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Litigation: passing the bill

18 June 18

Civil litigators need to begin preparing for the new legislation on funding of and expenses in court actions, now passed by the Scottish Parliament. We highlight the main features

by Kim Leslie

Given the significance of the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 for lawyers and their clients across Scotland, the purpose of this piece is to review and highlight the key features of the Act, which received Royal Assent on 5 June 2018.

This overhaul of the cost and funding of civil litigation in Scotland has been forecast for some time. Lord Gill in his review of the civil courts in 2009 identified the task and recognised the challenge in combining it, to the point where he disengaged it from his own review.

The task of making progress then fell to Sheriff Principal Taylor, who produced a report with recommendations in relation to the costs and funding of civil litigation, published in October 2013. The report, in my view, was very well reasoned. He clearly had a handle on what was happening in practice and what solicitors were having to deal with in representing their clients. The report and its recommendations had the aim of increasing access to justice, predictability, transparency and equality of arms in the civil litigation forum.

What, then, are the key features of the Act? 

Success fee agreements

Put simply, solicitors in Scotland are now for the first time going to be able to enter into a contract for a share of the damages recovered by them for their client, rather than relying on getting an uplift based on judicial or agent/client fees. What is proposed will involve solicitors recovering fees as a percentage of the award made, with the fees being based on agreed slices of any sum recovered. This will be known as a success fee agreement (“SFA”) and must be recorded in writing.

The power to cap the success fee has been introduced by the bill to ensure public protection and give them certainty about what they will pay their solicitor if they win. Following an abortive U-turn at stage 2, future losses remain included as part of the damages from which a success fee will be calculated in almost all cases (see s 6(4)-(6)) and may be deducted at the appropriate sliding scale cap. The caps will be brought in at a later stage by regulations. The solicitor will have to fund payment of all the outlays during the action, but any after the event (“ATE”) insurance premium will not be considered an outlay for the purposes of the SFA.

Damages paid by periodical payments are not subject to the success fee. If the award is over £1 million, safeguards are provided relative to the advice in respect of whether the award should be made as a lump sum or periodical payment. Having this protection will ensure that the best interests of the client are a priority and there is no scope for solicitors trying to put forward settlement terms that are more beneficial to them.

SFAs will be excluded for certain matters, which are to be determined by the Scottish ministers in regulations, and further details are expected in due course.

In my own experience, SFAs go some of the way needed to assist the “excluded middle” (the group identified by Sheriff Principal Taylor in his report as those who are not eligible for legal aid but are without the private means to fund their own litigation), and that is a positive outcome for claimants with a valid case to pursue. 

Qualified one-way cost shifting

On any view, this change is a huge shift in the way that civil litigation in Scotland will be undertaken, and I entirely agree with that sentiment from my own work for clients. Qualified one-way cost shifting (“QOCS”) was introduced in England & Wales in April 2013 and many UK defender firms will be familiar with the concept. In short, the traditional model for litigation in Scotland in terms of costs usually operates on a “loser pays” basis, so that anyone bringing an action runs the risk of paying costs if they don’t win. For obvious reasons, that is a serious deterrent for potential claimants.

Going forward, the Act sees this model being replaced with QOCS. In future, those bringing an action of damages for personal injuries and who end up losing will only be liable to pay the expenses to the other side if they have conducted the proceedings in a manner which is not considered to be an appropriate manner.

A case is deemed to be conducted in an “appropriate manner” unless the pursuer – or their representative –

(a) makes a fraudulent representation or otherwise acts fraudulently in connection with the claim or proceedings;

(b) behaves in a manner which is manifestly unreasonable in connection with the claim or proceedings; or

(c) otherwise conducts the proceedings in a manner that the court considers amounts to an abuse of process.

Without going into the technical detail, rules on the impact of tenders, summary dismissal and abandonment on QOCS will need to be drafted prior to this section being implemented. Readers will recall that Sheriff Principal Taylor was of the view that if you failed to beat a tender, the defender’s expenses should be capped at 75% of the court award, and it will be interesting to see what system is introduced in due course.

Whatever your view on the equity (or otherwise) of QOCS, it will undoubtedly increase access to the courts for those whose cases are not currently being funded under our present system. Having said that, it is clearly in the interests of the profession as a whole that solicitors act as gatekeepers for the system and that we behave properly to ensure that this benefit is used in furtherance of legitimate and meritorious claims.

Third-party funders

SFA funders and trade unions are exempted from disclosure in the new legislation. Likewise, family members in family actions are excluded from disclosure. Both are commendable aims and should help matters for the profession and their clients.

On the other hand, “venture capitalist” type funders are now obliged to disclose their financial assistance as part of the action once the substantive matters have been resolved. Information to be disclosed will set out their financial interest if they have a stake in the outcome of the litigation.

Auditors

One other change detailed in the legislation means that auditors will now receive a salary rather than their fees being derived from a percentage of the taxed accounts they handle.

Group proceedings

Although this will be limited to practice in the Court of Session, a representative will now be able to bring group proceedings on behalf of two or more persons (a group). Each of that group has a separate claim, which may be the subject of civil proceedings with the permission of the court.

A person may be a representative party in group proceedings whether or not the person is a member of the group on whose behalf the proceedings are brought, but only if authorised by the court.

What this will mean in practice is that cases may be brought by consumer or environmental agencies on behalf of claimants if permitted by the court.

Group proceedings may by Act of Sederunt be brought as opt-in proceedings, opt-out proceedings, or either. The Court of Session will now require to make rules by Act of Sederunt for group procedure so that practitioners and parties are clear about how this will work and what steps they need to take. While it is a personal view, I suspect that they will start with the “opt in” procedure, which is likely to be considered as the most straightforward.

Report card

It is of note that within the legislation there is a requirement for a review of the operation of the Act and whether the reforms have succeeded in the aims to increase access to justice by providing a more affordable, predictable and transparent funding and expenses arrangement.

This review and report must be carried out as soon as is practicable after five years from Royal Assent for parts 1-3, and from the first Act of Sederunt for part 4 (group proceedings). Given the major changes the legislation is making, this review will be vital in making sure that the benefits of the new rules continue to work and any problems are able to be dealt with at the time.

When will the Act be implemented?

There is no simple answer to this. Implementation is likely to be staggered over a period of time as and when court rules and associated regulations are drafted that will put the detail into the primary legislation’s principles and aims.

Start preparing

There has undoubtedly been a lot of work put into the original bill and its progress through the parliamentary process. It is not a subject matter that will have been easy to grapple with. From everything I have read and heard, nobody is suggesting that the proposed system is perfect. We are simply searching for the least unfair option, which balances the interests of all parties. Whatever party you represent, certainty and predictability are essential in order that we can properly advise our clients and promote their best interests. Now that the debates and amendments are done, we can begin the process of adapting our practice in anticipation of the changes that are coming. Once implemented, we can begin the bedding-in process. We have at least five years to do that, after all! 

Kim Leslie is convener of the Law Society of Scotland’s Civil Justice Committee and a partner in Digby Brown
 

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