QOCS is coming to Scotland – McLASPO is here!
The Scottish Government’s legislative programme for 2016-17 was announced last week. It includes two bills relevant to the handling of claims by insurers in Scotland. Those Bills together with the Scottish Government’s stated objectives for each are said to be as follows:
Expenses and Funding of Civil Litigation Bill - to introduce measures to make the costs of civil action more predictable, to extend the funding options for claimants, and to bring more equality to the funding relationship between claimants and defenders in personal injury actions;
Limitation (Childhood Abuse) Bill – removing the 3 year limitation period for victims of historic child abuse.
In this article we examine The Expenses and Funding of Civil Litigation Bill and consider the lessons we can learn from the experience in England and Wales. You can read more on the proposals for the Limitation (Childhood Abuse) Bill in our article about last year's consultation.
FOCUS – The Expenses and Funding of Civil Litigation Bill
The aim of this Bill, according to First Minister Nicola Sturgeon, is “to make civil justice fairer, more affordable and more accessible”.
The Bill will include provisions to:
introduce qualified one-way costs shifting (“QOCS”) for personal injury cases and appeals, including clinical negligence, and specify the circumstances when the benefit of QOCS would not apply;
allow damages-based agreements (“DBAs”) to be enforceable when used by solicitors
The background to the Bill is of course the Taylor Review on Expenses and Funding of Civil Litigation in Scotland published nearly three years ago, so these reforms have been a long time coming. That Review understandably looked closely at the position in England and Wales following the introduction of the reforms recommended by Lord Justice Jackson.
The consultation paper issued by the Scottish Government following the publication of the Taylor Review stated that it intended to address “access to justice” issues, specifically that of “a potential pursuer deciding not to bring a genuine claim because of fears relating to cost.”
While insurers will be familiar with the concept of QOCS from involvement in personal injury litigation in England and Wales, the justification for its introduction there was to remove from insurers the disproportionate costs of paying success fees and ATE premiums in claims which succeeded. In return, in England and Wales, QOCS will usually protect an unsuccessful claimant from paying insurers’ costs, unless one of the exceptions applies.
We see the introduction of QOCS in personal injury claims as being for insurers the most significant aspect of the Scottish Government’s legislative programme. The Government’s intention to proceed is despite the fact that in Scotland the same reason justifying its deployment south of the border does not exist as success fees and ATE premiums are not recoverable from insurers in a successful claim in Scotland anyway. Whether the data Sheriff Taylor considered two years ago, such as it was, remains valid today, is also a moot point.
Here we consider the key features of the proposal to introduce QOCS and the potential issues arising:
The Scottish Government believes that in order for QOCS to work it will have to create an appropriate degree of certainty for pursuers that they are unlikely to have to pay costs if their claim fails. It has therefore adopted the recommendations set out in Sheriff Principal Taylor’s report that the bar should be set high before QOCS protection is lost. Losing qualified one-way costs shifting should be “the exception and not the rule” and the pursuer should only lose the benefit of qualified one-way costs shifting in “extreme” cases. There are four proposed circumstances in which QOCS will not apply:
If the Scots Law test of fraud is met, which is where a false representation has been made either knowingly, or without belief in its truth. This will become the Scottish equivalent of fundamental dishonesty (recommendation 51).
If the claim is an abuse of process (recommendation 52).
If the pursuer's case is “disposed of summarily”, likely to mean at a very early stage in the process (recommendation 53)
If the claimant’s behaviour is unreasonable enough to be irrational, or as it is termed, "Wednesbury unreasonable”. This is a test already used in judicial review proceedings in relation to public authorities, and means an action so unreasonable that no reasonable person acting reasonably could have done it, as set out in the decision of the Court of Appeal given in 1948 in Associated Provincial Picture Houses v Wednesbury Corporation (recommendation 54)
Considering these exceptions together it seems that protection of the pursuer’s access to justice is being treated as paramount. While the introduction of QOCS will be a significant benefit for pursuers it is important that the rules introduce some balance to ensure that QOCS is not abused, leaving defenders unfairly prejudiced.
Tender Penalty – lose QOCS protection
The Scottish Government has agreed with Sheriff Principal Taylor’s view that if the pursuer fails to beat a tender (equivalent to a Part 36 offer) then the protection of QOCS should be lost. The pursuer's liability to meet the defender's post-tender judicial expenses should however be limited to a maximum of 75% of the damages awarded.
It had been argued on behalf of compensators in the consultation process that a result, where a pursuer who fails to beat a tender, still retains 25% of damages, produces the wrong balance. However these concerns clearly found little sympathy within the Scottish Government.
The Insurance Fraud Taskforce takes the view that incentives to settle claims early, when they are at their cheapest, undermine anti-fraud activity.
While there is no evidence yet that QOCS is a factor in this trend in England and Wales, there is the possibility from the Scottish Government’s plans that defenders will choose to settle more often, knowing that even if they win they will not recover their costs unless one of the exceptions is established.
In the development of the new law we see it is important that QOCS protection is lost, not just when the whole claim is fraudulent, but also when there has been significant exaggeration or substantial elements of a claim are dishonest. This is the current state of the law in England and Wales in relation to “fundamental dishonesty” which leads to the loss of QOCS protection in that jurisdiction.
We would see it as important that the behaviour necessary to fall within the QOCS qualification in Scotland will be wider than “pure” fraud. It must be in the interests of justice, and encourage the early settlement of claims, for pursuers to know that if they lie about an essential element of the claim, or significantly exaggerate their symptoms, they may lose QOCS protection.
In England and Wales, the LASPO reforms were accompanied by substantial changes which effectively reduced the level of costs that could be recovered by a successful claimant in low value claims, as part of an overall package designed to reduce the volume and cost of claims, and to encourage early settlement. To some extent those objectives have been achieved, though claims levels still remain high and the compensation culture remains a key issue.
In Scotland claims volumes continue to increase, according to data obtained recently from the Compensation Recovery Unit. It is therefore a concern that the legislative programme in Scotland currently makes no mention of the need to make reductions in the level of recoverable costs, particularly given the existing substantial disparity between Scotland and England on the level of recoverable claimant costs at the present time. There is already enough of an incentive for claims farmers to operate in Scotland and during the legislative process we will be arguing for costs reductions as part of the quid pro quo for the introduction of QOCS.
Damages-based agreements (DBAs)
In England and Wales, personal injury claims are almost exclusively funded by conditional fee agreements, through which a success fee is recovered by the claimant lawyer from the claimant’s damages. A CFA allows the claimant solicitor in low value claims to earn not only that success fee (limited to a payment of 25% of the damages), but also the generally recoverable fixed costs from the insurer. While Lord Justice Jackson had anticipated that competition between lawyers would drive success fees downwards, that is yet to occur, and instead a 25% success fee remains the norm.
DBAs are permitted in England and Wales, again with the level of the lawyer’s contingency fee being restricted to 25% of the damages in personal injury claims, but they are hardly ever used at present as claimant lawyers see them as less satisfactory than CFAs. One reason for this is that they must be operated on the basis the claimant lawyer in England and Wales cannot retain the generally recoverable costs from the insurer in addition to the contingency fee: rather the contingency fee operates as the cap for the amount the lawyer will earn, and instead the costs recoverable from the insurer go to reduce the fee payable by the claimant.
The DBA regime proposed in Scotland is a different model. Claimant solicitors in Scotland will be allowed to receive a share of recovered damages from the claimant, in addition to the generally recoverable costs recovered from the defendant, regardless of the amount of work done on the case (recommendation 56 of the Taylor Review).
Although, in theory, the percentage of damages absorbed by the contingency fee should reflect the risk of the case failing, there is a widespread concern that market pressures in a small jurisdiction will be insufficient to control contingency fees under DBAs and that a deduction of 25% of from damages will become the norm, as they tend to be in England and Wales. This would not only leave Scottish claimants worse off than under the current regime, but at the same time claimant lawyers working on DBAs would unlike their colleagues in England and Wales gain by being able to retain both a contingency fee as well as generally recoverable costs.
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.