Changes to civil litigation funding in Scotland that could be dubbed ‘McJackson’ for their adoption of key reforms introduced in England and Wales, have been recommended in a long-awaited report to the Scottish government.
But the Taylor Report of the review of expenses and funding of civil litigation in Scotland, written by Sheriff Principal James Taylor, rejected outright Jackson LJ’s support for a ban on referral fees, noting that alternative business structures (ABS) would make policing a ban untenable. Mr Taylor also defended claims management companies’(CMCs) “legitimate role” in educating the public.
The report contained 85 recommendations, including proposals for qualified one-way costs shifting (QOCS) in personal injury cases, damages-based agreements (DBAs) with capped deductions on a sliding scale, judicial costs management, and a costs budgeting pilot.
Introducing the reforms, Mr Taylor, the former Sheriff Principal of Glasgow and Strathkelvin, said that in addition to wanting a cautiously “incremental approach” to the reforms, including pilots, he wanted the Scottish Civil Justice Council to keep them under close review.
“If there is one lesson to be learned in this jurisdiction from the various attempts to reform legal expenses in England and Wales, it is that predicting how lawyers will react when the financial dynamics and incentives are altered, is very difficult,” he warned.
In his preamble, Mr Taylor insisted he had “not deferred to what has been implemented south of the border”. He noted that a key difference between the two systems was that neither after-the-event insurance premiums nor success fees had ever been recoverable from the losing party in Scottish ‘speculative fee agreement’ cases – the equivalent of conditional fee agreements.
Rejecting a referral fee ban, Mr Taylor said: “There is evidence that the present [Scottish] ban on referral fees is regularly circumvented and there is no appetite to enforce the ban.” ABSs would make policing a ban even more difficult and a ban may be “redundant”.
But solicitors receiving referrals should be required declare to clients their expertise to do the work and be transparent about remuneration, as well as ensure the referrer did not cold call, he added.
In Scotland solicitors’ referral fees are limited by a practice rule that prohibits sharing profits with non-qualified persons. But flat fees are commonly paid for inclusion on referral panels, with no objection by the Scottish solicitors’ regulator, the Law Society of Scotland, said the report.
Mr Taylor added that CMCs had a “legitimate role” to play in informing people of their rights, promoting access to justice and providing solicitors with “a crucial lever for acquiring work in a market environment”.
Making a distinction between Scottish and English litigation, he compared the perception of a ‘compensation culture’ in England and Wales and the relatively low increase in all claims in Scotland in recent years – 7% compared to 23%
The number of claims was also proportionately lower, he said, with clinical negligence claims between 2008/11 totalling one-30th of the number of claims in England, yet the Scottish population was a tenth as large. Claims in employer liability were one-12th England’s, in motor liability one-24th, and in public liability one-15th.
He added that in 2011/12 there had been a decline in the level of litigation of 35% compared to 2008/9; 85,256 cases against 131,633 respectively.
“One is left with the conclusion that there is a different culture in Scotland, as opposed to England and Wales, when it comes to litigation,” he said.
Meanwhile, QOCS was necessary to redress the asymmetric relationship between litigants and insurers in “virtually all personal injury actions”. He said: “In many cases there is a true David and Goliath relationship.”
In the event of the Scottish equivalent of a failure to beat a part 36 offer to settle, any adverse costs award would be limited to 75% of the damages awarded by the court.
Other recommendations included that all parties to litigation should disclose the nature of their funding and the identity of the funder at the outset.
Kim Leslie, convener of the Law Society of Scotland’s civil justice committee, said access to justice would be improved if the proposals were adopted but that the society would “actively investigate” whether DBAs had brought benefits in England and Wales “and what lessons can be learned in relation to Scotland”.
She added: “The idea of solicitors paying referral fees to non-solicitors would be a fundamental change for Scotland, and one which could have far-reaching implications into other areas of practice.
“However, we live in a changing world and with the prospect of legal firms going into business with other regulated professionals, the time is right to look at the question of sharing fees.”
A public consultation preceding the Taylor report received 70 responses. Research for the report included a meeting in London with Jackson LJ.