Download the full Legal Update here.
When the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill was introduced into the Scottish Parliament on 1st June 2017, its stated aim was to increase access to justice by creating a ‘more accessible, affordable and equitable civil justice system’. Yesterday the Parliament unanimously voted to approve the final Bill, and it is likely to come into force in the next few months.
So, what will the law be, and how does it affect insurers?
It has three main aims:
- Allowing solicitors to offer their clients damages-based agreements (DBAs) as a way of funding litigation. This means that claimants will not be charged a fee if the claim fails, but the solicitor will retain a percentage of the damages if the claim succeeds.
- Introducing qualified one-way costs shifting (QOCS), which replaces the traditional rule that costs follow success. With QOCS the pursuer will almost never be liable for the defendant’s costs if they lose. There is a provision requiring a Scottish Government review of QOCS after five years to see how well the regime is working in practice.
- Allowing claimants to bring group actions, which had not previously been part of the Scottish landscape.
Levelling the playing field?
The Bill has been controversial. Broadly speaking the claimant community supported the changes, whereas the representatives of the Defendants felt this Bill had the potential to create a compensation culture in Scotland. That said DBAs – albeit not in name – have operated in Scotland for many years mainly through claims funding mechanisms linked to claimant solicitor firms.
Specifically, it was argued that the principle of future losses being included in the calculation of the
claimant solicitor’ fee in a DBA was something that was counter to the interests of justice. There was concern that could mean a significant loss of damages for the Claimant, resulting in a funding gap and claims inflation. Although originally allowed for in the Bill, future losses were excluded from DBAs by amendment at the committee stage, and then there was an attempt to reintroduce them at the final debate. This was successful, and the final Bill allows fees to be calculated on the full losses awarded.
In general, insurers were opposed to QOCS and sought safeguards to prevent the rise of fraudulent claims.
Some of those safeguards were already contained in the Bill in the form of exceptions to the rule. These included situations where the person or the person’s legal representative:
- Has acted fraudulently, or makes fraudulent representation
- Behaves in a manner which is manifestly unreasonable; or
- Otherwise, conducts the proceedings in a manner that the court considers amounts to an abuse of process
Parliament has now approved these safeguards, but additional measures were proposed by the insurance industry to prevent tipping the scales in favour of the unscrupulous Claimant. The Scottish Government has listened. These measures include:
- Regulation of Claims Management Companies.
- Ban on referral fees.
- Reduction of claimant costs in low-value claims.
- Mandatory pre-action protocols for PI to be extended to £100,000 in line with the jurisdiction of the All Scotland Personal Injury Court.
While a ban on referral fees and reduction in costs for low-value claims are matters to be considered in an ongoing legal services review, CMCs will now be regulated – once the UK Financial Guidance and Claims Bill has passed – and the Scottish Civil Justice Committee is in the process of reviewing the pre-action protocols.
Impact on insurers and next steps
The changes in relation to DBAs may have limited impact on the litigation landscape. The reality is that we have been operating with this funding model in existence for a number of years. The legislation brings their operation out into the open and ensures they are regulated to protect vulnerable individuals. An integral part of that is the setting of caps meaning that, unlike in England, the funding system will be transparent and assist insurers and their lawyers in deciding how to deal with claims.
QOCS has the potential to change the way in which insurers litigate, and needs a strategic response. As ever, litigation avoidance is a key strategic goal. Any extension of the pre-action protocol should be embraced to assist this. If litigation is unavoidable, however, then insurers and their solicitors will have to be even more proactive in assessing a case at the outset, or as soon as the evidence allows. They should not be slow in using the court rules to place formal pressure on claimants to produce the evidence that is required to support their claim, and if they fail to do so highlighting that to the court. A claimant and their solicitor must litigate appropriately to keep the protection of QOCS and producing documentation timeously is part of that obligation. However, if the English experience teaches us anything QOCS offers – where an economic decision is made to buy off a claim – are certain to become part of an overall litigation strategy. Consequently, we expect to see fewer cases run to trial particularly in claims under £25,000 where costs are usually higher than South of the border due to an absence of a fixed costs regime.
However, it is clear from the debate surrounding the Bill that tenders (Part 36 offers) will still be effective. If a tender is not beaten, then the Claimant will be liable for costs from the date it was served, although that benefit is less generous than in England and Wales and is likely to be capped at 75% of the value of the damages received.
The other situation in which QOCS protection will be lost is in cases of fraud. Insurers and their solicitors need to be alert for the common red flags that can indicate a fraudulent claim. And if identified, be proactive in the way that these claims are handled.
Most importantly is the obligation on Government to review QOCS in five years’ time. This creates an opportunity to present arguments on how QOCS is operating in practice, and whether it is creating the level playing field envisaged, or simply encouraging the wrong sort of litigation or indeed too much litigation. To do that effectively the sector must work together to collate statistics and data now to enable a powerful argument to be made later, if necessary.
Plexus (Scotland) will be monitoring QOCS cases as they progress and analysing the impact of this costs model on personal injury litigation.
If you would like know more about this matter, please speak to your contact at Plexus Law:
Cameron McNaught, Partner
T: 0131 3229 252 | M: 07972 638 356 | E: email@example.com
Plexus Law | Exchange Place 2 | 5 Semple Street | EH3 8BL
Whilst we take care to ensure that the material in this Legal Update is correct, it is made available for information only, and no representation is given as to its quality, accuracy, fitness for purpose, or usefulness. In particular, the contents of this Legal Update do not give specific legal advice, should not be relied on as doing so, are not a substitute for specific advice relevant to particular circumstances. Plexus Law accepts no responsibility for any loss which may arise from reliance on information or materials published in this Legal Update.