The Act opens up some new opportunities for the funding of litigation and makes changes to expenses which can be recovered. However, it is not all about financial matters. It also makes some changes to the role of Auditors of court and introduces group proceedings (which are a form of class action) to Scotland. We discuss below some of the key provisions and changes made as it progressed through the Scottish Parliament.
A significant change in this area is the removal of the bar preventing solicitors from entering into damages based agreements (where a share of damages is to be payable in the event of success). The Act does not actually refer directly to damages based agreements. Instead it provides that success fee agreements are not unenforceable by reason only that they are for a share of a litigation. Accordingly, it will no longer be the case that the only option for pursuers who wish to enter into this type of agreement is to do so with a claims management company.
It is important to remember that success fee arrangements are wider that those commonly referred to as damages based agreements and could include, for example, simply charging an extra fee in the event that a claim is successful. These types of agreements were, of course, previously permitted.
The Act sets out various controls that will apply to success fee agreements. For example, there is a power for the Scottish Ministers to set a cap on the maximum amounts of success fees by regulation.
One question which was the subject of a lot of discussion before the Scottish Parliament was whether sums relating to future losses could be included in the calculating a success fee where a solicitor is getting a share of damages. This was raised as a particular issue in relation to catastrophic injury cases. An amendment to prevent this was added and then removed. It its final form the Act allows sums which relate to future losses to be taken into account for calculating success fees but restrictions are applied to personal injury cases where future losses exceed £1,000,000.
The Act allows for the Scottish Ministers to specify, by regulation, certain type of cases where success fees are not permitted. However the bar on entering into success fee agreements in family proceedings, which was originally present, has been removed.
We can also expect to see further detail in regulations about the requirements for the content of success fee agreements.
A side point worth mentioning is the gap that exists in relation to the regulation of success fee agreements. This is that, whilst solicitors who enter into these will be regulated, claims management companies who enter into these are not currently regulated in Scotland. This was discussed by the Scottish Parliament and it was agreed that regulation of their operation should be carried out by the Financial Conduct Authority. This is only going to happen on 1 April 2019 with the Financial Ombudsman Service becoming responsible for resolving disputes about claims management companies at the same time. The gap will therefore exist for a little time yet.
Perhaps the most controversial change in relation to expenses is the restriction placed on the ability of defenders to recover any expenses in personal injury cases (which also applies to cases regarding a death from personal injuries). The Act provides that, in order to recover expenses, a defender needs to demonstrate that a pursuer or their representative has either (i) made a fraudulent representation or otherwise acted fraudulently, (ii) behaved in a manifestly unreasonable way or (iii) conducted the proceedings in a manner which amounts to an abuse of process.
There have been changes to these tests. One point which should be noted is that both the first and second test cover pre-litigation behaviour in relation to the claim as well as behaviour once proceedings have been raised. What is clear is that tests are intended to set a high bar and they will not be met if there has simply been a mistake by a pursuer in claiming for something that they are not entitled to or a little exaggeration in their claim.
The Act retains the possibility of awards of expenses being made to a charity in situations where a person has received some or all representation in proceedings free of charge. The person is obliged to disclose to the court that some or all of their representation is being provided free of charge. When deciding whether to make such an order, the court needs to think about what expenses may have been awarded if the representation had not been free of charge.
The power to make awards of expenses against third parties involved in the funding of litigation remains. To facilitate this the Act requires parties receiving this type of assistance to tell the court. The aim of this provision is to catch those whose only interest in a case is commercial. Amendments were therefore made to confirm that trade unions or similar bodies and providers of success fee agreements were not covered by this. In addition, there is an exception where funding for family proceedings is provided by various family members.
The option for the court to make awards of expenses against legal representatives who commit a serious breach of duties to the court also remains in the Act.
Auditors of Court
The provisions which deal with auditors of court were, perhaps unsurprisingly, subject to less discussion than some of the other areas of the Act. There have however been a few changes. New sections allow for the appointment of temporary auditors of the Court of Session and also to make provision to deal with the situation where an auditor is unable to tax an account.
It was originally proposed that group proceedings should take the form of an "opt-in" procedure. This means that an individual could only be a part of group proceedings by giving their express consent. However the Act allows for group proceedings also to take the form of "opt-out" proceedings. These will no require positive action but rather an individual (who is domiciled in Scotland) will be included in the proceedings unless they have given notice that they don't consent to being part of them.
It was suggested that "opt-out" proceedings might be more appropriate for larger-scale consumer actions whereas "opt-in" proceedings might be more appropriate for smaller community groups. More information as to the type of group proceedings which will be available for different types of action will be set out in updates to the rules of the Court of Session (which is the only court the Act permits to handle group proceedings). It is possible that we will see rules for the two types of proceedings being introduced separately following concern raised about the greater complexity of "opt-out" proceedings.
Review of the Act
An interesting addition to the Act requires the Scottish Ministers to carry out reviews of various parts of it after five years. This is a slightly unusual provision and it was noted that this type of post-legislative scrutiny would not always be the best use of resources.
The requirement for review in relation to success fee agreements, expenses and the auditor comes into force two months after royal assent so this should start as soon as possible after 5 June 2023. The five year period for review on the operation of group proceedings does not start until the first change to the Court of Session rules about this has taken place. Reports of the reviews are to be placed before the Scottish Parliament.
There is obviously a lot more to come in relation to the Act. In the meantime we are waiting for the regulations which bring the majority of the Act into force and provide a bit more detail as to how it will operate in practice.