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Opinion: Andrew Lothian

20 March 17

The proposed introduction in Scotland of qualified one-way costs shifting is intended to benefit PI pursuers, but without proper checks and balances risks a significant rise in fraudulent claims

by Andrew Lothian

The Scottish Government intends to bring in qualified one-way costs shifting (QOCS) in Scotland, as part of the forthcoming Expenses and Funding of Civil Litigation Bill. QOCS will put most personal injury pursuers in a position similar to a legally aided pursuer: an award of expenses against the pursuer is possible, but only in very limited circumstances (e.g. where the defender can prove “fraud”).

The Government’s aims are to make the civil justice system in Scotland more “accessible, affordable and equitable”, and “to bring more equality to the funding relationship between claimants and defendants in personal injury actions”. Will QOCS have that effect, and what unintended consequences might there be?

As a starting point, it is useful to examine the experience of QOCS south of the border, where it was introduced in April 2013. A personal injury claimant will not have an award of costs made against them, even if they lose, unless they have been “fundamentally dishonest”. However, QOCS was but one part of an interlocking system of checks and balances, which included reducing claimants’ recoverable costs, a ban on solicitors paying or receiving referral fees, and the regulation of claims management companies (CMCs) by the FCA.

Information obtained from the DWP via a freedom of information request makes it clear there has been a significant rise in injury claims in Scotland since April 2013. It might therefore be thought that genuine claimants are not deterred from bringing claims at present. TV and radio adverts suggest there is a thriving market for their business.

There is anecdotal evidence that, since the reforms in England & Wales, the activities of CMCs in Scotland have increased. In some respects CMCs serve a useful purpose. However, they are unregulated in Scotland and (unlike solicitors, at present) are free to take a percentage of the pursuer’s damages. As the Motor Accident Solicitors Society has said: “The regulation of claims management companies should be introduced as soon as is reasonably practicable… [they] can result in a pursuer being left with very little of their damages.” Similarly, the Association of Personal Injury Lawyers has said: “Injured people need all the protection available to them, and bringing unregulated claims management companies under some form of control is a first step in ensuring this is provided for them.”

The mischief presented by CMCs does not just extend to taking a percentage of the claimant’s damages. Cold-calling is common. Most of us have received texts or phone calls telling us there is £3,000 waiting to be claimed because of some accident we have never had. At present, the risk of pursuing such a non-existent claim is that an award of expenses can be made against you. How much of a deterrent exists if there is no such risk, unless the defender can prove fraud?

There is real concern that the proposed reforms on QOCS in Scotland present an almost perfect storm. South of the border there is strict regulation of CMCs, a ban on referral fees, and reduced recoverable expenses. Imminent reforms will further reduce the level of costs paid in low-value injury claims. CMCs have seen their business model disrupted and are looking for new markets. By contrast, in Scotland there is no effective ban on referral fees, no regulation of Scottish CMCs, and no proposal to reduce recoverable expenses. The result in terms of risk (little risk of an adverse award) and reward (revenue streams from selling claims, taking a percentage of damages, recoverable expenses much higher than in England & Wales) is therefore radically different, and does little or nothing to deter non-genuine claimants.

Given a choice of jurisdictions, where will the less scrupulous CMCs operate? The reality is that the proposal to bring in QOCS without proper checks and balances risks causing a significant rise in fraudulent claims in Scotland. Fraud is not a victimless crime: its proceeds are diverted to other criminal activity, and the cost is borne by the taxpayer (where the defender is a public body) and by policyholders through insurance premiums. Any increase in premiums risks causing a corresponding increase in uninsured driving. These effects are felt hardest by the most vulnerable in society. Whether we act for pursuers or defenders, it is in all our interests that these reforms are properly thought through, seen in their proper context, and presented as part of a balanced package.

Andrew Lothian is partner and head of the Casualty & General Insurance team in Scotland with DWF LLP 

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