The prospect of mass litigation continues to grow in Scotland.
The increased availability of third-party litigation funding, combined with ever-increasing regulatory complexity and the ability of claimant firms to gather large numbers of would-be claimants with relative ease, has created increased litigation risk to businesses across various sectors.
For lenders and other financial institutions, one of the risks faced is in relation to undisclosed or so-called 'secret commission' claims.
Undisclosed commissions describe circumstances whereby a mortgage, loan or other investment is sold through an agent, introducer, or finance broker, and a fee or commission was paid to that broker without being fully disclosed. Borrowers argue that payment of an undisclosed commission is tantamount to a bribe.
Undisclosed commission group proceedings look likely to progress in England & Wales, against both lenders and finance brokers involved in these transactions. The claimant borrowers intend to try to overturn the original loan, thereby recovering any fees, interest (which could be significant) or other charges applied to the mortgage or loan so that only the principal sum of the debt would be repaid.
Does the litigation risk extend to Scotland?
Scotland introduced a framework for collective proceedings in 2020, called Group Procedure. This signalled a shift in the litigation landscape, meaning that the risk of mass litigation against corporates in Scotland is no longer just a theoretical possibility.
Prior to the introduction of Group Procedure rules, the cost. time and effort required was generally seen as a barrier to claimants with modest claims. The new procedure reduces claimants' exposure to costs (both in terms of fees to their own lawyers and the risk of cost awards being made against them, as these will likely be covered in funding arrangements). It also reduces the personal involvement required from individual claimants through the sharing of effort across the collective group of claimants.
Additionally, social media and other technology allows claimant firms to gather groups of would-be claimants quickly and efficiently. These claimants will likely be more motivated to participate because of the relative ease of the Group Procedure regime. It is likely, therefore, that we will see interest in this area continuing to grow.
Given that it is alleged that undisclosed commissions have been taken across a wide range of financial products obtained by a large number of people, undisclosed commission claims that are advanced using Group Procedure present a key area of risk to the financial services sector.
Brodies will continue to monitor developments in this area closely, with further insights to follow.
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Partner & Solicitor Advocate
