No protocol – what expenses?

What happens when an insurer refuses to agree to a claim being conducted under the Scottish pre-action protocol, proceedings are raised and a case settles (usually by way of minute of tender)? What expenses is the pursuer properly entitled to? Are they entitled to their full judicial expenses on the basis that proceedings were raised because of the insurers’ refusal to agree the protocol?

This article considers the issue and some of the cases that have been decided so far.

The protocol scheme was set up by agreement between the Law Society of Scotland and the Forum of Scottish Claims Managers. It governs cases with a value below £10,000. Agreement by both parties to the protocol renders them contractually bound. There is an overarching tariff fee agreement under the scheme which was reached after negotiation. The fee chargeable is based on a percentage sliding scale dependent on the settlement value of the claim.

Most insurers/claims handlers agree to claims being conducted under the protocol. Some, however, do not, including many local authorities, claims handlers acting for them, as well as other fairly familiar names in the insurance industry.

Fees payable under the protocol are more generous than those chargeable in terms of the old “chapter 10” scale under the Law Society of Scotland General Table of Fees. Chapter 10 was abolished in 2005, although some insurers still seek settlement of claims under it. It has always been a voluntary scheme, similar to the protocol.

The enhanced level of fee payable in protocol cases, as compared with chapter 10, is probably a recognition of the work required to properly construct a claim on liability, quantum and negotiation with insurers. In that connection, it is perhaps worth noting that the Scottish Civil Court Review chaired by Lord Gill found the pre-litigation judicial block fee to be “inadequate”, as it did not properly take account of the totality of work required to construct a claim pre-litigation. Indeed, the review recommended a “significant” increase in the fee.

The protocol came into effect on 1 January 2006. We are now seeing cases where the courts are being asked to adjudicate on the issue of expenses – in particular, the interplay between the protocol and judicial expenses.

The typical situation is where refusal by the insurers to agree the protocol has led to proceedings being raised and a minute of tender lodged early during the proceedings, which is accepted by the pursuer.

Expenses: the “general rule”

The “general rule” in litigation is that a successful party is entitled to “his full expenses as taxed” (Macphail, Sheriff Court Practice (3rd ed), para 19.07). The court has always had a discretion to depart from the general rule in appropriate circumstances, and the successful party may have their expenses modified, refused or even be found liable in expenses. However: “If the Sheriff does not follow the usual course of awarding expenses to the successful party, he must have materials upon which he can in the exercise of his discretion judicially pronounce that, in his opinion, the usual rule should not be followed: there must be some ground capable of statement which has rendered a departure from the ordinary rule desirable in the particular case” (Macphail, para 19.08).

Examples of where the court has departed from the general rule are given at paras 19.09-19.12 of Macphail. Collectively, they may be described as situations whereby, on “conduct” grounds, a successful party’s actions either pre or post-litigation may be described as “unreasonable”, therefore justifying modification or refusal of expenses, or even a successful party being found liable in expenses. In summary, the circumstances are:

(i) where a party has unreasonably commenced litigation; and

(ii) where a party has unnecessarily prolonged litigation.

Pursuers’ agents should also note what was said by the Lord President in Shepherd v Elliot (1896) 23 R 695 at 697: “I have only to add that, as far as I have observed, the court exercises considerable reserve in departing from the general rule that costs follow the event” (emphasis added).

What then do the recent cases say regarding the interplay between the protocol and judicial expenses?

McIlvaney v A Gordon & Co Ltd [2010] CSOH 118

This was an action for damages arising out of an accident at work. The pursuer’s agent sought to have the claim conducted under the protocol, which the defenders’ insurers refused. There was however a pre-litigation offer of £6,000 made to the pursuer, which was rejected. Proceedings were raised in the Court of Session. The defenders lodged a minute of tender in the sum of £6,000 which was formally accepted by the pursuer. The Lord Ordinary acceded to the defenders’ motion to modify the pursuer’s expenses to nil. Given the pre-litigation offer made in that case, the Lord Ordinary’s decision is perhaps hardly surprising.

Campbell v Gallagher (Sheriff Principal B A Lockhart, Dumfries Sheriff Court, 13 March 2012)

Although this case did not involve the issue of the protocol, it is nevertheless useful in relation to pre-litigation actings and whether there is any basis for modification of judicial expenses once proceedings are raised.

The action was for damages arising out of a road traffic accident. A pre-litigation offer of £3,000 was made by the insurers. This was rejected by the pursuer on the basis that he was awaiting final medical evidence (there was a delay in obtaining this due principally to the clinician who had been instructed). Protective proceedings were raised by the pursuer in view of the imminent expiry of the triennium. A minute of tender for £3,000 was lodged after the action was raised. The tender was formally accepted by the pursuer. The defenders moved for modification of the pursuer’s expenses. The pursuer was held entitled by the sheriff at first instance to judicial expenses to the date of tender on the basis that the pursuer’s agent was entitled to obtain full medical information to value the claim and required to raise the action given the imminent time bar date. The sheriff’s decision was upheld on appeal by Sheriff Principal Lockhart.

Durie v Sabre Insurance (Sheriff Lindsay Foulis, Perth Sheriff Court, 27 June 2012)

In this case the claim was initially intimated to the insurers. A request was made for the claim to be conducted under the pre-action protocol. The insurers made an admission of liability, but did not agree to the claim being conducted under the protocol. The pursuer’s solicitors raised proceedings once they obtained a medical report, without disclosing it beforehand to the defenders. After the action was raised, a minute of tender was “promptly lodged”. The defenders moved that expenses be dealt with on a “no expenses due to or by either party” basis. Sheriff Foulis held that the pursuer had acted reasonably in raising the action without giving the defenders the opportunity to consider the medical report on the pursuer.

Brown v Sabre Insurance [2013] CSOH 51

In this case the defenders pre-litigation “confirmed that liability was not an issue”. They otherwise refused to deal with the pursuer’s claim under the protocol. They indicated a willingness to negotiate on receipt of a medical report and any vouching. None was produced. The pursuer raised proceedings. A minute of tender in the sum of £3,500 was lodged. The pursuer enrolled a motion inter alia for decree in terms of the tender. The defenders sought modification of the pursuer’s expenses to nil on the basis that the litigation was premature and unnecessary as no medical evidence had been produced pre-litigation, or alternatively, for summary cause expenses to be awarded.

Lord Boyd at paras 14-19 comments favourably on the protocol. In particular, at para 18 he alludes to access to justice issues which may arise in smaller value claims if a pursuer cannot recover a proper and reasonable amount of expenses (which may therefore effectively diminish the value of the principal sum). At para 19 he held that the pursuer was “entitled to raise the action in the absence of agreement to negotiate under the protocol”. He found the pursuer entitled to expenses on the summary cause scale with a reduction of 15%.

Lawson v Sabre Insurance Co (Sheriff Gregor Murray, Peterhead Sheriff Court, 2 August 2013)

This was an action arising out of a road traffic accident. The claim was intimated to the defenders, seeking agreement for it to be handled under the protocol. The defenders replied promptly, admitting liability, offering to negotiate settlement on production of medical and other relevant evidence, and offering to meet agents’ fees on the “former chapter 10 scale”. In other words, the protocol was not agreed.

The pursuer’s agents thereafter obtained medical evidence and, without further intimation of correspondence, raised proceedings. A tender and defences were lodged after service of the proceedings. The tender was subsequently accepted by the pursuer. The defenders moved for expenses to be modified to chapter 10 level, failing which to protocol level. The case had been raised as an ordinary cause action. The sum accepted in the tender fell within the summary cause limit. After hearing submissions, the sheriff found the defenders liable to the pursuer in expenses on the summary cause scale, restricted to 40% thereof.

The thrust of the sheriff’s reasoning for modification relate to what he appears to have perceived as unreasonable conduct on the part of the pursuer’s agents pre-litigation (to be fair, he is also critical, although less so, of the defenders’ conduct). He considered chapter 10 expenses in the case to be “generous” (para 32). He postulates the amount of work that he thinks the pursuer’s agent would require to undertake in the claim (ibid), and although the only live issue between the parties was quantum (given the concession of liability), “the pursuer’s agents ignored that issue and concentrated instead on expenses” (para 33). They did not seek the defenders’ consent for the medical expert to be a “joint expert” (ibid). They “did not exhibit the expert report or quantify (the pursuer’s) claim”, both steps being “mandatory under the protocol, Chapter 36 and Chapter 34” (para 34).

The protocol was “not mandatory… The initial onus is on the pursuer to justify an award of expenses then to justify the amount payable. The defenders’ conduct is not relevant per se when considering whether or not to mark the court’s disapproval of some aspect of the pursuer’s conduct... until Lord Gill’s recommendation on the mandatory use of the pre-action protocol is implemented, the defenders’ refusal to agree to the protocol is perfectly legitimate” (para 37).

I understand that an appeal of the sheriff’s decision was actively considered but not ultimately pursued, on grounds that doing so would further delay settlement and that his views were in the judicial minority. The latter point seems quite correct, particularly given the weight of opinion by Lord Boyd in Brown.

There are several grounds in the sheriff’s reasoning which are either questionable, doubtful or, arguably, wrong as a matter of law:

• The defenders in the case refused to agree the protocol. The protocol explicitly promotes the expeditious and efficient disposal of cases with a value below £10,000. On the evidence of the Scottish Civil Courts Review, it is widely accepted as a significant improvement to the litigation landscape. The sheriff alludes to what work he thinks would be involved in a “hypothetical solicitor’s file for such a case”. He does not appear to have been accurately informed of the actual work involved.
• Further, it is unreasonable (if not improper) to expect a pursuer to “justify protocol expenses”. The tariff fee agreement under the protocol was reached after negotiation by experienced practitioners and claims managers. By definition, any tariff fee will never be exactly correct, with some cases involving considerably more work and others requiring much less. The parties who drew up the protocol know this, and it is unhelpful for individual sheriffs, with possibly little or no experience of litigation expenses, to seek to second guess, or micro-analyse, what might be an appropriate level of expenses in protocol cases. Indeed, the same consideration applies to block judicial fees. Save for exceptional cases where a motion is made for a fee uplift, the same block fees are payable in, e.g., both a more complicated accident at work case and a “simple” road traffic case.
• The sheriff’s reasoning is partly contradictory. He criticises the pursuer for not disclosing the medical report and notes (correctly) that it is “mandatory under the protocol”, but nevertheless later holds that “the defenders’ refusal to agree to the protocol is perfectly legitimate”. As Sheriff Foulis held in Durie, “They [the defenders] clearly expected the pursuer to arrange for her examination with the disclosure of the resultant medical report. In short, they expected the pursuer to do all the running without any reciprocal concession regarding the protocol, a concession which many of their fellow insurers met.” In Brown, Lord Boyd held that “the defenders cannot have it both ways. If they decline to be bound by the terms of the protocol they cannot expect the pursuer’s agents to be bound by it. In my opinion the pursuers were entitled to raise the action in the absence of agreement to negotiate under the protocol”.
• The sheriff is of course correct when he states that the “protocol is not mandatory”. Failure to agree to it should not per se attract censure by the court. That however is really not the issue. The issue is whether refusal to agree the protocol is reasonable in the overall assessment of both parties’ conduct, particularly against the background of the conclusion reached by the Scottish Civil Courts Review (after widespread consultation) that use of the protocol should be “mandatory”.
• The sheriff’s opinion that the “initial onus is on the pursuer to justify an award of expenses then to justify the amount payable” is arguably an error of law. The general rule is clearly set out in Macphail: a successful party is entitled to “his full expenses as taxed”. The “amount payable” is a matter for the auditor of court to determine, subject to any objections to the auditor’s report which would then be for the court to adjudicate on.
• The sheriff is further arguably in error when he opines that the “defenders’ conduct is not relevant per se when considering whether or not to mark the court’s disapproval of some aspect of the pursuer’s conduct”. A pursuer’s conduct cannot simply be assessed in isolation from the conduct of a defender, particularly where the pursuer’s “conduct” arises as a consequence of a defenders’ actings (i.e. in this case offering to settle expenses on an out-of-date fee scale as opposed to a scale – under the protocol – which a majority of insurers now agree). In that respect, the sheriff does not really address the “access to justice” point made by Lord Boyd in Brown. See also the comments below by Sheriff Principal Stephen in Burns.

Burns v Royal Mail Group Ltd (Sheriff Principal M Stephen, Edinburgh Sheriff Court, 30 January 2014)

This was an appeal before Sheriff Principal Stephen in Edinburgh which I recently conducted on behalf of the pursuer. The substantive point in the case did not relate to the protocol, but both the sheriff at first instance and the sheriff principal make reference to the protocol. The views of the sheriff principal in particular are helpful. She gave an extempore judgment at the conclusion of the appeal hearing. A written note of her decision has since been issued.

The action proceeded under Chapter 34 of the Summary Cause Rules. The pursuer was injured in a road traffic accident. A claim was intimated to the defenders and agreement was sought for the claim to be conducted under the protocol. They did not agree to the protocol. Further, at no point did they disclose their liability position, despite reminders being forwarded to them. Proceedings were raised almost exactly one year after intimation of the claim, by which time the pursuer had obtained a medical report. After service of the proceedings but before the last day for lodging a form of response, the defenders’ agents offered to settle the case by way of payment of a principal sum of £750 together with expenses on the undefended summary cause scale. The offer was rejected by the pursuer. The defenders then offered to pay expenses on the protocol scale. This was also rejected by the pursuer on the basis that the claim was not being settled under the protocol as proceedings had now been raised. There was then a repetition of the original offer of £750 with expenses on the summary cause undefended scale. This was again rejected by the pursuer.

The pursuer’s agents made clear during these negotiations that settlement of the action would only be on the basis of payment of summary cause judicial expenses. The defenders subsequently lodged a form of response containing their written defence (the defences purported to “not know and not admit” the accident circumstances and liability was formally denied), and simultaneously lodged a tender in the sum of £750 together with expenses of process. The tender was accepted by the pursuer.

The defenders moved for modification of the pursuer’s expenses to those on the summary cause undefended scale. It should be noted that the defenders made a formal concession to the sheriff that the pursuer had been entitled to raise proceedings. Nevertheless, after hearing submissions, the sheriff acceded to the defenders’ motion and modified the pursuer’s expenses to those on the summary cause undefended scale (the sheriff followed a similar decision which had been made in Moloney v Royal Mail Ltd, Sheriff Douglas A Brown, Hamilton Sheriff Court, 9 July 2012).

Although strictly obiter, the sheriff’s comments on the protocol were not particularly favourable: he did not think that failure to agree the protocol should “carry a potential penalty in subsequent discussions about expenses”; he did not consider it “to be a reasonable criticism” that “the defenders were in some way being unreasonable in not making an offer before the action was raised”; he referred to “shortcomings” and “fault” with the protocol; and in relation to small value claims, “there may be offers made which the insurers expect to succeed at proof, but nevertheless make an offer on an economic basis to avoid the agent/client cost of proceeding. In such circumstances it is unreasonable… to expect the insurers to disclose their position on liability”. The latter comment is, of course, fundamentally at variance with the aims and objectives of the protocol.

The basis for the sheriff’s decision was that, as a matter of law, since the extrajudicial offer of £750 with expenses on the summary cause undefended scale was made after service of proceedings but before a form of response/defences had been lodged, the pursuer was only “entitled” to expenses on the summary cause undefended scale.

Sheriff Principal Stephen reversed the sheriff’s decision and sustained the pursuer’s appeal. She found the pursuer’s conduct pre- and post-litigation to be “beyond reproach”. The sheriff had failed to have regard to the defences lodged, which were skeletal and denied liability. The pursuer was entitled to know what the defence to the action was, as it had important implications when considering any offer of settlement. It accordingly had a bearing on the “prolongation” of litigation.

The sheriff had also erred in law. The action was not “undefended”. An undefended action is specifically governed by rule 7 of the Summary Cause Rules, which provides for an “entitlement” to expenses only if the return day passes without any form of response being lodged, at which point a pursuer can minute for decree for the full sum craved together with expenses (which would be on the undefended scale fee). Once defences had been lodged, the action was in foro. The action being properly a defended action, the pursuer was entitled to his expenses as taxed (Macphail, para 19.07). The case of Moloney had accordingly been wrongly decided by Sheriff Brown for similar reasons. The mischiefs which the rules governing expenses are directed at relate not only to pursuers raising proceedings precipitately, but also defenders incurring expense by refusing to disclose a proper defence. The well-established rules have a legitimate aim of deterring unnecessary actions, but the focus has to be on both parties' behaviour.

The sheriff principal was of the view that the protocol was of relevance. She agreed with Lord Boyd’s opinion in Brown, particularly his comments in para 18 concerning access to justice. In particular, many small value claims may not be taken if a pursuer has to consider whether the value of his claim is eroded by failure to recover a proper level of expenses.