Background

The Report of the Scottish Civil Courts Review (SCCR) led by Lord (now Lord President) Gill is now well known, and many of its recommendations have been discussed at length. One of these was that a review be undertaken of the expenses and funding of civil litigation in Scotland. At the time the Report was published (September 2009) the Review of Civil Litigation Costs for England and Wales under the chairmanship of Lord Justice Jackson had just been completed. Sheriff Principal Taylor was therefore appointed to carry out a similar review in Scotland, with the benefit of first seeing the recommendations of the Lord Justice Jackson Review. The Report of the Review of Expenses and Funding of Civil Litigation in Scotland (“the Report”), chaired by Sheriff Principal Taylor, was published this week.

Remit

The Report’s remit was to review the expenses and funding of civil litigation in the Court of Session and the Sheriff Courts in Scotland, in the context of the recommendations of the SCCR and the response of the Scottish Government to the SCCR. The Report covers many of the matters the SCCR identified as requiring further consideration, such as judicial expenses, access to justice and the implications for Scotland of the review by Lord Justice Jackson south of the border.

The Report has 85 recommendations, split between 13 detailed chapters. The recommendations are briefly summarised below.

Recommendations

Recovery of Judicial expenses

The Report records a general dissatisfaction with the level of recovery of solicitors’ fees from the losing party in litigations in Scotland, following an award of expenses in the winning party’s favour. The average recovery rate is noted to be only around 50% compared to an average 80% recovery rate in England. This is acknowledged to present an access to justice issue and to lead, in some cases, to parties choosing to litigate in England rather than Scotland. A number of changes are recommended to close this gap. These are mainly focused on commercial actions where the gap between actual and recoverable expenses is thought to be at its greatest.

Instructing Counsel and Expert Witnesses

The Report records a perception that counsels’ and experts’ fees have contributed significantly to the growing cost of civil litigation. Accordingly, measures are recommended to tighten the scope for, and timing of, the use of counsel and experts in the Court of Session and Sheriff Courts. Caps are recommended on the charging of cancellation fees for counsel, which is often a contentious issue.

Predictability of costs

The Report records that it seeks to address one of the fundamental issues with the system of expenses in the civil courts in Scotland, that of the (lack of) predictability of a party’s expenses at the outset of a litigation and the other party’s expenses that may have to be paid should the litigation fail.  To address this issue in part, the Report recommends that recoverable expenses in certain simpler actions should be according to fixed scales. More radical however, are its proposals for commercial actions in the Court of Session and Sheriff Court, for which it recommends the introduction of capped fees, active judge-led management of costs up-front, and summary assessments of part costs by judges during litigations. Pilot schemes are recommended initially.

Protective Expenses Orders

Another fundamental issue addressed by the Report is that of access to justice. Protective Expenses Orders are currently generally available for litigants in actions concerning environmental issues and some other actions which involve an element of public interest and where the likely costs faced by the litigant are unaffordable, presenting an access to justice issue. The Report concludes that the power to apply for a protective expenses order in Scotland should be available in all public interest cases, but the decision whether to make an order should be a matter for judicial discretion. 

Before the Event Insurance

The Report examines the types of pre-litigation insurance available and is clearly in favour of a greater uptake of such products, as part of enhancing the affordability of civil litigation and therefore access to justice. The Report recommends that solicitors are placed under a duty to explore and advise on all potential funding options with their litigation clients including the possibility that such clients may already be covered by litigation insurance, a possibility that is often lost sight of. Other options that solicitors should consider with their litigation clients are speculative fee arrangements and damages based agreements and solicitors should be obliged to recommend which of these is most suitable and why.

Speculative Fee Agreements

The Report examines the different types of speculative fee agreements, whereby solicitors agree uplifts on their chargeable fees, dependent upon the level of success. Such arrangements are thought to be popular with some litigation clients as they are perceived to reflect the solicitor taking a share of the risk of the litigation, such that the solicitor has a ‘stake’ in the outcome. The Report is in favour of such arrangements, partly from an ‘access to justice’ and ‘affordability’ perspective, but recommends introducing caps to the level of success fees recoverable. 

Qualified one way cost shifting

The Report reflects upon the access to justice consideration specifically in the context of personal injury actions, and amongst other things, carries out a comparative study of other jurisdictions. Its conclusion is that a qualified one way costs shifting regime should be instituted for personal injury actions, such that a litigant is protected from an adverse expenses award when it is unsuccessful. This is also seen as an ‘equality of arms’ issue, so as to enable a pursuer to litigate and negotiate on a more equal footing with the ‘deep-pocketed’ insurer-defender. This one-way costs shifting will be qualified in certain circumstances depending, for example, on the conduct of the pursuer.

Damages based agreements

The Report carefully considers the arguments for and against damages-based agreements, which are where a solicitor’s fees are based on the outcome of the litigation and are taken out of and as a proportion of the damages recovered in a successful outcome (often called ‘no-win no-fee’ arrangements). Currently such agreements with solicitors are unenforceable in Scotland, but they are enforceable when agreed instead with a claims management company. The Report concludes that such agreements should be permitted with solicitors (except in family actions) but subject to specified caps, in particular from an ‘access to justice’ perspective. Interestingly, the Report draws a distinction between personal injury actions, for which it concludes that damages based agreements should only be on a ‘no-win no-fee’ basis, as compared with commercial actions for which it concludes that damages based agreements should also be allowed on a ‘no-win lower-fee’ basis, such that where the litigation is unsuccessful, the solicitor is nevertheless entitled to a (lower) fee.

Referral Fees

The Report addresses the contentious issue of referral fees whereby a third party refers a litigation client to a solicitor for a fee. Having considered the arguments on both sides, the Report concludes that such fees should be permitted, but need to be strictly regulated and that ‘cold-calling’ should be prohibited.

Alternative Sources of Funding

The Report considers the different possible sources of litigation funding and is broadly in favour of these, from the perspective of ‘access to justice’. However, recommendations are made as to the transparency and operation of such funding arrangements in litigations and Third Party funders are to confirm to a Code of Practice specific to Scotland.

Multi Party Actions

The Report considers the specific and unique aspects of multi-party litigations, known as group litigations in England and Wales, sometimes also known as class-actions, and compares the different treatment of such actions across different jurisdictions. Unlike in England and Wales, Scotland does not have a specific multi-party procedure, but one was recommended by the SCCR. The Report makes certain recommendations as to the expenses management and funding of such actions when they are introduced.

Regulation

Lastly, although out with the report’s remit, it examined the question of the regulation of litigation services providers. It specifically recommends the introduction of a regulator for claims management companies, in order to mirror the position in England and Wales and to counter the criticisms of the practices of those companies. More widely, the Report speculates, particularly given the introduction of Alternative Business Structures whereby solicitors firms may combine their businesses with other services providers, that the system of regulation needs to be re-thought and potentially re-designed, such as by targeting regulation at particular services, rather than having a general regulator for a whole profession, for example, the Law Society of Scotland.

Conclusions

Sheriff Principal Taylor notes in the foreword to the Report that many of the Report’s recommendations take an ‘incremental’ approach, for example through the use of pilot schemes, many of which are focussed on commercial actions. This reflects a cautious approach. However, it is clear that, as with the Lord Justice Jackson Review of Costs in England and Wales, the recommendations in the report are designed to overhaul, in some areas radically, the system of and approach to expenses in the civil courts in Scotland. The recommendations are designed to enhance the recoverability of expenses in commercial actions, the predictability of expenses in all actions, and access to justice, particularly in personal injury actions. It is likely that the recommended measures will be broadly welcomed. Their implementation is therefore likely in large measure, although as with the SCCR recommendations, this will take time.