The newly-declassified papers from 2001 outline a “worst-case scenario” of a £20 million payout to 400 people and the creation of a precedent for compensation which could cause “immense future difficulties”.
Susan Deacon, health minister at the time, said defending the claims would mean the Executive would look “unsympathetic” but she conceded this was her “inclination” because of the wider implications.
An inquiry which concluded in 2015 confirmed about 3,000 Scots are thought to have contracted hepatitis C or HIV, or both, through NHS blood products between the 1970s and the early 1990s.
Earlier this year, the Scottish Government pledged an extra £20m of support over three years for those affected, with a series of payouts confirmed this week.
Deacon considered the issue in a note for the Scottish Cabinet in April 2001, the month after the High Court in England found in favour of a number of people who had been infected with blood supplied by the National Blood Authority.
The English cases were brought under 1987 consumer protection legislation but could have a bearing on 24 cases in Scotland being taken forward on grounds of negligence, it states.
Meanwhile, the Department of Health in England, despite “strong pressure” from the health minister and her officials, had chosen not to appeal.
“The English judgment will obviously carry some weight,” the note states.
“There could be significant additional cases waiting in the wings – we estimate that more than 400 people in total are likely to have been infected with hepatitis C through blood transfusions or haemophilia treatment.
“If we were to decide to settle with 24 of the current claimants who were infected after March 1988 and in respect of whom, following the English judgment, absolutely liability (sic) could be deemed to apply under the Consumer Protection Act, then the cost could be in the region of £1.25m + costs.
“A worse-case scenario (sic) involving compensation to around 400 people might cost us £20m.
“There would be enough variation in the circumstances of all these people for this outcome to be unlikely.
“The danger, of course, if we get that far down the track, will be of having created a broader precedent for compensation, which could cause immense future difficulties right across the NHS.
“That is why I regard the Department for Health decision not to appeal the present case as being particularly regrettable.”
The note continues: “In relation to the current Scottish claims, the choice is between letting the cases proceed through the courts and defending them, or offering settlement to the 24 cases which are analogous to those decided in England.
“I need more information and a better assessment of what is going on in England before taking a final decision on this.
“However at present my inclination is that because of the wider potential implications of the case, and notwithstanding that we will look unsympathetic, we ought to defend the cases in court.”
The Scottish Executive later came under pressure from the Scottish Parliament’s health committee to give financial support to all those affected by contaminated blood, arguing there was a “moral right” to it.
Papers show that in August 2001 it was announced NHS Scotland had been instructed to begin talks with lawyers of claimants.
These were aimed at settling valid legal actions with “faster, fairer settlements”.