The Justice Committee has now reported on this Bill, following conclusion of written and oral evidence presented before the Committee at the end of 2017.

Part 1 of the Bill is concerned with what is paid by a client to their own solicitor and seeks to introduce damaged based agreements and speculative fee arrangements on a scale arrangement which is capped.

Part 2 deals with expenses in civil litigation and will be of more direct interest to the insurance industry and self-insured defenders. This section seeks to introduce qualified one-way costs shifting (QOCS) for personal injury claims, in a similar fashion to England and Wales; a pursuer is not liable for the defenders' expenses if they lose, but can still claim their own expenses from the defender if they win.

Overall the Committee has recommended that the general principles of the present Bill are approved. However, whilst it comes as no surprise that QOCS will be implemented, it is encouraging to note that there is a firm recommendation that the Bill should not be passed until the UK Government has passed the Financial Guidance and Claims Bill to introduce changes to the regulation of Claims Management Companies (CMCs) in particular.

It remains unclear when that Bill will be granted Royal Assent after it is passed through the Westminster legislative process, but it is likely that as a result the introduction of the Civil Expenses Bill into Scottish legislation will be delayed by perhaps another year at least.

Importantly for those in the insurance industry, organisations should ensure they continue to gather their own data and statistics over a five year period after the Bill is introduced in order to assist the Scottish Government during the post-legislative scrutiny of the Bill; in particular to review the impact of QOCS.

Key points

  • Despite conflicting evidence put before the Committee on the issue as to whether there is an "access to justice" problem in Scotland, the Committee has been persuaded that there are problems in respect of civil litigation.
  • The Committee has welcomed the establishment of a working group at the Law Society of Scotland to consider issues arising out of enforceable damage based agreements in place by solicitors acting on behalf of pursuers.It has been recognised that it is important to put in place appropriate safeguards – such as independent advice – to protect pursuers and guard against potential conflict of interest for solicitors.The Committee has asked the Scottish Government to ensure that recommendations, such as ensuring that a pursuer is advised by the solicitor on all the funding options available to them, are implemented whilst working alongside the Law Society of Scotland where appropriate.
  • Capping success fees – the Committee has ordered confirmation from the Scottish Government whether the regulations allowing a success fee would ensure that any capped arrangement would have to apply to the cumulative total of the success fee as opposed to a situation where a pursuer may have to pay more than one success fee (i.e. a separate fee to a CMC as well as to a solicitor).
  • Calculating a success fee in relation to damages for future losses: A lot of evidence was presented on this issue which has raised various concerns to the Committee. As a consequence, the Scottish Government has asked to reflect on the evidence provided and to reconsider whether damages for future losses should be ring-fenced when calculating a solicitor's success fee.If not, then the Committee has recommended that the court must have the power to make a Periodical Payment Order and reference is given to the intended introduction of such powers in the separate Damages Bill which is proceeding through the legislative process before the Scottish Government.
  • Interestingly, the Committee has recommended that the provisions of the Expenses Bill should not be brought into force until such times as the court has the power to make a PPO.With regard to the Damages Bill, the current timetabling procedure remains unclear although it is understood that the Scottish Government still wishes the Bill to be timetabled during the course of 2018.
  • QOCS: Unsurprisingly the Committee has been persuaded that the introduction of QOCS could improve access to justice for pursuers. However this followed a lot of evidence presented about concerns regarding unintended consequences (including a rise in unmeritorious and fraudulent claims). The Committee has noted that it is important that sufficient safeguards are in place to prevent such consequences. The report provides various recommendations relating to the regulation of CMCs (see below) and a ban on referral fees.
  • Interestingly, the Committee has also asked the Scottish Government to consider other safeguards, such as extending the compulsory pre-action protocol for personal injury claims up to £100k (the current limit is £25k) – in order the reflect the current jurisdiction of the All-Scotland Personal Injury Court (ASPIC) as well as the introduction of a pre-action protocol for clinical negligence cases. It is also noted that the Committee has asked the Government to commit to post-legislative scrutiny of the Bill (within five years of its provisions coming into force), in particular to review the impact of introducing QOCS.
  • The Committee has also listened to the evidence presented about the application of QOCS where the defender is uninsured or is an individual.Various suggestions were presented, including restricting the application of QOCS in respect of uninsured defenders or public bodies, or by applying the same approach to an award of expenses as is used on a person that is in receipt of Legal Aid.The Committee has asked the Scottish Government to consider and respond to these suggestions and therefore it remains to be seen whether the present Bill will be amended to take this into account.
  • Tests regarding losing QOCS protection - The Committee welcomed the Scottish Government's commitment to amend the current provisions of the Bill to ensure greater clarity as to the circumstances in which a pursuer will lose the protection of QOCS. This includes amending the Section (84) (b) to reflect the test of Wednesbury unreasonableness. Importantly, the Committee also considers that the Bill should be amended to introduce provision to make it clear that QOCS protection will be lost where (i) the pursuer fails to beat a defender's tender and (ii) a pursuer's claim is summarily dismissed. The present Bill is entirely silent on the issue of tenders despite the fact that in his initial recommendations, Sheriff Principal Taylor recommended that a pursuer should lose QOCS protection from the date of a tender if they failed to beat it – albeit that any such liability for the defender's expenses should be limited to 75% of the compensation award. It remains to be seen whether that restriction on an award of expenses, in the event of tender is not beaten by a pursuer, will be introduced by way of further amendments to the Bill.
  • Third Party funding definition – There has been some confusion about the present definition following publication of the draft Bill. The accompanying policy memorandum states that the Bill "will make provision for commercial third party funders of civil litigation to be liable for judicial expenses with the funded litigant". The Scottish Government has committed to address the concerns it has heard about the current definition, as it is recognised that it is important that the Bill provides a more specific and accurate definition of the third party funders that will be potentially liable for an award of expenses. The Committee has clarified that in their view, the Bill should explicitly provide that the power to award expenses against third party funders does not apply to (i) Trade Unions and staff associations and (ii) solicitors acting under a success fee agreement.
  • As an aside, the Scottish Government has also committed to addressing Section 10 of the present Bill to make it clearer that the requirements on all parties to disclose the details of how the action is being funded are separate from the power to make an award of expenses against the third party funders.
  • Regulation of CMCs – The Financial Guidance and Claims Bill proposes changes to the regulation of CMCs who provide assistance to individuals in making claims in sectors such as personal injury and PPI. This Bill is currently being considered by the UK Parliament and will extend the regulation of CMCs to Scotland. The Committee has acknowledged that should the Scottish Parliament ultimately pass the Expenses Bill, there remains a real risk that its provisions will be implemented before any regulation of CMCs in Scotland is in place. Therefore, it is important to note that the Committee recommends that the Expenses Bill should not be brought into force until such a regulation is in place. The Committee has asked the Scottish Government to amend the current Bill to provide that only regulated bodies can offer success fee/agreements. This would provide greater protection to pursuers – particularly if there is any delay in regulating CMCs.
  • In addition, the Committee has highlighted that the evidence they heard on banning referral fees and cold calling should also be considered as part of the ongoing independent review of the regulation of legal services. The Committee recognised that cold calling is a reserved area, but urges the Scottish Government to continue to take steps to tackle this problem and where appropriate work with the UK Government to protect Scottish consumers. The Committee has also called on the Law Society of Scotland to put in place proper checks to ensure that any clients referred to solicitors by CMC's were not obtained by cold calling. However it remains to be seen how any such checks will ultimately be implemented by the LSS and their response to this recommendation is awaited.
  • Funding of group proceedings (class actions):The Committee welcomes the provisions in the present Bill allowing for group procedure to be introduced in Scotland for the first time and also welcomes the introduction of an opt-in procedure.The Committee also recommends the Scottish Governments' commitment to amend the existing Legal Aid rules to enable public funding to be available for group proceedings.