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QOCS in Scotland – the next steps

The Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill was laid before the Scottish Parliament on Friday 2 June.

The next step will be for the Bill to be assigned to a lead Committee, most likely the Justice Committee, and this should be considered by the Parliament’s business bureau next week.

If passed by the Scottish Parliament, the Bill will:

- Introduce sliding caps for success fee agreements (speculative fee agreements and DBAs) in personal injury and other civil actions and will allow DBAs to be enforceable by solicitors in Scotland

- Introduce QOCS for personal injury cases and appeals, including clinical negligence, and will specify the circumstances when the benefit of QOCS would not apply

- The benefit of QOCS will be lost by any party who "makes a fraudulent representation in connection with the proceedings" with proof required on the balance of probabilities Section 8(4)(a)

- Allow costs orders to be made against any party having a financial interest in the proceedings, such as a claims management company, who would not have the benefit of QOCS; and

- Allow multi-party actions

Current marketplace

Claims volumes – over the four year period from 2012 to 2016 injury claims in England decreased by 4.5% while in Scotland claims have increased by 16.6%.  We are now seeing 7419 more claims every year in Scotland. 

CMC Activity - Scotland is now a more attractive jurisdiction for Claims Management Companies, with higher recoverable expenses and therefore significantly higher profit margins.  As a result the activities of CMCs north of the border have increased.  Claims management companies are not yet regulated in Scotland. 

Equality of arms? – one of the main policy arguments behind the Bill has been to ensure "equality of arms" between claimants and insurers.  However, apart from the clinical negligence arena, we are not aware of any evidence that there are personal injury claimants who are deterred from making claims because of concerns about cost. 

England and Wales - the long term effect of LASPO has been to introduce lower, fixed, costs for claimants in England and Wales with the effect that Scotland is now a more attractive jurisdiction to run a claim.  If the whiplash tariff system is introduced, this will only increase the appeal of the Scottish marketplace for both genuine and fraudulent claims.

Concerns

  • The introduction of QOCS in England was accompanied by the introduction of fixed costs for claimant solicitors.  If QOCS is introduced in Scotland, with no corresponding reduction in claimant costs, the risk/reward balance will be weighted significantly in favour of reward which risks being a charter for claims farming (and fraud). 

  • The Bill and explanatory notes conflate litigated cases with claims – for example, the Scottish Government's statement that in only a few court cases are adverse costs orders enforced ignores the reality that the possibility of an adverse costs award deters unmeritorious claims from being brought in the first place

  • There is no mention of reducing claimant's costs, regulating CMCs or banning referral fees

  • However, the recent introduction of a power to award costs against a party such as a claims management company will, if enacted, limit the effect that QOCS would otherwise have had on claim volumes in Scotland. 

Questions

  • Will the requirement to disclose the identity of the funder and any intermediary, "the nature of the assistance", and "the financial assistance", mean that claimants have to disclose what percentage of their damages is being taken by the solicitor/CMC?

  • The QOCS exemption for fraud is "makes a fraudulent representation in connection with the proceedings" – it is not clear whether for example a genuine accident and genuine injury that is then exaggerated fraudulently can open up a costs award for the whole case.  Further clarification is required, otherwise satellite litigation is inevitable.

  • QOCS does not appear to apply to awards of expenses made against funders and intermediaries: the Bill says simply "the court may make an award of expenses against the funder and any intermediary".  This includes a person who has a financial stake in the interests of the litigation.   As currently drafted, this would include success fee agreements provided by claims management companies and would mean that costs awards can be made against CMCs who will not enjoy the benefit of QOCS.

Conclusion

We are pleased that the Scottish Government has taken on board the concerns we previously expressed about the introduction of QOCS without corresponding steps to reduce claimant costs, regulate CMCs and ban referral fees.  The introduction of a provision to disclose whether any other person has a financial interest in the proceedings, and the nature of that interest, demonstrates that the Bill's authors understand the "equality of arms" argument was more complex than had previously been thought.   The ability to make an award of costs against a claims management company or other entity having a financial interest in the outcome of the proceedings is, in our view, a welcome development and is critical to the success of the Bill.  It is vital that provision is retained.  We continue to have concerns about the effect of QOCS in a referral fee/high third party costs environment but the draft Bill is an improvement on the Scottish Government's previous position.  We will be monitoring the progress of the Bill closely over the coming months.

Contact

For further information please contact Andrew Lothian Head of Casualty and General Insurance in Scotland on 0131 474 2305 or Caroline Coyle, Senior Associate, Professional Support Lawyer on 0141 228 8132.

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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