On 1 May 2018, the Scottish Parliament passed the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill. The legislation aims to make civil litigation more accessible, and costs more predictable, against the background of a continuing decrease in civil litigation in Scotland over the past decade.
Key measures in the Bill
1. Funding Litigation: Increase in Options for Success Fee Agreements
The Bill allows Scottish solicitors, for the first time, to enter into damages based agreements (DBAs) with clients. Where a DBA is used, the solicitor’s fee is calculated as a percentage of damages awarded. Where the action is lost, there will be no fee, or a lower fee. Previously, this option was only available via claims management companies. The level of the success fee will be capped in regulations, which will be subject to further parliamentary scrutiny. However, Sheriff Principal Taylor’s Review, which preceded and informed the content of the Bill, recommended that the maximum success fee in commercial actions should be capped at 50% of the sum recovered.
It’s worth noting that, in parallel to scrutiny of the Bill, the Scottish Parliament agreed that claims management companies (CMCs) operating in Scotland will be regulated by the Financial Conduct Authority. HM Treasury recently published its consultation on Claims Management Regulation. The Justice Committee suggested that the Bill should not be brought into force until regulation of CMCs under the UK legislation is in place. However, the Scottish Government has confirmed that implementation of the Bill should not be delayed, expressing the view that “any apparent regulatory gap” will be “short”. Furthermore, if CMCs are contemplating beginning or moving operations to Scotland, they will be aware that regulation is imminent.
One of the most contentious issues during the passage of the Bill was whether damages for future losses in personal injury claims should be ring-fenced in DBAs. After some to-ing and fro-ing, the ring-fencing provision was removed at Stage 3.
2. Liability for the Cost of Litigation: Changes to Expenses
A. Qualified One-way Cost Shifting
The Bill provides for qualified one-way cost shifting (QOCS) for personal injury cases and appeals. This means that the court will not make an award of expenses (costs) against an unsuccessful pursuer, so long as the case is conducted appropriately. The circumstances in which the protection of QOCS should be lost was the subject of much debate. The Bill as passed provides that the court must not make an award against an unsuccessful pursuer unless:
- there has been a fraudulent representation; or
- the pursuer otherwise acts fraudulently or behaves manifestly unreasonably in connection with the claim or proceedings; or
- proceedings are conducted in a manner that the court considers amounts to an abuse of process.
Important questions remain to be answered in the implementation phase of the Bill, such as what happens when a claim to which QOCS applies is abandoned, or the pursuer fails to beat a tender (the Scottish equivalent of a Part 36 Offer).
B. Third party funding
The Bill provides that the identity of, and the nature of assistance provided by, third party funders must be disclosed to the court. Funders with a financial interest in the outcome will be liable to meet adverse costs awards. The Bill was amended at Stage 2 to ensure that trade unions and providers of success fee agreements are excluded from the provision in relation to liability for costs.
3. Group Proceedings
The Bill introduces a procedure for group actions in Scotland. These actions, commonly known as “class actions”, permit costs to be shared amongst the pursuers, often making it more affordable. It might include, for example, litigation arising out of a major disaster, or liability for defective products or a data breach.
Pursuers must obtain the court's permission to raise a group action, and must satisfy the court that the issues raised by the group are the same or sufficiently similar, and that all reasonable efforts have been made to notify all potential members of the group about the proceedings.
Initially, it was proposed that the procedure should operate on an opt-in basis only, meaning that pursuers must expressly consent to be part of the action. Those who do not join the group proceedings are free to bring their own legal claims. However, the Bill was amended to include an opt-out option. Under this option, after a successful claim is made, affected parties can come forward and claim a proportion of the compensation. This removes the administrative burden of bringing together affected parties before proceedings are raised. The choice of system – opt-in, opt-out, or either, will be a matter for the court’s discretion.
The Bill does not set out how group proceedings are to be funded, nor the extent to which defenders can recover costs where the litigation is unsuccessful. However, Sheriff Principal Taylor recognised that these are important issues which will have a bearing on whether the procedure is used, and which, if not dealt with at the outset, could lead to subsidiary litigation or protracted issues when costs are assessed. He made a number of recommendations including:
- QOCS should be available for group proceedings involving personal injury, including clinical negligence actions. In other group proceedings, expenses should follow success, subject to the court's discretion to make a different order, for example where the action raises a significant issue of public interest.
- DBAs should be available for use in group proceedings.
- While no formal restriction should be placed on the funding options available to parties, the court should be satisfied at the permission stage that adequate funding is in place, and should exercise rigorous case management thereafter.
The Scottish Government has indicated its intention to introduce the Bill’s provisions on a phased basis from summer 2018. Secondary legislation and rules of court will be required, and the body responsible for the latter, the Scottish Civil Justice Council has confirmed that it will prioritise implementation of the Bill.
Finally, it’s worth noting that the Bill provides for review of the operation of the legislation, by report to the Scottish Parliament five years after the provisions come into force.
You can access the Bill here.