21 Dec 2018

Background

The Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 (the Act) received Royal Assent on 5 June 2018.

The primary objective of the Act is to increase access to justice by making the costs of a court action more predictable, making changes to expenses and by increasing the number of funding options available in civil actions.

Only Part 6 of the Act came into force immediately. Part 6 states that the remainder of the Act can only be brought into force by Scottish Ministers through secondary regulations. Part 6 also grants power to Scottish Parliament to pass these secondary regulations. Currently, there is no confirmed date when Scottish Ministers intend to create such regulations, but the Scottish Civil Justice Council has stated that its Personal Injury and Costs & Funding Committees have begun working on this process.

The practical implementation of the Act through secondary regulation will, for the most part, comprise various amendments to the Court Rules – both Sheriff Court and Court of Session. There are a number of key changes the Act will introduce after the relevant provisions have been brought into force, and we focus on several here.

Litigation Funding (Damages Based Agreements)

One of the most significant elements of the Act is the introduction of Damages Based Agreements (DBAs) that can be used and enforced by Scottish Solicitors for the first time. The Act does not refer directly to DBAs, instead stating that "success fee agreements" are no longer prohibited when made with reference to a share in a successful litigation. DBAs are in essence "no win – no fee" agreements whereby a solicitor and client have an arrangement in which legal fees are calculated at an agreed percentage of the damages awarded in a successful action – if the client loses the action, they pay their solicitor either a pre-agreed lower sum or nothing at all.

England and Wales have used DBAs for some time. The Damages-Based Agreements Regulations 2013 and Civil Procedure Rules provide detail on the requirements of such agreements, including the maximum damages percentage cap on sums payable to solicitors by their clients – 25% in Personal Injury, 35% in Employment, and 50% in all other Civil Litigation.

The Act does not provide any detail regarding percentage caps of DBAs, the types of cases where DBAs will be permitted, or the form and content that DBAs must take. It does however provide Scottish Ministers with the power to set these criteria through secondary regulation, but it is currently unclear how close Scotland will follow a similar system to England in this respect.

When the relevant provisions have been fully implemented, DBAs should vastly improve access to justice by allowing those who may otherwise be unable to finance a Court action the opportunity to pursue one.

Litigation Funding (Third Party Funding)

If a party to a litigation is receiving funding from a third party, the Act, once implemented, provides that this funding must be disclosed to the Court. Under these circumstances, the Court will have the option to make an award of expenses against the third party funder, or any intermediary, if it can be established that they have a financial interest in the outcome of the action. The rule is designed to catch those who have only a commercial interest in an action.

Important to note is that this rule does not appear to apply to parties engaged in a success fee arrangements – i.e. solicitors.

Expenses

An important change to litigation expenses has been introduced by the Act, by placing a restriction on the ability of Defenders in a Court action to recover any expenses. This is often referred to as qualified one way cost shifting (QOCS) but with regard to the Act it only relates to personal injury cases (including those relating to death).

The result of these provisions is that the Defender, in personal injury actions, may only recover their costs from the Pursuer, in the event that they are successful, if the Pursuer has conducted the proceedings in an inappropriate manner. The Defender must show that the Pursuer, or their legal representative, has either:

  1. Made a fraudulent representation or otherwise acted fraudulently
  2. Behaved in a manifestly unreasonable way; or
  3. Conducted the proceedings in a manner which amounts to abuse of process.

Points to note here are that both the first and second test cover pre-litigation behaviour as well as behaviour during proceedings. The intention is clearly to set a high bar, meaning the tests will not be met simply by a mistake or small exaggeration on the part of the Pursuer.

Group Proceedings

The Act introduces new group proceedings, but these are restricted to the extent that only the Court of Session has jurisdiction to handle them.

Originally, it was proposed that group proceedings under the Act would only take the form of an "opt-in" procedure – meaning that an individual would only be party to a group proceeding if they gave their express consent to be included.

However, the Act does also allow group proceedings to take the form of an "opt-out" procedure – where an individual (domiciled in Scotland) will be automatically included in a group proceeding unless they provide notice that they wish to be excluded.

It has been suggested that "opt-out" proceedings may be more appropriate in large scale actions, whereas "opt-in" proceedings may be more appropriate in smaller community actions. As has been seen previously, the Act does not provide any great detail on specifics, and it remains unclear what types of action will be eligible to each type of group proceeding. This detail will be found in the Court of Session Rules after they have been amended by secondary regulation.

Conclusions

  • Given the need for secondary regulations to bring the majority of the Act into force, it may be some time before the Act has an impact on the day to day practice of civil litigation in Scotland
  • The majority of the detail relating to the practical implementation of the provisions of the Act is missing from the Act itself. It is therefore unclear what requirements and changes will be introduced in order to implement the terms of the Act. Again, until secondary regulations are introduced it is unclear what scope and criteria these rules will encompass – this is clearly an area to watch closely
  • The Act requires Scottish Ministers to carry out reviews of various parts of the Act after five years. Therefore, feedback from the Courts, and from those in the litigation arena, could be invaluable in helping the Act achieve its objectives and in focussing future secondary regulations.