Civil claims funding reforms: new Bill aims to increase access to justice

  • Insight

21 June 2017

Reform proposals for the funding of civil claims in Scottish courts have been unveiled in the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill which has been laid before the Scottish Parliament. The Bill proposes fundamental changes to the funding of civil litigation in Scotland.

The purpose

These changes reflect a number of the recommendations set out by Sheriff Principal Taylor within his Review in 2013. The Bill’s principal policy objective is to increase access to justice by creating a more accessible, affordable and equitable civil justice system. This is achieved by making the costs of court action more predictable, increasing the funding options for Pursuers and introducing a greater level of equality to the funding relationship between parties.

Summary

In Summary, the Bill includes the following provisions:

  • to introduce sliding caps for success fee agreements including speculative fee agreements and Damages Based Agreements (DBAs) which will now also be enforceable in Scotland;
  • to introduce Qualified One-way Cost Shifting (QOCS) for personal injury cases and appeals, including clinical negligence, and specify the circumstances when the benefit of QOCS would not apply (such as fraudulent representation);
  • to allow for the introduction of a group procedure (multi party actions).

‘Success Fee’ and ‘Damages Based Arrangements’

The first key proposal within the Bill is to allow solicitor firms to receive a success fee based upon a percentage of the financial award granted by the court or agreed between parties – known as a DBA. At the current time, such sharing of a financial settlement is not permitted. However, it is well recognised that this prohibition is sidestepped by solicitor firms by creating a separate funding company who take the percentage success fee deduction rather than the solicitor firm.

The Bill also reflects the Taylor proposals by introducing a capped sliding scale for success fees that means, in personal injury actions, although a 20% deduction can be made from the first £100,000 of damages, when the damages also exceed £500,000 a maximum of only 2.5% would be applicable to that part of the award.

From a Pursuer’s perspective, this is a good proposal because it will allow all firms irrespective of size or volume of cases to offer this funding option to their clients. This will facilitate the Bill’s proposal of access to justice. It also provides clarity and minimises confusion for clients who may currently require to sign terms with a law firm and separately with a funder (who may possibly be the same entity in reality) in order to progress their claim.

In terms of the Defender, who is primarily the insurance industry, local authorities and the NHS, they will be conscious that the introduction of this funding option could open up the potential for an increase in fraudulent claims or claim farming. In reality, whether this occurs remains to be seen as the majority of pursuer claims are already funded by third party funders.

Qualified One-Way Cost Shifting

This proposal would mean the defender would pay the pursuer‘s expenses if the action is successful, however, (unlike what currently happens) the pursuer would not require to pay the defender‘s expenses if the action was ultimately unsuccessful; subject to certain additional factors.

These additional factors include where a fraudulent representation is made in connection with the proceedings and – much more significantly – would allow a costs order to still be made (and a QOCS set aside) if any other party has a financial interest in the proceedings; such as those who would be entitled to a payment in terms of a speculative fee agreement or DBA. There remains some dubiety regarding whether a pursuer exaggerating their injuries would qualify as a fraudulent representation and this is an issue that will need to be addressed at the consultation stage.

From a Pursuer’s perspective, it was understood from the Taylor Review that QOCS would reduce the potential exposure to expenses thereby making access to justice more affordable. However, given fact most Pursuers have some form of funding (not least to meet the costs involved investigating their claim), which will include entering a speculative fee agreement or DBA, this means the landscape could remain unaltered because the Defender would still be able to recover their expenses from that funder with a financial interest in the proceedings.

It is unclear at the moment, from the terms of the Bill, whether the funder with a financial interest would include the solicitors with whom the client could (in light of the Bill) now enter an enforceable speculative fee agreement.

If solicitor firms are covered by the “third party funding” provisions it would appear to be only in situation where a client can afford the costs of investigating and litigating their claim personally, thereby not requiring a funder or to enter a speculative agreement, that QOCS would come into play.

At the moment firms act on a no win no fee basis because, upon success, they are paid their expenses plus a success fee (albeit currently paid to a third party). However, should the success fee option be taken away, because the client wants the benefit of QOCS, then either the firm will require to charge the client private fee rates or take all the risk of undertaking the work without a reasonable reward with purely the potential to recover only their fees from the Defender.

Therefore, for Pursuers, this Bill has the potential to give with one hand (success fees and QOCS) but take away with the other (success fees mean no entitlement to QOCS) if the solicitor firms who can now enter these agreements are also deemed third party funders which is likely to mean ultimately the status quo will more or less be preserved; albeit with only one set of headed paper rather than two.

Originally, it had been feared that the England and Wales model, whereby QOCS does not apply in situations where there is a third party funder, would not be adopted. However, the Bill, in its current form, conveys a power on the court “to make an award of expenses against the third party funder and any intermediary”. The Bill also specifies that a party receiving financial assistance from another person who has a financial interest must disclose to the court the identity of the funder. As far as defenders are concerned, this is a very welcomed addition and alleviated some apprehension that defenders would be unfairly prejudiced.

The Scottish Parliament Bill process

The Bill was introduced on 1 June 2017 and will now make its way through the various Parliamentary stages.  Stage 1 concerns the general principles of the Bill, the Justice Committee will now consider the Bill, together with written and oral evidence. The Committee will then report to the Parliament on the Bill’s general principles, which will be followed by a parliamentary debate on a motion on whether or not to agree to the general principles of the Bill.  If the Parliament agrees, the Bill will proceed to Stage 2 for consideration by the Stage 2 Committee. At Stage 2 any MSP may lodge amendments to the Bill. Stage 3 then involves the debate/ disposal of amendments and a debate on a motion for the Bill to be passed. The Justice Committee’s first meeting was scheduled for 13 June 2017 and the proposed timescale for the passage of the Bill will become clearer in due course.

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