What lessons for the civil litigation funding reforms proposed by Sheriff Principal Taylor can be taken from the Jackson reforms already introduced in England & Wales?

I moved to London to practise in the City at the start of the year, just as the review of civil litigation funding carried out by former Sheriff Principal of Glasgow & Strathkelvin, James Taylor, was being considered by the Scottish Government. The “Jackson reforms”, which followed a similar review conducted by Lord Justice Jackson (now Sir Rupert Jackson), had come into force in England & Wales on 1 April 2013. 

I have often heard the Taylor reforms described as “Jackson with a kilt on”. While the two reports have their similarities, there are fundamental differences between them. Sheriff Principal Taylor himself states in his foreword that “considerable caution must be exercised in comparing the two reports”. 

Nonetheless, I think it fair to say that both reports were commissioned with similar aims in mind. Both voice concerns about the costs of litigation, and both seek to remove obstacles to access to justice, in terms of the cost of litigation and recoverability of costs (England)/expenses (Scotland). 

The Scottish Government has recently announced its acceptance of the Taylor reforms, whilst the Jackson reforms have been in force for over a year now. Space does not permit an in-depth critique and comparison of the two reports, but this article endeavours to highlight some similarities and to suggest what might be learned from the Jackson reforms. It is still too early to assess fully the impact of those changes, in part because many lawyers ensured that they filed their claims prior to 1 April 2013 so as to circumvent the new rules. 

Why the need for reform?

Both sets of reforms were driven by political and public concern about the costs of funding litigation acting as a barrier to justice. A further concern was raised that only a proportion of the actual legal expenses incurred by the successful party were recoverable from the losing party. It was accepted by both Sir Rupert Jackson and Sheriff Principal Taylor that the costs of litigation can spiral. Their tasks involved identifying the costs involved; addressing those costs; and making a variety of recommendations directly aimed at tackling some of the issues. 

A major concern was that potential pursuers (Scotland) and claimants (England) may decide not to bring a genuine claim because of fears relating to the cost of litigation, and conversely that claimants were encouraged to bring claims without any concern as to the legal costs they incurred, primarily via conditional fee agreements, leaving no check on solicitors’ costs save for detailed assessment. 

Damages based agreements (“DBAs”)

DBAs are “no win, no fee” agreements whereby the solicitors’ fees are calculated as a percentage of the damages recovered by the claimant/pursuer. DBAs have been recommended by Sheriff Principal Taylor, and were introduced by the Jackson reforms. 

Taylor recommended that the maximum percentage to be deducted from personal injury cases is set on a sliding scale ranging from 2.5% to 20%. The Scottish Government has agreed that there should be a cap on the percentage that can be taken. 

Under Jackson, lawyers in England & Wales can receive a share of the damages, up to 50% generally, but subject to a 25% cap in personal injury. 

In practice DBAs have not been that popular in England, with lawyers still preferring the conditional fee (“CFA”) arrangement. I recently heard DBAs described as “the yetis of litigation: everyone has heard of them but no one has seen them”. 

The primary concern amongst practitioners regarding DBAs is that the regulations are regarded as unworkable and left wanting on the proposed ideals. By way of example, the solicitor is prohibited from receiving any fees as the case progresses; they are even prohibited from recovering where they achieve an order for damages but the client fails to enforce. They must also find a barrister who is willing to act under the DBA with them, or they will have to fund the costs of counsel, as the client is prohibited from paying anything more than the agreed percentage. 

Furthermore, the regulations permit the cancellation of a DBA by the client at any time. In the event of cancellation, the solicitor is only entitled to reasonable costs, which could result in a solicitor having taken considerable risk for little to no reward if the client was so inclined.

It will be interesting to see if there is more of an uptake of DBAs in Scotland than there has been in England & Wales. 

Qualified one-way costs shifting (“QOCS”)

QOCS came to England with the Jackson reforms. One-way costs shifting means that the claimant/pursuer, in certain circumstances, is not liable to pay the defendant’s/defender’s legal costs if the claim is unsuccessful. However, the defendant/defender will be required to pay the claimant’s/pursuer’s costs if the claim is successful. This is a fundamental qualification to the principle that expenses follow success and has affected the way in which personal injury solicitors advise their clients in England & Wales. It will likely have the same effect in Scotland. 

Sheriff Principal Taylor has recommended that QOCS should apply to all personal injury claims in order to address the perceived “David and Goliath” relationship between pursuers and defenders in such cases. 

There is some dispute as to whether QOCS is necessary in Scotland, as the pre-Jackson regime in England was markedly different to Scotland’s treatment of expenses. In Scotland, “success fees” have never been recoverable and there are few satellite disputes about expenses. Some commentators suggest that there was not the same imbalance in Scotland as was identified by Jackson. However, Sheriff Principal Taylor states that the introduction of QOCS will significantly improve access to justice in personal injury cases, as he wants to remove the “spectre of the pursuer being bankrupted by an adverse award of expenses” when the majority of defenders have an insurance company backing/funding them.

In England & Wales, the crucial point for defendants to personal injury claims is to consider making a well-judged Part 36 offer (the equivalent of a tender) at an early stage, in order to retain some costs protection. In my view, tenders have equal importance for defenders in Scottish actions, and this will continue to be the case when QOCS comes into force. The Scottish Government has said that it appreciates the importance of tenders in promoting settlement of cases, but the benefits of QOCS would be lost if there were no protection should the pursuer fail to beat a tender. Therefore, it accepts Sheriff Principal Taylor’s recommendation that the pursuer’s liability to meet the defender’s post-tender judicial expenses should be limited to 75% of the damages awarded. 

Cost budgets

Taylor recommended that a system of expenses management should be introduced as a pilot scheme for commercial actions in the Court of Session. This could, in my view, be fairly likened to a cost budget, the process carried out in England & Wales whereby a summary assessment of costs is carried out at the outset, with parties providing advance notice of their likely costs. In England & Wales, cost budgeting is compulsory for High Court and county court multi-track cases (i.e. claims of £25,000 or more).

Scottish litigation lawyers may have heard of Mitchell v News Group Newspapers [2013] EWCA Civ 1537. In this case the Court of Appeal gave a very clear message to civil litigators that relief from sanctions will rarely be granted if they should fail to comply with court directions, rules and orders (interlocutors). The claimant’s solicitors failed to file their cost budget when required and were deemed to have filed a budget consisting only of the applicable court fees. The decision led to a number of satellite litigations with parties trying to score a knockout blow to the other side. The courts frowned on this approach. After considering the case law that developed since Mitchell, in particular Denton v White [2014] EWCA Civ 906, the Court of Appeal has given further guidance and the test for relief from sanction is now threefold: 

  • Stage 1 – the judge is to consider whether the breach is “serious or significant”. If it is neither, the court is unlikely to spend much time on stage 2 or 3. 
  • Stage 2 – the judge is to consider why the breach has occurred.
  • Stage 3 – the judge is to consider “all the circumstances of the case” (e.g. will the breach affect the trial? Has the breach had any adverse affect?), so as to deal with the case justly.

A good example of the new treatment is Yeo v Times Newspapers [2014] EWHC 2853 (QB), where the notice of funding was not served. Stage 3 came to the rescue and relief was granted. 

There do not appear to be any proposals to mark failure to comply with court interlocutors in Scotland in the same manner as Mitchell, but I respectfully suggest that litigators read the Mitchell and Denton judgments and bear them some heed. 

The million dollar (or pound) question is: “Have cost budgets had the desired effect in England & Wales?” Cost budgeting has certainly brought the consideration of legal expenditure to the fore for litigators and clients alike, so in one respect it has achieved its goal of making parties more aware and accountable for the costs they incur. On the other hand, the whole process of costs management has added a significant layer to litigation, and some costs lawyers believe that, if anything, it has considerably increased overall costs, because (as in Scotland) so many cases are settled extrajudicially. In saying that, the system of costs management will, over time, provide the judiciary and solicitors/insurers with comprehensive data sets which may lead to the viability of scale costs for some if not all litigation. 

Speculative fee agreements (“SFAs”)

Taylor also recommended the formal introduction of SFAs, which are markedly similar to CFAs in England & Wales. Under a CFA, the client only pays for the advice if they are successful. CFAs are usually accompanied by an uplift of up to 100% of the normal fee if there is recovery (sometimes known as a “success fee”). 

Any success fee which the successful party’s solicitor is entitled to receive in Scotland is not, and never has been, recoverable from the unsuccessful opponent. 

The Supreme Court recently stated in Coventry v Lawrence [2014] UKSC 46 that a costs order which required an unsuccessful party to pay 60% of the successful party’s success fee and ATE (after the event) insurance premium possibly infringed the European Convention on Human Rights, article 6. The recoverability of success fees was abolished by the Jackson reforms. 

Referral fees 

The practice of paying referral fees to third parties for the referral of business has been banned in England & Wales. In contrast, Sheriff Principal Taylor recommended that those involved in paying and receiving referral fees should be regulated. The Scottish Government said that it intends to take forward the issue in conjunction with the Law Society of Scotland, which would be required to change its rules in order to permit referral fees. 

The new normal

Some legal commentators fear that the UK is developing a “compensation culture”. Others fear that the new funding arrangements encourage solicitors only to take on cases that they can win, as they are now “sharing the risk”, and therefore there is not the anticipated access to justice. 

Overall, I’d say that now that practitioners in England & Wales have got over the shock of the reforms and the changes have become the norm, the Jackson reforms have been largely positive. (As Sir Terry Pratchett once said: “People don’t like change. But make the change fast enough and you go from one type of normal to another.”) A well-drafted costs budget can provide clients with enough information to enable them to make fully informed decisions about their cases and the associated cost implications. This in turn has had the result of encouraging clients to be slightly more realistic when considering settlement offers. 

Scotland is facing drastic changes under the Courts Reform (Scotland) Bill and the Taylor reforms, but a year on from Jackson I’d say we litigators in England & Wales have just about gone from one type of normal to another, and hopefully litigators in Scotland will find the same.

The Author
Naomi Pryde is a Scottish-qualified solicitor with Matthew Arnold & Baldwin LLP, London
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