Civil court: Costs – the tail that wags the dog

Judicial review

It is difficult to ignore the large number of judicial review decisions that have been published recently. Back in 2009 the Scottish Civil Courts Review noted the extent to which JRs contributed to the workload of the Court of Session, including the disproportionate amount of time taken up with hearings. It proposed various reforms to address these concerns. Although the most recent set of civil statistics (for the year to 31 March 2021) showed a significant reduction in such cases, that could be explained by a number of extraneous factors, including Covid. I don’t know how many JRs have been raised since, but from the number of decisions published lately, it looks like there are more of them now than ever. 

State funding of litigation

One such case was Halley v Scottish Ministers [2022] CSOH 81 (9 November 2022), in which a part time sheriff whose conduct was to be investigated by a tribunal established under s 21 of the Courts Reform (Scotland) Act 2014 challenged the respondents’ decision to refuse to fund the cost of his legal representation before the tribunal. It emerged during the proceedings that the tribunal had actually offered to pay those costs; the main bone of contention then became whether the respondents should also pay for his legal representation at the judicial review in which he sought to challenge preliminary decisions of the tribunal. 

Among other things, this involved consideration of ECHR article 6(1). After lengthy consideration of numerous cases about state funding of litigation, Lady Drummond refused to grant the order sought. She concluded: “Considering all these factors,... the petitioner has a reasonable opportunity to present his case to the court without funding for legal representation being provided by the respondents. The costs of the substantive petition are not prohibitively expensive and it is not unreasonable for the petitioner to proceed with the judicial review without funding from the respondents. The respondents’ refusal to spend limited public funds on meeting the costs of the substantive petition is in all the circumstances proportionate… The denial of funding for legal representation for the substantive petition does not constitute a limitation on the petitioner’s right of access to the court which undermines the very core of that right and makes it practically impossible or excessively difficult for him to exercise his rights.”

The cost of litigation

I would like to think that anyone involved in the conduct of litigation in Scotland would be interested in cases in other jurisdictions which involve issues that may eventually impact on us. Three such recent cases focusing on various aspects of the costs of litigation are worth a look. 

In Belsner v Cam Legal Services [2022] EWCA Civ 1387 and Karatysz v SGI Legal LLP [2022] EWCA Civ 1388, the Court of Appeal considered two low value personal injury claims in which the claimant’s solicitors had made certain deductions from their client’s damages in terms of their contingency fee agreements. These deductions were challenged by the clients. The English charging principles and practices are complex, so much so that it seems there are law firms whose sole business is the challenging of other lawyers’ fees. The precise details are immaterial and none of the lawyers came out of it well, but there are two general points to take from the decisions. 

First, there was judicial criticism of an appeal about such a relatively small bill taking up four days of the Appeal Court’s time. Secondly, the court urged the profession to reconsider the whole way in which success fees and other charges work in low value PI claims. The Law Society Gazette commented that the Court of Appeal seemed to regard much of the personal injury claims business as “one grubby process” in need of significant reform or shutting down altogether. A precedent we should take great care to avoid, I would suggest.

There are some telling observations about the principle of equality of arms in an interesting judgment of 22 October 2022 from the European Court of Human Rights, in Coventry v United Kingdom [2022] ECHR 816. Most people would associate the principle with a desire to support individual claimants pursuing powerful and wealthy opponents, but in this case it was prayed in aid of an uninsured defender. The case concerned a claim for nuisance against the owner of a stadium used for motor sports. The claimants had the benefit of ATE insurance and their lawyers were acting under a success fee arrangement. The ATE premiums and success fees were recoverable from the losing party. Ultimately the claimants succeeded and were awarded £20,000 in damages. They were also awarded a total of about £850,000 in costs (not counting costs before the Supreme Court!), of which well over half were success fees and ATE premiums.

The defender complained that this was unfair to them and the ECHR agreed. It said that the adversarial principle and the principle of equality of arms are fundamental components of the concept of a “fair hearing” within article 6(1). Each party must be afforded a reasonable opportunity to present their case under conditions that do not place them at a substantial disadvantage vis-à-vis their opponent or opponents. The court referred to the “blackmail or chilling effect” of the fact that the costs burden on the opposing parties was so excessive that often a party was driven to settle early despite good prospects of a successful defence. The very different financial risks faced by the parties would be likely to impact on every decision concerning the conduct of proceedings and could also preclude a settlement, even in the early stages, if a party was simply not in a position to pay the opposing party’s costs. The court ruled that the costs scheme applicable at the time in England was a violation of article 6(1). QOCS, anyone?

Finally, if you are really nosy, have a look at University of Manchester v McAslan & Partners [2022] EWHC 2750 (TCC), a claim for damages for breach of contract relating to the design and construction of a building project. The court was asked to, and did, approve the budget costs of all the parties in a claim which was worth just under £14 million; the decision includes a detailed schedule setting out past and projected costs for each party. Although the value of the claim was high, the figures are eyewatering. For example, the claimants’ pre-action costs up to the issuing of proceedings were about £1.2 million. The disclosure costs for all four parties totalled around £1 million; expert witnesses’ estimated costs came to just over £1.5 million. Prospective trial preparation and conduct costs for all parties totalled about £2.5 million. At these levels, is there not a risk of litigators pricing themselves out of the market?

Legal professional privilege

In SLCC v Murray [2022] CSIH 46 (11 October 2022) the Inner House had to rule on the application of the important principle of legal professional privilege (“LPP”) in the context of the investigation of a complaint to the SLCC against a solicitor. As the court put it, “The question which arises in this petition is whether the petitioner is entitled, under s 17 of, and sched 2 to, the Legal Profession and Legal Aid (Scotland) Act 2007, to apply for the production and delivery of documents which would otherwise be covered by legal professional privilege”.

The wife in divorce proceedings made complaints against her husband’s solicitors, in particular their alleged failure to provide “in a timely manner, all necessary vouching” requested by her own solicitor. The SLCC sought the third party solicitors’ file for their investigation. The husband did not waive his privilege and the solicitors refused to provide the file on grounds of confidentiality and LPP. The SLCC argued that it had the right to obtain such papers. The Faculty of Advocates and the Law Society of Scotland, as interveners, opposed the petition.

The court upheld LPP, and the judgment contains a number of observations about confidentiality and privilege which should be compulsory reading for any practising lawyer. In a supplementary opinion, [2022] CSIH 54 (9 December 2022), the court emphasised the distinction between confidentiality and LPP. Service of a notice by the SLCC under s 17 of the 2007 Act relieves the practitioner of the general duty of confidentiality. However LPP is “in a special position” and applies to those documents which fit the definition. I understand that the Society is reviewing the ramifications of these decisions and is likely to issue guidance to the profession, so I will say no more meantime. 

Additional fee

Does the award of an additional fee apply only to work done up to the date of the award, or to the proceedings as a whole? That was the simple question posed in the case of Whitehouse v Chief Constable [2022] CSOH 75 (5 October 2022). The answer, regrettably, is not quite so simple. Paragraphs 15-18 of the opinion contain the crux of the decision, but they defy easy summary, I am afraid to say. Suffice it to say that in the Court of Session the court can allow an additional fee under certain headings and the auditor will then fix the amount of the fee, taking those headings into account. The auditor’s discretion is a significant part of that complex equation.

State immunity

In Morrison v Mapfre Middlesex Insurance [2022] CSIH 45 (6 October 2022) the Inner House considered the application of s 14(2) of the State Immunity Act 1978. So far as I am aware, this is the first time the Scottish courts have done so. The pursuer was on a tour bus in Malta which hit a tree. He sued the tour operators for damages, and they convened the third party, alleging that they were in breach of their duty to maintain the road. The third party (a private company) argued that they were exercising sovereign authority delegated by the Maltese state and accordingly were entitled to immunity from suit outwith Malta in accordance with the Act. They took a preliminary plea of no jurisdiction; a preliminary proof was held to ascertain the background arrangements with the Maltese Government. After proof the Lord Ordinary sustained the plea. The defenders’ appeal was refused. 

Lord Carloway, delivering the opinion of the court, set out briefly the rationale for state immunity and the development of the law which led to the 1978 Act. In this situation, there is a distinction between acts involving commercial or private rights, which are not immune, and acts arising from the exercise of sovereign power, which are. On the evidence, the third party was carrying out the Maltese state’s obligation to maintain its major public roads and therefore immunity applied.

Pleadings (or lack of)

In Golden Lane Securities v Scarborough [2022] CSOH 76 (7 October 2022), Lord Clark had to rule on an objection to evidence in a commercial action based on lack of notice in the pleadings. The case concerned a claim and counterclaim arising out of a purported agreement. Witness statements had been provided in accordance with the predominant commercial practice. An objection was taken to certain passages of evidence in the defender’s supplementary witness statement, lodged six weeks before the proof. It is necessary to read the whole judgment to understand the position fully; however Lord Clark sustained the objection and made certain observations of interest for commercial litigators.

“Whilst pleadings in commercial actions are intended to be succinctly expressed, fair notice remains as a key requirement. There may be particular circumstances in which a lack of specification in pleadings is sufficiently developed in a witness statement, and in some instances that can be allowed. Controversial evidence being led subject to competency and relevancy can of course also be permitted. But where the evidence objected to is on material points of real substance in a supplementary witness statement and these are not mentioned in the pleadings, and the points also lack specification and are not vouched, there is prejudice to the other party in seeking to deal with it at the proof.”

It is interesting to compare this with Lord Clark’s decision on the adequacy of pleadings in another commercial action, SSE Energy Supply v Stag Hotel [2022] CSOH 54, noted in my article at Journal, November 2022, 40.

Sheriff Appeal Court: competency of appeal

In Thorntons LLP v Dymoke [2022] SAC Civ 29 (29 September 2022), two procedural issues arose which are worth noting. The action concerned a dispute between solicitors and their clients, who each represented themselves separately. The action settled after mediation and an interlocutor was pronounced, purportedly of consent, disposing of the action. Both defenders lodged separate appeals. 

The respondents argued that the appeal was incompetent having regard to rule 6.2(2)(b) of the SAC Rules 2021, namely the requirement to set out, in the note of appeal, the grounds of appeal etc. The court observed that any such failure was not a question of competency. If a respondent wished to challenge a note on these grounds, the appropriate procedure was to proceed by way of motion to find the appellant in default. An appellant could seek relief from any such failure under rule 2. 

The respondents also argued that since the interlocutor was of consent, it was not open to the court to consider an appeal. Under reference to the most recent edition of Macphail and cases cited there, the court refused to countenance the appeal by the first appellant but allowed it to proceed in relation to the second appellant, who had not been present or represented when the interlocutor had been pronounced and therefore could not have consented to it. 

Simple procedure: evidence of service

The Sheriff Appeal Court addressed the vexed question of what formality is required to entitle a court to pronounce decree in an undefended simple procedure case, in Cabot Financial (UK) v Bell [2022] SAC Civ 31 (24 October 2022). The summary sheriff had refused to grant a decree in absence where the claimant’s lawyers had lodged form 6C (confirmation of formal service) but no Royal Mail Track and Trace receipt or other evidence of receipt of the claim form. 

Rule 18.2(4) of the Simple Procedure Rules provides: “After formally serving a document, a confirmation of formal service must be completed, and any evidence of delivery attached to it.” There was scope for arguing that this could be taken as meaning “evidence of delivery (if any) attached to it”, and that the presumption of receipt of a document that was sent which is contained in s 26(5) of the Interpretation and Legislative Reform (Scotland) Act 2010 was engaged.

Contrary decisions on the point had already been made in Cabot Financial (UK) v Finnegan 2021 SLT (Sh Ct) 237 and Cabot Financial (UK) v Donnelly 2022 SLT (Sh Ct) 147. The claimants appealed. It is interesting to note that as there was no party to oppose the appeal, the court appointed an amicus curiae. Their function is “to assist the court by presenting a neutral appraisal of the issues which require to be decided and by raising considerations that might not otherwise come to the court’s attention”: see Hamilton v Glasgow Community and Safety Services [2016] SC (SAC) 5.

The issue appears to be of considerable practical significance to those involved in high volume debt recovery actions, and I understand that the claimants’ lawyers are seeking permission to appeal the decision further, although it should be noted that the Act of Sederunt (Simple Procedure Amendment) (Miscellaneous) 2022 (SSI 2022/211), which came into force on 28 November 2022, seems to address any uncertainty on the point by substituting a different wording for rule 18.2(4) as follows:

“(4) After formally serving a document, a confirmation of formal service must be completed and any evidence of sending... attached to it (for example, a postal receipt…).”