring success fee funding arrangements into the open to ensure that they were adequately and fairly regulated. Therefore, in order for any success fee arrangement to be enforceable, it must:
• be in writing;
• specify the value of the success fee and detail how the fee will be calculated (including whether or not the fee agreed is inclusive of legal expenses); and
• clearly state how each party can terminate the agreement.
Other third party funding arrangements
Third party funding (otherwise referred to as 'litigation finance') is a form of arrangement whereby a third party, who has no involvement in the dispute itself, agrees to finance all or a proportion of the legal costs associated with the litigation in return for a fee payable from the proceeds awarded to the litigating party.
Group proceedings are likely to be made up of lots of individual claims, as opposed to ordinary commercial proceedings, which are often pursued by large businesses who may already have a litigation budget ring-fenced. Therefore, third party funders can give a group of individuals, as well as the courts, reassurance as to how the group will fund the proceedings and any expenses they incur. Conversely, where businesses or companies are defending group claims, third party funders can be equally as useful. Legal budgets are never infinite. Therefore, using a litigation funder can offer commercial convenience, by removing the cost of the litigation from the company's accounts, as well as sharing the financial risk involved.
Third party Funding – What does the future look like for group proceedings?
Rule 26A.7(2)(f) of the group claims procedure specifically states that the details of any funding arrangements do not require to be disclosed. However, section 10 of the 2018 Act (which is not in force, but is likely to come into force in the near future) requires that parties to civil proceedings, who receive financial assistance from another person (either directly or through an intermediary) who is not a party to the proceedings, must disclose to the court:
(a) if known to them, the identity of the funder/intermediary; and
(b) the nature of the assistance being provided.
If the litigation funder has a financial interest in the outcome of the proceedings, that interest must be disclosed to the court once the substantive issues in dispute have been decided or otherwise resolved. However, this rule will not apply where the funding agreement is a success fee agreement within the meaning of section 1 of the 2018 Act. The particulars of section 1 of the 2018 Act suggest that success fee arrangements between solicitors and the parties to a group proceeding will not require to be disclosed, whereas any arrangements entered into with third party funders will require disclosure.
The unique nature of group proceedings is likely to lead parties to explore other means of legal finance. Therefore, it is important that any party involved in group proceedings is aware of all the financial options available, as well as their implications for the case they are involved in.
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