Only time will tell what the impact of new legal costs measures will be - Steven Smart

Litigation can be an expensive process. Historically this could be prohibitive for injured parties, who may have been dissuaded from raising an action if they would need to pay the defender’s legal costs should the claim fail.

Steven Smart is a Partner and Head of Glasgow office, Horwich Farrelly

Legal Aid may have been provided to those who met relevant tests, but this was not guaranteed and became increasingly rare as public funding of civil actions continually reduced. Claimant firms addressed this by adopting feeing arrangements and funding models removing this risk from the individual.

In 2013, the late Sheriff Principal Taylor recommended a range of reforms in relation to legal costs. The centrepiece was the introduction of Qualified One-Way Costs Shifting (QOCS) in personal injury actions. His rationale was to provide greater access to justice and certainty about the likely level of legal costs and to “level out the playing field” between individuals and insurers/public bodies. Provisions allowing claimant firms to enter agreements entitling them to a proportion of damages recovered were also recommended and have already been enacted.

Legislation to introduce QOCS was passed in June 2018. Regulations recently enacted state that QOCS will come into force on 30 June 2021. After detailed deliberation, finalised rules have now been agreed about how this will work in practice, which should be published and placed before the Scottish Parliament imminently. The rules are eagerly awaited. However, the legislation and ongoing discussions have already identified and some key issues are likely to arise.

The rules will apply to all litigation raised on or after 30 June 2021. It is therefore highly likely there will be an initial spike in litigation across Scotland, as proceedings are held back in claims which will not time bar by then.

The shifting of legal costs onto a defender is qualified, not absolute. Section 8(4) of the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 removes the protection provided if a Pursuer makes a “fraudulent misrepresentation or… acts fraudulently”, “behaves in a manner in which is manifestly unreasonable”, or “conducts the proceedings in manner that the court considers amounts to an abuse of process.”

These are all new or rarely applied tests in the Scottish Courts. What approach will be taken when assessing the meaning of “fraudulent misrepresentation?” On one view, this is a straightforward, objective test. If a misrepresentation was made falsely or recklessly, the protection ought to be removed. The Association of Personal Injury Lawyers may have had such an interpretation in mind when they argued at stage 3 of the bill for a definition of this test which was more consistent with the principles of “fundamental dishonesty” in actions down south. However, the Scottish Courts have to date remained hesitant to make findings of fraud, even in some extreme cases which would have been dismissed entirely down south.

A tool available to a defender is to lodge a “tender”, offering to pay a sum of money plus costs up to that date. Currently, if a pursuer delays in accepting the tender or does not better it at trial, they meet the defender’s costs from that point. How these rules will apply when QOCS comes in has been hotly disputed; if there is no penalty for delaying in accepting a tender, there is little weight behind it in trying to reasonably conclude an action. If the rules do allow for recovery of costs, they are likely to be capped at a percentage of the damages received. What happens if the pursuer doesn’t achieve any damages?

Finally, to paraphrase a saying, while claimants may see these provisions as being a “cost of suing business” for defenders, what happens when a claimant is fully funded by an insurance policy or the defender does not have insurance, such that the playing field was arguably already level? If a defender is put to the same expensive cost of defending an action, why shouldn’t they recover it? While this probably won’t be addressed in the rules, it’s a topic to watch in a future mandatory review of the provisions.

As we spring into the new legal costs regime, time will tell just what the impact of these new measures will be when the QOCS go forward.

Steven Smart is a Partner, Horwich Farrelly​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​