The long-awaited Review of Expenses and funding of civil litigation (The Taylor Report) was published on 11 September 2013. This independent review by the former Sheriff Principal of Glasgow and Strathkelvin, James Taylor, began in March 2011 and culminated in a report detailing 85 recommendations that are designed to improve ‘access to justice in a meaningful way’. The report does not seek to set out a trailblazing and radical set of reforms but rather concentrates on adapting and amending the current arrangements, albeit with some new and interesting approaches.
In the foreword to his report, Sheriff Principal Taylor admits that it isn’t really ‘light reading’. It is not. The report’s 334 pages are packed with the minutiae of the costs of litigation, observations on what is wrong with the current system and how it might be improved. The report is not, of course, prepared in isolation. It is one of a trilogy of reports concerning the modernisation of the litigation process in Scotland, England and Wales. Prior to the Taylor Report, Lord Gill’s report of the Scottish Civil Court Review was published in September 2009. There then followed the review of civil litigation costs in England and Wales under the chairmanship of Lord Justice Jackson, which was published in December 2009.
While there is no avoiding certain similarities between the Jackson and Taylor reports, Sheriff Principal Taylor has not slavishly followed Lord Justice Jackson on all occasions and is happy to admit that he has come to a number of radically different conclusions.
In this article, we endeavour to highlight the key recommendations commenting, where appropriate, on how they may be implemented and work in practice.
The report is largely concerned with two types of claim; commercial actions and personal injury actions, although family law disputes also get separate treatment. It is assumed that other types of action will be treated in accordance with whether they follow a commercial active judicial case management model or a personal injury case flow management model.
In considering the vexed question of the recovery of litigation costs, two mischiefs are identified:
- A lack of predictability as to the value of any adverse award of costs.
- The gap between what a successful litigant spends on litigation and what they can recover from the other side.
COSTS IN COMMERCIAL ACTIONS
Sheriff Principal Taylor considers the two themes above from the perspective of a commercial litigation. He concludes that commercial actions must be treated differently from other actions because the gap between spend and recoverables is often significant. His research suggests that the recovery of costs can be as low as 35%. He considers recovery should be in the order of 80-90%. He does not suggest wholesale reform to resolve this issue but rather tweaks of the current arrangement. In essence, his recommendations to plug this gap can be summarised as:
- Adopting existing Law Society of Scotland recommendations to increase the hourly rate used to calculate the table of fees to nearer £160 per hour in place of the existing £140 per hour.
- Revising block fees to more accurately reflect the work done.
- Introducing a revised additional fee system.
- Seeking any additional fee at the start of the action as opposed the end, as is the current arrangement, to make costs easier to predict.
One radical solution suggested by Sheriff Principal Taylor is that parties may be allowed by the court to reach prior agreement on the appropriate hourly rate to be applied when calculating an award of expenses in favour of the successful party. This is an interesting proposition indeed. It will, of course, significantly increase the costs of litigation for the losing party and will, no doubt, lead to some difficult tactical issues being raised at the start of the litigation. How will clients weigh up the prospect of success against the risk of having to pay an increased hourly rate to their solicitor, and the security of knowing that their expenses will be limited to an hourly rate capped at £160 per hour?
The gap will be narrowed further by a revised version of the existing ‘additional fee’ procedure. This takes the form of an uplift in the solicitor’s fee in a judicial account. Instead of dealing with this at the end of proceedings, the issue will be addressed at commencement and the court will assess whether an uplift is justified and at what rate. That assessment will be kept under review during the course of the action. Any variation will not be backdated.
The level of any additional fee will, however, be restricted to a maximum of 100%.
SUMMARY ASSESSMENT AND EXPENSES MANAGEMENT
The really dramatic proposals are set out in Chapter 4. Two pilot schemes are proposed to run in the commercial courts in the Court of Session and Sheriff Court. The first is the summary assessment of expenses. Here, the parties will be required to provide the court in advance of a hearing with a summary of the expenses to be claimed in the event of success. Sheriff Principal Taylor envisages these hearings will be very short, lasting only ‘a few minutes’.
Currently, the issue of expenses in litigation can take several months to resolve and involves the use of law accountants well versed in court expenses. It therefore remains to be seen if solicitors, counsel and, indeed, the bench can get up to speed with the intricacies of judicial accounts to allow the resolution of expenses in what might be a complex court action at such a brief hearing.
On the question of expenses management, it is proposed that the court takes active control of expenses during the lifetime of the litigation. Sheriff Taylor’s rationale is that all parties should be able to rely upon proper budgeting of a case to enable them to conduct an informed cost-benefit analysis before deciding to continue with the litigation. The proposal is that a court will initially approve the budget and thereafter will be able to approve or disapprove any departures from it. Again, like summary assessment, this may be harder to manage in practice given the difficulties involved in coming to a clear view as to the potential cost of any litigation.
COSTS IN PERSONAL INJURY CLAIMS
As expected, a significant part of the report deals with the costs in personal injury claims. Sheriff Principal Taylor goes to some length to distinguish the claims culture in Scotland from the apparently problematic culture in England as brought out in the Jackson Report. He does not believe there is a compensation culture in Scotland, and indeed goes so far as to suggest that a fall in the number of civil cases raised in the courts would be worrying rather than something to celebrate.
Sheriff Principal Taylor considers the level of recoverability of expenses in personal injury cases for successful parties to be about right subject to the slight adjustment to the rates used to calculate the table of fees referred to above. To deal with any shortfall of costs, particularly on complex cases, he recommends the retention of the additional fee procedure. However, unlike in commercial cases, it will continue to be dealt with at the end of the case. There is no suggestion of summary assessment or expenses management being introduced.
QUALIFIED ONE-WAY COSTS SHIFTING
Perhaps the biggest news in this report is the suggestion of Qualified One-Way Costs Shifting (QOCS) applying to all personal injury cases. The operation of QOCS results in an unsuccessful pursuer not having to pay the defender’s expenses. Sheriff Principal Taylor’s rationale is that insurers very rarely recover expenses from unsuccessful parties anyway. Essentially, this proposal will put a privately funded pursuer in the same position as those who are legally aided. This proposal does, of course, come with some important limits. For example, the protection will not apply if fraud or unreasonable behaviour has been established on the part of the pursuer or the action is dismissed summarily.
It remains to be seen, if this proposal is implemented, whether it leads to a wave of personal injury litigation by pursuers safe in the knowledge that if they cannot prove their claim they are not liable to the defender for their costs. This seems very unlikely. First, any pursuer will have to persuade a solicitor to take on their claim, to pay for all outlays including court dues and experts’ reports and not charge for any of the work involved in anticipation of being able to recover costs, and possibly a share of the damages, at the conclusion of the case. Any solicitor worth their salt will only wish to take on claims where there is a reasonable prospect of success. It would be a risky business indeed to take on cases with limited prospects even if one could avoid having to pay third-party costs. While defenders will understandably not want to face mounting costs in defending all claims, it seems very unlikely that they will simply cave in on all cases including those where the prospects are poor.
COUNSEL AND EXPERT COSTS
Sheriff Principal Taylor devotes a whole chapter in his report to the thorny question of the cost of outlays. His main concern is to do with counsel’s and experts’ fees. Throughout his report Sheriff Principal Taylor assumes that Lord Gill’s recommendations to effectively push most personal injury litigation down to the Sheriff Court will go ahead. In summary, he does not consider that sanction for counsel in the Sheriff Court should be automatic and indeed, on most occasions, believes it should not be allowed. The recent announcement by the Bar that counsel may appear without a solicitor is interesting in this context. Those having counsel appear on their own may persuade the court to grant sanction when otherwise they would have been unable to do so.
With regard to counsel’s fees, Sheriff Principal Taylor recommends a table of fees setting out a reasonable range of counsel’s fees for different types of work. So long as the fee falls within the accepted range there ought to be no cause for argument. Such a table of fees will, of course, not stop a client agreeing to pay counsel in excess of the table. It merely restricts recovery of the excess element.
Pursuing his general theme of the predictability of costs, Sheriff Principal Taylor proposes that sanction for counsel in commercial cases ought to be obtained at the start of the case and before any work is undertaken. Retrospective sanction will only be allowed in cases of urgency. He also proposes that a sheriff ought to be able to agree with counsel the scope of the work they will undertake and the fee they will charge. In doing so, Sheriff Principal Taylor anticipates that this will allow for all parties in the litigation to be aware of the possible consequences of losing so far as liability for costs is concerned.
On expert fees, it is proposed that the parties will be required to seek the certification of expert witnesses prior to instruction. If the expert has been instructed pre-litigation, parties will need to seek sanction for that expert as soon as reasonably practicable once the action is up and running. However, unlike counsel, it is not proposed there will be a table of fees for experts. It is, however, suggested that the court may be able to set an hourly rate for an expert but not place any limit on their fee.
SPECULATIVE FEE AGREEMENTS
As one would expect, Sheriff Principal Taylor has spent a considerable amount of time considering the various funding options for litigation. One of these key funding options is the speculative fee agreement (SFA). These can, of course, currently be offered to clients by solicitors. They are particularly common in personal injury litigation. They can take several forms, the most common being a ‘no win, no fee’ personal injury agreement whereby the pursuer’s solicitors accepts the recovered judicial expenses in settlement of their fee. The fee may be topped up by a success fee expressed as a percentage of the fee recovered or indeed as a set figure. In commercial actions, it is common to have an arrangement whereby the solicitor charges a reduced hourly rate with the success fee being an uplift on that hourly rate. In Scotland, this success fee has never been recoverable from the opponent and has always been paid by the client. In England, success fees, although previously recoverable, are now also irrecoverable so the two jurisdictions are now taking the same approach on this issue.
In essence, the only real change to SFAs is that the success fee is capped. Where the success fee calculation is based on the fee element of the judicial account then it will remain capped at 100% but, in addition, cannot exceed 20% of the damages up to £100,000, 10% of the excess up to £500,000 and 2.5% of the excess above that. Commercial actions will have a cap fixed at a maximum of 50% of the level of damages recovered.
DAMAGE BASED AGREEMENTS
Currently, Scottish solicitors are prevented from offering to conduct litigation for clients in return for a share of the sum awarded by the court. Given the changes suggested to SFAs, it will come as no surprise that it is recommended that this rule be lifted and solicitors should now be free to agree with their clients that, in addition to any judicial expenses the solicitor recovers from a defender, the solicitor will also be entitled to a fee expressed as a percentage of the sum awarded to the client. The maximum fees payable out of damages will be capped at the same rates as those applied to SFAs. Again, in commercial cases, the cap will be set at 50%.
REFERRAL FEES AND OTHER FUNDING OPTIONS
In addition to the changes outlined above, Sheriff Principal Taylor has considered the difficult issue of referral fees. In contrast to recommendations made by Lord Justice Jackson, Sheriff Principal Taylor is happy for referral fees to continue to be paid so long as they are paid by and to regulated bodies. The entity of a regulated body is defined in the report. Further, he explores a number of different funding options specifically designed to fund litigation and to suit each budget and each situation. He also touches upon multi-party actions where he considers expenses management should be mandatory and that SFAs and damage based agreements (DBAs) ought to be available subject to the restrictions referred to above.
WILL ALL THESE CHANGES LEAD TO ANY INCREASE IN LITIGATION?
It is possible. Solicitors may be persuaded to take on more risky cases if they consider the gains on success to be worthwhile. Clients who, up until now, have been put off instructing solicitors in claims where the prospects of success are, at best, 50/50 may consider doing so if they see that they are not going to be exposed to costs either from their own solicitor or indeed the defender if unsuccessful. Cases where the prospect of success are perhaps 40%, which in the past often fell by the wayside at an early stage, may now be taken on more frequently.
Claims without merit ought to have no place in the court. If, however, the position remains as it is, ie that claims are weeded out at an early stage either by the pursuer’s solicitors or by the defenders, then these recommendations ought to go quite some way to improving access to justice and modernising litigation in Scotland.
It does, of course, remain to be seen how many of these recommendations are actually implemented. To an extent, they rely upon the proposals set out in the Gill Report also being implemented. There is sure to be plenty of debate over the coming months. However, whether you are a pursuer or defender, it does seem that these recommendations, if properly implemented and monitored, go a long way to improving access to justice for all involved in litigation. After all, if a party has a good claim, they ought to be entitled to recompense from the party responsible for their loss, whether in a complex commercial action or a very simple personal injury claim. For businesses, the narrowing of the gap in the recovery of expenses in commercial actions combined with the promotion of new funding options will hopefully enable them to resolve disputes by taking advantage of the high quality of commercial judge and the streamlined procedures available in Scotland’s commercial courts. The possibility of attracting more cross-border and international litigation to our courts would be an added bonus.
Of course, suggesting recommendations is one thing. Implementing them is quite another. Anything short of a wholesale acceptance of the report’s many findings will be a missed opportunity indeed.
By David Armstrong, head of litigation, and Douglas McGregor, professional support lawyer, Brodies LLP.
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