Lord Gill’s Scottish Civil Courts Review in 2009 included a recommendation that a review should be carried out to consider the costs and funding of civil litigation in Scotland.  In March 2011, Sheriff Principal Taylor was asked by the Scottish Government to carry out such a review.  His “Review of Expenses and Funding of Civil Litigation in Scotland” (“the Report”) was published on 11 September 2013.   At over 350 pages, the Report is wide ranging and considers all levels of civil litigation in the Scottish courts.  It contains 85 recommendations which, if implemented, will fundamentally alter how and by whom litigation in Scotland is funded in the future, and what it will cost. 

Sheriff Principal Taylor identifies as his primary concern the question of how to improve access to justice in a meaningful way.   To do so, he has focussed on three main concerns – the affordability of litigation, and the recoverability and predictability of expenses incurred in litigation.    His recommendations seek to increase access to justice by expanding the options for funding litigation, and by reducing uncertainty as to the amount of the potential liability for expenses that a party to court proceedings might face. 

The Report’s recommendations regarding the funding of litigation include:

  • The introduction of Damages Based Agreements (“DBAs”) – so that solicitors will be permitted to enter into a “no win, no fee” arrangement with their client under which they are paid out of any damages awarded in the client’s favour.  Sheriff Principal Taylor proposes a sliding scale whereby the deduction allowed from damages for personal injury actions is 20% (including VAT) for the first £100,000 of damages to 2.5% of any damages over £500,000.  There is a higher proposed maximum percentage deduction of 50% of damages for commercial cases.  Similar caps are proposed for success fees under speculative fee arrangements.
  • Solicitors should be permitted to pay referral fees to third parties, including claims management companies.
  • The establishment of a voluntary code of practice for third party funders.
  • Regulation of claims management companies.

The Report’s recommendations addressing the cost of litigation include:

  • Qualified one way costs shifting for personal injury actions – so that a pursuer in a personal injury action is (subject to limited exceptions) protected against any liability to meet the defender’s expenses, even if the pursuer’s claim is unsuccessful.
  • Significantly greater judicial management of the costs of litigation – for example, a pilot scheme is proposed for commercial actions to trial a system of expenses management where the parties are required to produce cost budgets in advance for court approval to which they are then held. 
  • Parties should seek orders from the court in respect of certain types of expenses at the outset rather than at the end of an action - for example, sanction for Counsel in sheriff court actions, sanction for expert witnesses and applications for an additional fee.  Limits on, or the need for court approval of, the amount recoverable for such expenses is also proposed.  Commitment fees for Counsel will not be recoverable and only a fixed cancellation fee (linked to the anticipated length of the hearing) will be allowed if a hearing does not proceed.  Unlike at present, orders in respect of Counsel, expert fees and additional fees will not take effect retrospectively.
  • A procedure for summary assessment of expenses – so that an award in respect of the expenses of a particular hearing is made at the hearing itself, and payment of the expenses awarded must be made within 14 days.
  • Power for the courts to order protective expenses orders in all public interest cases.
  • Fixed expenses in lower value claims.

Sheriff Principal Taylor also recommends that there should be a separate review of the level of fees which may be recovered as expenses in litigation, as his investigation identified that the current permitted rates are so low that they sometimes allow less than 50% recovery of the actual cost of a case.

If implemented, these recommendations will fundamentally alter the litigation process in Scotland.  Sheriff Principal Taylor is well aware of the far reaching nature of what he proposes and acknowledges that it is very difficult to predict how lawyers may react if the financial dynamics and incentives of the system are altered.  In many cases, he therefore recommends a staged approach, so that particular proposals can be properly “road tested” by way of limited pilot schemes before they are fully implemented.  He also emphasises the need for ongoing review of any changes by the Scottish Civil Justice Council and recommends ready adaptation if unintended consequences become apparent. 

In the statement accompanying the publication of his report, Sheriff Principal Taylor accepts that many of his conclusions appear to mirror the conclusions reached by Lord Justice Jackson’s “Review of Civil Litigation Costs”, which considered litigation costs and funding in England & Wales and reported in 2009.  But he warns against drawing too many comparisons between the two reviews and argues that the effects of his recommendations are likely to be very different in Scotland as they will be implemented in a very different legal environment.  Despite that warning, it seems likely that Scottish solicitors will now be looking very closely at the cost reforms recently implemented in England to try to anticipate what Sheriff Principal Taylor’s reforms might mean for their businesses and the businesses of their clients.