New legislation to introduce damages based agreements in Scotland

The Scottish Government introduced the Civil Litigation (Expenses and Group Proceedings) Bill  (16-page / 361 KB PDF) on 1 June. The legislation introduces a number of changes including increased funding options for civil claims in the Scottish courts.

For the first time Scottish solicitors will be able to enter into damages based agreements (DBAs), as well as speculative fee agreements (SFAs). DBAs are an agreement under which a lawyer's fee is calculated as a percentage of damages if they win, but no fee, or a lower fee,  is payable when a case is lost. Under an SFA clients are only required to pay legal fees if the litigation is successful.  Should they be unsuccessful, clients may still be liable for the expenses of their opponents and in some cases may be liable to pay their lawyer a lower fee.

The legislation follows a review by former sheriff principal James Taylor published in September 2013, which recommended that Scotland should follow in the footsteps of England and Wales by allowing 'no win no fee' agreements.

The Scottish model differs from the approach taken by the English and Welsh courts, which followed a review by Lord Justice Jackson and civil court reforms that took effect in April 2013.

The Scottish bill proposes allowing concurrent retainers, enabling solicitors to charge part of their expenses on a standard client retainer with part of their expenses on a DBA. Costs expert Keith Levene of Pinsent Masons, the law firm behind Out-Law.com, said in commercial litigation the maximum permitted DBA fee, including VAT, would almost certainly be 50% of the monetary award recovered. Partial DBAs are not permitted under the English system.

Levene said the changes were subject to regulations yet to be published and that the legislation was a welcome step by the Scottish Government.

“Scotland is taking a leading and enlightened approach to commercial litigation and litigation funding, in allowing DBAs in full or embodied in a concurrent retainer,” said Levene.

Family actions would be excluded from both DBAs and SFAs. Success fees in personal injury cases must be 'no win no fee' but in commercial cases could be on a 'no win lower fee' basis.

The legislation also allowed for damages awarded for future loss to be included as part of a success fee calculation if they were awarded as a lump sum (rather than a periodical payment) and set the rules where this would apply.

Levene said that the Scottish Government was also being proactive in relation to the growing involvement of litigation funders in commercial disputes by enabling disclosure of the identity of the funder and any intermediary; the nature of the assistance provided; and following the substantive dispute being decided or resolved the financial interest that the funder has.

The bill also included a provision to develop group proceedings for Scotland via an 'opt-in' procedure in the Court of Session. Cormack said this would fill a “gap” in Scottish litigation rules.

The legislation would also restrict a court's ability to make an award of expenses against a person conducting a personal injury claim, provided they conduct the proceedings in an appropriate manner. The Jackson reforms in England introduced a similar system, known as qualified one-way cost shifting or QOCS.

Litigation expert Jim Cormack of Pinsent Masons welcomed the legislation. He said it was positive to see a bill which combined access to justice with provisions that addressed the position of both individuals and businesses involved in litigation.

“Subject to the detail in secondary legislation, the bill offers the prospect of Scotland going from having little specific provision for litigation funding for commercial disputes to a situation where there is greater clarity but also flexibility of terms for litigation funding than there is in England and Wales,” Cormack said. “The policy considerations behind the bill include a welcome focus on Scotland as an attractive place to do business, but care will be required to ensure that one of the cornerstones of the Scottish court system, namely, the flexibility and adaptability of its procedural rules, is not compromised by adding rigid layers of costs rules. There will be concern in some sectors of the consequences of some of the measures introduced. For example, insurers will want to be satisfied that the proposal to allow qualified one way cost shifting is properly thought through.”