The Claimant’s Perspective: The Taylor Review of Expenses and Funding of Civil Litigation in Scotland

Briefing Paper: Seminar at the Royal Faculty of Procurators in Glasgow on Thursday, 10th November 2011

“Access to justice is only possible if both parties have adequate funding.  If neither party has adequate funding, the litigation will not happen.  If only one party has adequate funding, the litigation will be a walk over” (Lord Jackson’s Review – page 41 – para2.4).

Lord Gill in the Report of the Scottish Civil Courts Review, chapter 14, undertakes an extensive review of funding options and states “we do however recommend that this issue should be addressed as a matter of urgency by the Working Group on Judicial Expenses that we recommend should be established.” (para127 page 104).

The proposals put forward by Lord Jackson are currently under review in Parliament in the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Bill.  This Bill seeks to restrict conditional fee agreements (CFAs) in England.  The government is keen to proceed with Lord Jackson’s proposals and in particular, qualified one way cost shifting (QOCS).

The Law in England and Scotland

Should we pay heed to this?  Clearly the impact of changes in English funding require to be considered in Scotland.

a)    The substantive law and general principles of negligence are the same.  The APIL Guide to Accidents at Work in chapter 2 states “It wasn’t until 1937 with the decision of the House of Lords in England in Wilson & Clyde Coal Company Limited v English, that the modern duty of care owed by an employer to an employee was established.  It is worth noting that this is a Scottish case.  Time and time again the law of the United Kingdom comes from Scotland.  If it wasn’t for the efforts of Solicitors and Advocates in Scotland workers, in particular, might well be much less well protected under the law.”.

b)    The assessment of damages and compensation proceeds on the same grounds in England and Scotland. 

The Judicial Studies Board “Guidelines for the Assessment of General Damages in personal injury cases” are often used as a starting point for assessing solatium in Scottish cases as well as English ones.  Sheriff Kinloch in Valentine v McGinty (2010 Rep LR 3) in para16 sums up the position.  “Both the pursuers and defenders’ Solicitors accepted that the appropriate starting point in valuing solatium is the Judicial Studies Board Guidelines for the Assessment of Damages in Personal Injury cases which are now in their eighth edition….(para24) it is my view that unless there are some obvious difficulty applying the guidelines, such as a difficulty in fitting a case into an appropriate category or a clearly recognised discrepancy between the guidelines and court practice, the guidelines are the very least an appropriate starting point in determining damages, and in most cases it seems to me there will rarely be any difficulty in actually awarding damages by reference to them…..although the guidelines have been produced by an English working group, there is authority in Scotland that there should be no real difference between awards of damages for pain and suffering between England and Scotland.”.

If, as Jackson suggests, there will be an increase in general damages by 10% to allow for the removal of success fees and recoverable ATE premiums, one way that this could be implemented is by a 10% general increase in damages levels in the Judicial Studies Guidelines.  Clearly this would have an impact on the manner in which Scottish levels of compensation as assessed.
c)    Most insurance companies are UK based and the same claim handlers will be dealing with Scottish and English cases.  Insurers at present attempt to deal with claims in the same manner i.e. there is often reference in correspondence to Part 36 offers and other English terminology.  There will commercial pressures not to have a substantial difference between English and Scottish PI systems.

Cost Regimes in England and Scotland

Lord Jackson undertook an extensive review of various cost regimes.  When considering the current English regime of CFAs and success fees he commented (page 96 para1.10) “it must be frankly admitted that the conclusions reached in this chapter will cause dismay to many lawyers.  It is, of course, congenial for claimant lawyers to see their clients provided with comprehensive funding and insulated from all risk of adverse costs.  It is congenial for both claimant and defendant lawyers to have a constant stream of work passing across their desks.  Indeed, it is congenial for judges to know that the claimants who appear before them are not putting their personal assets at risk, whatever the outcome of the individual case.  But these undoubted benefits have been achieved at massive cost, especially in cases which are fully contested.  That cost is borne by taxpayers, council tax payers, insurance premium payers and by those defendants who have the misfortune to be neither insured nor a large and well resourced organisation.”.

Lord Jackson highlighted the potential costs that could arise in English PI cases. At page 102 para3.10 he comments “To illustrate the anomalies of the present regime one insurer appends details of a tripping case which it defended with good reason and only just lost.  Damages totalled £9028.  The claimant’s costs (including 100% success fee and ATE insurance premium of £51,466) totalled £141,840.”.

At present in England there is an on-going process which is cutting PI expenses particularly in relation to the introduction of portals in road traffic cases.  This provides for quicker settlement of cases and a fixed tabled of fees, not dissimilar to the current Law Society rates under the protocol.

Lord Jackson was aware of the cost regime in Scottish PI cases and page 112 (para5.5) comments “In this regard, it is significant that in Scotland personal injury cases are conducted satisfactorily on CFAs, despite the fact that success fees are not recoverable.  Indeed at the Glasgow seminar on 19th October 2009, a number of speakers made the point that personal injury litigation, which is currently being conducted under the new procedures developed by the Court of Session, is the most successful part of the Scottish Civil Justice system.”.

Lord Jackson attended at that seminar and although it is perhaps ironic that the Scottish Civil Courts Review may have a serious impact on the effectiveness of the current Court of Session procedures, in that they will be moved to the Sheriff Court, Lord Jackson, although approving of the Scottish system, was aware of the need for protection against awards of costs, which is of course currently widely available in England through the provision of ATE insurance.  This is really the heart of the problem in Scotland that there must be an affordable scheme to allow claimants to litigate without the risk of personally sustaining an award of costs if the case is unsuccessful.

Lord Jackson at page 89, para5.8, comments “In personal injury litigation it must be accepted that claimants require protection against adverse costs orders.  Otherwise injured persons may be deterred from bringing claims for compensation.  I recommend a form of qualified one way cost shifting in personal injury cases, as set out in chapter 19 below.”.

An outline of the current systems of funding in Scotland reveals the following:

Legal Aid

Figures provided by the Scottish Legal Aid Board to the writer in June 2011 revealed that the year 2010 to 2011 31 grants of legal aid were issued in the Court of Session for clinical negligence and 28 for personal injury.  3152 PI cases were started in the Court of Session that year.  In the Sheriff Court for the same period 40 grants of legal aid were made for clinical negligence and 201 grants for personal injury. 

This would cover summary and ordinary actions.  For the year to 31st December 2010 3193 personal injury actions were registered in the Sheriff Court and 3035 summary cause personal injury actions (the bulk of these actions being road traffic claims).

It can be seen that legal aid forms a very minor part in the funding of personal injury actions in Scotland.  Clearly, it is essential to allow the pursuit of clinical negligence cases but it is clear that the high contribution levels (which can run to four figures) together with restrictive legal aid rules provide evidence that claimant’s solicitors are not utilising the legal aid system.  If one way cost shifting were introduced it is likely that the above figures would shrink further, again with the exception of clinical negligence.

Before The Event (BTE) Insurance

Lord Jackson carried out an extensive study of the use of Before The Event insurance in chapter 8 of his report.  He criticises the insurers for failing to allow clients to choose their own solicitors.  At page 78 he refers to the Law Society submission and states “The report does not however give, in our view, adequate attention to the way in which the market is manipulated by BTE insurers so that clients are not free to choose the solicitor of their own choice…The Association of District Judges has made known to the Law Society, during 2008, its concerns that this system frequently operates as a denial of justice to claimants who lose, undersettle or not pursue cases as a result of the nature of representation provided.”.

Lord Jackson believes that BTE insurance is a beneficial product as an add-on to a household insurance policy and if his reforms relating to a choice of solicitor were implemented BTE insurance would have an important role in promoting access to justice.  However, separate serious concerns have been raised regarding the conduct of BTE insurers in the present English market.

In an article in the New Law Journal on 14/02/2011 John Peysner and Angus Nurse explained why BTE is unlikely to be a cure all solution to access to justice.  Referring to Lord Young’s proposed investigation of a national scheme they comment “the fact that only half a page out of the 224-page legal aid consultation paper is devoted to the topic suggests that it is no panacea and, in fact, it is a very problematic product.”.

Far more serious concerns have been raised by the current conduct of insurers collecting far more in referral fees than they pay out in claims.  In the New Law Journal on 27th May 2011 John Spencer commented: “The money generated to referral through referral fees does not find its way back into the pockets of the accident victim.  Indeed insurers argue that instead it contributes to increased motor insurance premiums in road accident cases.  What insurers do not publicise is that the Association of British Insurers (ABI) has documented that in 2008 motor insurers collected £447million in before the event (BTE) insurance premiums to cover legal expenses whilst paying out £53million in claims.  In the same year, 471,000 (BTE) claims were notified.  If one presumes that 75% of these attracted a referral fee of £750 this would have generated for ABI members income in excess of £2.5billion”.

One further problem highlighted with BTE insurance is in relation to the amount of cover provided under the policy.  It has been common practice for policies to provide cover up to £25,000 or £50,000 for legal costs. 

While some insurers (Direct Line) have extended this to £100,000, concerns have been raised that the insurance cover is insufficient and that cases have had to be abandoned when costs estimates have overtaken the allowed funding.

Whilst BTE is a welcome addition to the market it is not able to provide a genuine and all-encompassing source of funding for BI court litigation.

After The Event (ATE) Insurance

Lord Gill, in chapter 14 (page 99, para109) sums up the current position in Scotland “We also asked whether legal expenses insurance, including BTE and ATE insurance, has a greater role to play in the funding of litigation in Scotland, and what impact the ability to recover ATE insurance premiums from unsuccessful parties would have on litigation…some Respondents noted that it was difficult and sometimes impossible for solicitors to obtain ATE cover for their clients in Scotland.  Some reported that it was available, but more expensive than England and Wales.  This was partly because the market was too small and partly because premiums were not recoverable, which in turn impacts on the size of the market.  Because of its cost, ATE insurance was unlikely to provide a solution to the problem of funding low value actions.  There was broad agreement that the ATE market was unlikely to develop in Scotland unless premiums were recoverable.

In 2002 David Hartley, Director Accident Line Services at Abbey Legal Protection Limited, set out what lessons can be learned from the ending of the Compensure After the Event Insurance Scheme in Scotland.  He indicated that at the time the ATE insurance market was still very immature and that the cost of loss in a Scottish claim was lower than in England and Wales.  Serious concerns were raised about the volume of cases required to properly fund a successful ATE scheme.  The premiums of £235 were not adequate and it appeared that cases were being cherry picked and that insured cases may have been more difficulty or risky than their English counterparts.  (JPIL Dec 2002 Page 399).

For an ATE scheme to succeed in Scotland all the firms’ cases may need to be insured with premiums dependant  on the complexity of the case, but likely to be much higher than the £235 in the Compensure scheme.  If the ATE policy is not recoverable and the solicitor is taking in addition a success fee the clients may have considerable deductions from compensation.  In addition, cover of up to £100,000 for legal costs might add a substantial amount to the premium.

Conclusion

Statistics recovered from the Compensation Recovery Unit reveal a significant difference in the pro rata claims per head of population between Scotland and England/Wales.

The number of CRU certificates granted in Scotland in 2010 was 38,524.

In England the figure was 858,191 and in Wales 48,384. 

On a population basis there are therefore 44% claims per head of population compared with England.  One reasonable conclusion to be drawn from these figures is that there is more awareness of the right to claim and available funding in the English jurisdiction and that the current support of ATE insurance and success fees contribute to this.

It is clear that the English claimant expects to recover 100% of their damages under the present regime, unlike the situation in Scotland where it is normal for there to be a percentage deduction to cover a success fee/insurance premium.  The cost to insurers is certainly less.  Looking at websites for top ranked England personal injury firms the funding system there gives a far greater scope for pursing claims than in Scotland.  As an example Leigh Day Solicitors is top ranked by the Chambers Directory which comments that the firm has been representing Colombian farmers against BP Subsidiary Exploration (Colombia) in relation to alleged environmental damage caused by an oil pipeline.  The firm acted for Kenyan claimants alleging detention and torture by the British Colonial Government during the “Kenya emergency”.  They have also acted for victims of abuse and torture.  Clearly these cases can only proceed on the basis of the current English funding scheme.  It would be difficulty to find similar Scottish examples.

Lord Jackson’s conclusion was that Qualified One Way Cost Shifting should be introduced.  Under this scheme the claimant is not required to pay the defendant’s costs if the claim fails, but the defendant pays the claimant’s costs if the claim succeeds.  The qualification is that unreasonable or otherwise unjustified party behaviour may lead to a costs order.  The quid pro quo for this one way shift is that success fees and ATE premiums would cease to be recoverable.  There would be a 10% increase in general damages and the success fee for English solicitors would be capped at 25% of the damages payable.  The 10% increase in general damages would help the client recover the costs.  A further 10% increase in damages would be awarded if the defendant failed to beat the equivalent of a pursuer’s Tender.

The qualification in the one way cost shifting relates to two factors:

a)    The financial recourses of all the parties to the proceedings, and
b)    Their conduct in connection with the dispute to which the proceedings relate

Lord Jackson took this qualification which in England is known as the legal aid shield from the 1999 Access to Justice Act.  The qualification raises a number of issues which would have to be address in Scotland:

a)    Would there be a similar provision as under Scottish Legal Aid legislation (Section 18 (2) of the LEGAL AID (SCOTLAND) ACT 1986) “The liability of a legally assisted person under an award of expenses in any proceedings shall not exceed the amount (if any) which in the opinion of the court of or tribunal making the award is a reasonable one for him to pay, having regarding to all the circumstances including the means of all parties and their conduct in connection with the dispute”.
b)    What happens if there is a Tender?  Do you lose the cost shifting protection if you don’t beat the Tender?
c)    What happens if the claimant is unreasonable?  Could solicitors find the claimants insisting that litigation proceed when the lawyer does not accept the merits of the case make it worthwhile?  How would the defenders deal with unassisted party litigants?
d)    What happens on Appeal?

Could we learn from employment legislation in this respect by allowing defenders to seek a deposit if the pursuer’s case appears weak and unlikely to succeed?  Should the defenders be allowed to apply to the court that an order be made that the pursuer in a weak case may be at risk of an award of expenses if they proceed and are unsuccessful?

These issues are matters of detail that can be considered if the principal of one way cost shifting is accepted.

It is difficult to see what disadvantage there could be to the Scottish claimant following the introduction of qualified one way cost shifting as it would allow the current Scottish regime of speculative actions to continue with a degree of protection for the unsuccessful litigant which is not currently available.