One eye over the border

The litigation market is braced for reform, spearheaded by the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO), which received Royal Assent on 1 May. Incorporating the recommendations of the Jackson Committee on the funding of civil litigation in England & Wales, the legislation, which comes into force next April, will introduce significant changes. A similar process is also well under way north of the border, where the consultation period into Sheriff Principal Taylor’s report on the future of funding of civil litigation ended in March. 

LASPO has proved to be a very controversial piece of legislation in England. The bill was defeated 14 times in the House of Lords, having provoked strenuous opposition from Lord Pannick and Lord Davidson of Glenclova among others. The most contentious issue was the proposed restrictions to civil legal aid. However, LASPO also brings to an end the use of conditional fee arrangements (CFAs), which enabled successful litigants to recover not just their costs but also “success uplifts” payable to their lawyers and insurance premiums for expenses cover. The system has been abused and, along with referral fees which have also similarly been discredited, CFAs are to be abolished.

The proposed alternative is the damages based agreement (DBA) or contingency fee. DBAs provide for lawyers in most civil cases (other than family cases) to take up to 25% of damages agreed or awarded as “success fees”. LASPO also provides wide powers for regulations restricting or fixing cost recovery in certain situations, and in particular introduces, for personal injury cases, “qualified one-way costs shifting”, under which, effectively, insurers pick up the cost of litigating claims which do not succeed.

The potential benefit for Scotland in the timing of the Taylor review is that we can wait and see how these reforms work out in practice before committing to our own reforms. A total of 70 responses have been received to the consultation paper, producing a remarkable consistency of response to many of the questions posed. But as we await the submission of the final report, expected in spring 2013, what recommendations are we likely to see, and how could these impact clients, solicitors and any future legislation?

The consultation paper

The consultation paper sets out the problem very clearly. Civil legal aid is not available to many potential litigants. Those on incomes of upwards of £26,239 per annum are not eligible for legal aid. Many below that level are liable to pay significant contributions. We remain in a straitened economic climate and private funding for dispute resolution is increasingly scarce. The cost of litigating is high. All of this has resulted in a decline in active litigation. This raises the problems of reduced access to justice for the public, and falling work volumes for the legal profession.

The paper poses a total of 68 questions, with suggested means of improving the system and making litigation more attractive. These cover the areas of assessment and recoverability of costs, predictability of costs, costs shifting, summary assessment, provisional costs orders, and more radical possibilities such as referral fees, extension of before-the-event and after-the-event insurance (BTE and ATE) and speculative fee agreements, DBAs, and third party funding of litigation.

Continuing controls

There is significant agreement in the responses to many of the questions posed. Generally, respondents appear positive about a more realistic and efficient means of fixing and assessing judicial expenses.

The first step might be to have broader representation on the Lord President’s Advisory Committee on solicitors’ fees, which is responsible for updating the tables of fees. It is recognised that there has to be control on the level of costs and outlays that can be incurred and recovered in litigation, but there is also acceptance that the current level of recovery is inadequate.

There appears to be a cautious enthusiasm from some at least towards the idea of summary assessment of expenses, which can be done on an ad hoc basis by a sheriff or judge, as a case progresses. However, respondents seem to favour the current normal rule of a successful litigant recovering expenses over any idea of “costs shifting”, where that rule is varied in particular circumstances to promote access to justice.

There is almost universal opposition from respondents to the idea of introducing referral fees into the Scottish system. This is viewed as open to substantial abuse and as encouraging “ambulance chasing”.

Means of funding

However, there is widespread enthusiasm for more promotion of BTE insurance. Normally such insurance is available as an incidental of household or road traffic policies, but it would be possible actively to promote more widespread use. The biggest downside is currently that most BTE policies have a limited cover of £50,000, which may not be sufficient to cover all expenses in a litigation of any substance. However, there is a real belief that BTE insurance can effectively be used in the future to plug the gap that may result from diminishing legal aid budgets.

Likewise, there is an enthusiasm in most responses for speculative fee agreements. These are now part of the legal landscape in Scotland. Many firms, particularly those doing pursuers’ personal injury work, operate mostly on the basis of speculative fee agreements and they have become a major part of access to justice in Scotland.

There is recognition that uplifts should be controlled and that speculative fee agreements are open to abuse. There is also the recognition that a speculative fee agreement necessarily imports a certain degree of conflict of interest, as the solicitor has an interest in the outcome of the case. However, subject to appropriate controls, the view is that these should be encouraged. In contrast, following the problems in England which resulted in the Jackson review and the abolition of conditional fee agreements (CFAs), there is strong resistance to the recoverability of uplifts and ATE insurance premiums.

Perhaps most important of all is the apparent widespread support for the introduction of DBAs. There is the recognition that these are open to abuse, and we are all aware of the systematic abuse that has gone on in the USA, in particular. However, the reality is that most claimants will accept some reduction in the damages which they receive at the end of a claim, in return for the security of knowing that if the claim fails they will not be exposed to the unknown penalty of adverse expenses awards. Furthermore, there is recognition that if and when DBAs are introduced for solicitors in England & Wales, if we do not introduce them in Scotland, our system will simply lose legal work over the border. The consultation paper sets out some sobering figures relating to total numbers of claims in a three-year period (2008-11), raised in England compared to Scotland. Claim numbers in England are anything up to 20 times greater than in Scotland across a range of areas.

In relation to DBAs, most respondents believe there has to be some limit on the percentage of damages applied to costs, with many coming up with a figure of 25% as a benchmark.

The responses are less certain in respect of third party funding, but there is a cautious recognition from many that the profession cannot close its eyes to such possibilities. Again the level of reward that the third party funder is imposing is seen as critical, as is the question of control of any litigation.

Impact on the profession

It would be wrong to speculate on the likely shape of any reforms introduced in the wake of the Taylor review. In many cases, such as with cost recovery and assessment, it will simply be a case of adapting to reforms as and when they are introduced. However, the big questions raised by the Taylor review over the extension of BTE insurance, the introduction of DBAs and the regulation of third party funding are issues that are of relevance to all solicitors practising in the area of litigation in Scotland. How we should adapt to such changes is a question all of us should be addressing. n