The Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 (the “2018 Act”) came into force in June 2018 with the aim of reforming civil litigation funding in Scotland. In this article we look at three key changes that take effect in 2020.
(1) Success Fee Agreements
The 2018 Act provides that from 27 April 2020 Scottish solicitors have been able to enter into:
i) damages based agreements where the solicitor shares in the damages paid out in successful claims; and
ii) speculative fee agreements where an uplift of additional fees can be paid to the solicitor from damages recovered by a successful claimant.
The associated Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 (Success Fee Agreements) Regulations 2020 cap the success fees payable to Scottish solicitors at 50% of damages in Commercial cases and 35% of damages in Employment Tribunal claims. These mirror the current caps in England & Wales, though there are current proposals to reduce the commercial claims cap south of the border to 40% of damages. Personal injury cases in Scotland have a staged cap, at 20% of the first £100,000 damages recovered; 10% of the next £400,000; and 2.5% of damages recovered over £500,000. These are less generous than in England and Wales currently, where a flat 25% applies, although again there are proposals to reduce that to a flat 20%.
Valid success fee agreements must: be in writing; include the amount of the success fee, how it is calculated and whether it is inclusive of expenses/costs; and specify how the agreement can be terminated. Without these elements the agreement will be unenforceable.
Unlike in England & Wales, the new Scottish rules also allow for ‘hybrid agreements’ in non-personal injury cases. These offer more flexibility to solicitors and their clients as the agreement can be part hourly rate and part success fee. It remains to be seen whether this might make success fee agreements more attractive in Scotland than they have been in England & Wales to date.
(2) Qualified One Way Cost Shifting (QOCS)
QOCS has been in force in personal injury claims in England & Wales since 2013 and serves to restrict the circumstances in which a claimant can be found liable for their opponent’s costs. Under the 2018 Act, QOCS is set to apply to personal injury claims in Scotland from Winter 2020. An unsuccessful claimant will only be liable for their opponent’s costs (or “judicial expenses”) in Scotland where he or she has:
a. made a fraudulent representation or has otherwise acted fraudulently in connection with the claim or proceedings;
b. behaved in a manner which is manifestly unreasonable in connection with the claim or proceedings; or
c. conducted the proceedings in a manner that the court considers amounts to an abuse of process.
This will make it considerably more difficult for successful defenders to recover any costs from claimants in Scottish proceedings. While conducting a cost benefit analysis has always been key for parties to litigation, that will become even more important to those facing personal injury claims and QOCS.
It is not certain how frequently the exceptions will be applied. It seems likely, and perhaps inevitable, that this will be done sparingly. To do otherwise would seem to undermine the purpose of the changes. It is still not certain whether QOCS will be applicable to actions brought after it comes into force or whether it will only cover accidents occurring after that date.
The 2018 Act does not specifically address how expenses will be affected by tenders, though the Taylor Review (which resulted in the 2018 Act) recommended that an award of expenses against a claimant who fails to beat a tender should be limited to 75% of the damages awarded to the pursuer by the court. It will likely be clarified in due course, but it would appear that entering a tender might become more important for defender’s moving forwards. The 2018 Act also allows the court to retain the ability to award expenses against legal representatives committing a serious breach of duties to the court
(3) Group Proceedings
From 31 July 2020 Group proceedings will be permitted in the Court of Session (the High Court equivalent in Scotland) under the 2018 Act. For those purposes, a ‘group’ comprises two or more legal individuals who each have a separate claim in the subject matter of the group proceedings. The claims must raise issues which are the same as, similar or related to, one another; and the ‘single nominated representative’ for the group must have made all reasonable efforts to identify and notify all potential members about the proceedings.
Rules relating to group proceedings were published on 9 July 2020 following consideration by the Scottish Civil Justice Council (the "SCJC") and introduce group proceedings on an opt-in basis. This means that potential class members must elect to join the class to participate in the proceedings. It should be noted that while the Act also allows for "opt-out" proceedings (whereby an individual can become part of group proceedings by either giving express consent, or in certain circumstances, without the need for any positive action) there is as yet no mechanism to allow those within the current rules. The SCJC have indicated that they will continue to consider a number of related policy matters including extending the rules to public law (judicial review) cases and the consideration of an "opt-out" regime. “Opt-in” proceedings are used far more regularly in other jurisdictions, but “opt-out” proceedings are available in England & Wales for damages arising from alleged breaches competition law.
The range of actions which might be brought are very wide reaching, and in other jurisdictions such proceedings have been used for actions relating to personal injury, professional indemnity, product liability, and data protection. There are already group proceedings in train and COVID-19 may well generate further actions given the similar and related claims that could emerge, particularly in relation to event cancellation, health & safety, clinical negligence, travel, business interruption and education.
Third Party Funding
The 2018 Act will require a litigant to disclose any funding or financial assistance being received from a third party in respect of proceedings. The litigant must disclose to the court both the identity of the third party and “the nature of the assistance being provided”. This would appear to include specialist commercial funding and insurance cover. The 2018 Act does not specify the extent to which specific insurance arrangements need to be disclosed and it will remain to be seen how widely the courts apply this. The 2018 Act allows a court to make an award of expenses against a third party with interest in the claim, bringing this into line with the position in England & Wales. Whilst this does not appear drastically change the position of defender insurers (for example) given that expenses might normally be included in coverage, it will undoubtedly be considered by commercial funders. A party whose opponent has third party funding should consider whether an early application for “caution” or security for costs should be made.
These Scottish rule changes aim to facilitate access to justice for claimants seeking compensation. It has therefore never been more important for business operating in Scotland to analyse their risk management policies and procedures, from the shop floor to the boardroom and across supply chains.