There is a general rule in the Scottish courts that the loser pays the winner’s legal costs. That discourages cases which have no merit, and encourages parties to settle cases before they incur higher legal fees.
In personal injury cases that may be about to change, however, and the unintended consequences of that change could be expensive for all of us.
The Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill is currently being considered by the Scottish Parliament’s Justice Committee. The bill will introduce a major change to personal injury litigation in Scotland: anyone pursuing a personal injury case in court will not be liable for their opponent’s costs, even if they lose.
The bill is intended to address the perceived “David v Goliath” relationship, so called because most pursuers do not qualify for legal aid and would struggle to pay lawyers’ fees, whereas most defenders are backed by insurance.
However, the reality is often more complex. Most pursuers’ solicitors act on a “no-win no-fee” basis.
The client already pays nothing, and is backed by the financial strength of the solicitor’s firm (and there is often a claims management company standing behind them).
Curiously, given the magnitude of these changes, the Scottish Government has not produced any evidence to demonstrate how many genuine injury claimants in Scotland are unable to persuade a lawyer to take their cases.
In fact, recent data proves that there has been a very substantial increase in personal injury claims in Scotland since 2011, as much as four times the rate of increase in England.
The reason for that increase is not hard to find – legal reforms in England have pushed claims management companies (the ones who advertise on daytime TV are only the tip of the iceberg) to move their activities into Scotland.
In England, claims management companies are regulated, legal fees paid to claimant lawyers have been reduced, and the notorious practice of buying and selling claims is banned.
That has reduced the incentives for poor conduct, and at the same time improved the behaviour of claims management companies.
None of those steps are included in this Bill, and that makes Scotland an attractive destination for generating claims, which is what the less scrupulous claims management firms do. (We have all had texts telling us that we are due thousands of pounds because of some accident we have never had. Get ready for a lot more.)
There is an exception to the new rule if the defender can prove fraud or unreasonable conduct.
However, those exceptions alone are not enough to deter unmeritorious claims, given the huge financial incentives to present a claim in the first place.
The reality is that the vast majority of claims are settled before they get anywhere near a court and before those exceptions have any effect.
The regulation of claims management companies is, the Government says, currently under review.
That is not good enough: there should be a level playing field now.
Instead of creating substantial incentives for bad behaviour, the Scottish Government should (as a minimum) allow the FCA to regulate claims management companies operating in Scotland, pending a wider review.
That way Scots will be protected from the worst effects of the bill.
Insurance companies want to identify genuine claimants so they can be paid compensation quickly and in full, but the spectre hanging over these reforms is organised fraud. Because pursuer’s legal costs in Scotland are so much higher than they are in England, the incentive to generate false claims, by texting and cold-calling, is much higher in Scotland.
Fraudulent claims are not a victimless crime. The costs are borne by taxpayers, by insurance policyholders, and by genuine claimants who find their settlements delayed. The proceeds of fraud are used to fund other criminal activities.
My firm has detected a number of fraud networks in Scotland recently and is working with the appropriate authorities.
The bill does nothing to address fraud and simply increases the incentives to generate claims.
Add the “get out of jail free” card of not having to pay legal costs even if you lose, to higher income streams from referral fees, higher legal costs, and an absence of regulation, and you have a perfect storm.
Proposing these substantial changes without understanding the financial incentives in the claims industry, and without regulating a key sector of that industry, is foolhardy.
The Scottish Government says that the bill “might lead to an increase in the number of personal injury claims”.
That is not in any doubt. We will certainly see a significant increase in the number of personal injury claims in Scotland if the bill is passed.
And we will all have to pay for them.