REVIEW OF EXPENSES AND FUNDING IN CIVIL LITIGATION IN SCOTLAND (THE TAYLOR REVIEW)

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1 REVIEW OF EXPENSES AND FUNDING IN CIVIL LITIGATION IN SCOTLAND (THE TAYLOR REVIEW) LAW SOCIETY OF SCOTLAND RESPONSE TO CONSULTATION PAPER March 2012 Introduction The Law Society of Scotland (the Society) welcomes the Review of Expenses and Funding, having supported Lord Gill s call for such a review in his Review of Civil Courts in Scotland. The Society aims to lead and support a successful and respected Scottish legal profession. Not only do we act in the interests of our solicitor members but we have a clear responsibility to also work in the public interest. That is why we actively engage and seek to assist in the legislative and public policy decision making processes. To help us do this, we use our various Society committees which are made up of solicitors and non-solicitors and ensure we benefit from knowledge and expertise from both within and outwith the solicitor profession. As the Society s Civil Justice Committee said in its Response to the Civil Courts Review Consultation Paper: Judicial expenses are necessary to assist in achieving equality of arms and to balance the pursuer against the defenders who may have greater resources available to them. [However], the extent of recovery of judicial expenses amounts to approximately 60% of the agent and client cost of the case. The existing system is generally satisfactory, but successful parties resent paying a significant contribution to costs in a situation where the court has upheld their position. The principle that expenses should follow success should certainly be retained. However, what the system should strive to do is to bridge the gap between the level of cost recovered on a party and party basis, and the actual cost of the case on a reasonable agent and client basis. Our answers to the specific questions in the current Consultation will follow the summary below. We also attach as an Appendix the paper on the Shortfall in Judicial Expenses that we submitted as a supplementary paper to the Civil Courts Review, and which should be treated as part of this Response. Executive Summary of the Society s response In general, expenses should continue to follow success.

2 There should be greater recovery for successful parties of the costs they incur in bringing the action. There is a basic cost involved in any litigation whatever its financial value. Rules which will lead to more opposed motions on expenses and related issues will take up a disproportionate amount of court time and should be avoided. Block fee tables should be increased in accordance with Recommendations 183 and 184 of the Civil Courts Review, and there should be a new block fee table for Commercial Actions. The test of reasonable in the judicial tables should be changed to so far as not unreasonable having regard to all the circumstances of the case Interest should be payable on fees and outlays. Rules should be made to allow a party to apply for a Protective Expenses Order in any public interest case. Motions for an Additional Fee should remain open to parties, but success fees should not be recoverable from the other party. ATE premiums should not be recoverable except in Medical Negligence cases Damages based agreements should be made illegal. Specific questions Chapter What are the main reasons relating to the cost of litigation that discourage potential litigants from court action? Litigation to resolve a dispute is almost always costly. The proportion of the cost that can be recovered by a successful party is the current problem. Different factors affect different types of case. In commercial cases lack of certainty about cost and the time involved are both significant factors. Business clients want to be able to predict cost in any new matter, and many will seek to agree a fixed fee with their solicitor in advance of a case. Uncertainty on cost, and the gap between actual and recoverable cost are reasons that discourage commercial litigation in Scotland. Surprisingly this has not led to an increase in alternative methods of resolving disputes, such as mediation or arbitration. Cost is also a major issue in arbitration. Even Adjudication which was brought in

3 to achieve quick decisions in building disputes is now seen as very expensive. Commercial clients demand a budget and want to make a full recovery. They also want the matter resolved in a reasonably short timescale. Anecdotal evidence of forum shopping leading to actions being raised in London is in the Society s view based on the faster timescale offered there as well as greater proportionate recovery. Once a hearing has been held in England the time taken to issue the decision is also generally shorter than in Scotland. We would also refer to the report by Dr Elaine Samuel - In the Shadow of the Small Claims Court - from which it is clear that almost all claimants either take on Small Claims on their own or give up their claim as there is no possibility of recovering the cost of using a solicitor. Only the wealthy, or businesses (see next paragraph) can afford a lawyer in the Small Claims Court. Claimants taking on a business, particularly one of any size, will be faced with a solicitor on the other side which many will find intimidating as both the solicitor and the Sheriff will be familiar with terminology and the rules of evidence and procedure. This is another reason related to cost that discourages potential litigants. Legal Aid is not available for Small Claims. The tax system in the UK means that there are tax benefits available to business litigants that are not available to individual members of the public. Businesses that are registered for VAT recover the VAT on fees and outlays incurred and also benefit from tax relief on the net cost after deduction of VAT. At its extreme this means that for a sole trader paying tax at the highest rate (currently 50%) the net cost of instructing a solicitor charging 150 an hour is only 75 an hour whereas for the individual with whom he is in dispute the cost would be 180 an hour ( 150 +VAT of 30). This is hardly equality of arms. In personal injury cases cost may not be an issue for pursuers at the outset but it can become one towards the conclusion of the case when the gap between agent/client fees and recoverable expenses becomes clear. This only becomes real for the client when they are comparing an offer to settle with what they might expect to receive after meeting extra-judicial expenses. Finally in regard to the general question of the cost of using lawyers to conduct litigation, it should be noted that there is a basic cost involved in any litigation, whatever its value, to cover both the investigation needed to raise or defend the claim and the time involved in progressing through the relevant procedural steps required. Whether looked at through the eyes of the pursuer or defender, what either party or their funder, insurer or agent will require to engage in is a risk benefit analysis which assesses the likelihood of success on the one-hand and the likely cost of failure on the other. To that extent, the cost of litigation will always be a potential deterrent.

4 Chapter 3 2. Should solicitors fees for litigation be recovered as expenses on the basis of time expended, value of the claim or some other basis? Time reasonably expended should always be taken into account but time alone should not be the main driver as that would reward inexperience and incompetence. The main driver should be the work done in each stage of the case with a time element built into the fee for each stage, which is how the block fees in both the Court of Session and Sheriff Court Tables of Fees for Solicitors are calculated at present. In cases in which time spent is a major factor, and would not be adequately remunerated by the block fees, a time and line account can be prepared. The Auditor has discretion to tax off time charges he considers unreasonable. In personal injury cases the value of the claim should not be the main driver either as there is no automatic relationship between the value of the case and how complicated it is or how much work needs to be done to progress it. Finally, tariffs as set out in Q13 are not the appropriate answer (see our answer to Q13). 3. Is LPAC, as currently constituted, an appropriate body to review the level of fees for litigation which may be recovered as expenses? If not, what alternative body should carry out this function and what should be its composition? It is necessary for a body to keep under review the levels of fees recoverable from unsuccessful parties and to make recommendations to the Lord President, as head of the courts in Scotland, on the level of those fees. It is essential that such a body is made up of people with litigation experience and legal training. However to broaden the experience on the body it would also be appropriate to involve an economist such as Professor Main of Edinburgh University. If it is felt there should be a more balanced body, that should be achieved by appointing one or more representatives of commercial consumers of legal services, such as banks and insurance companies, as they require to meet findings of expenses on a regular basis. As stated in our Response to the Consultation on the proposed Civil Justice Council, in the Society s view LPAC should become a committee of that Council once it is established. We will deal with the next five questions together: 4. Is the test currently applied by the sheriff court in sanctioning the instruction of counsel appropriate? If the sanction of the Court of Session were to be

5 required prior to the instruction of senior counsel, what test should be applied? 5. What test should the court apply when considering a motion for certification of an expert witness should it be necessity, reasonableness or some other test? 6. In the sheriff court, should counsel's fees be a competent outlay in a judicial account of expenses only from the date of an interlocutor certifying the case as suitable for the employment of counsel? 7. In the Court of Session, should senior counsel's fees be a competent outlay in a judicial account of expenses only from the date of an interlocutor certifying the case as suitable for the employment of senior counsel? 8. Should the presiding judicial office holder assess what would be a reasonable fee for counsel in any account of expenses? If so, at what point in the proceedings should that assessment be made? It is appropriate that the judge presiding in the court in question should have discretion on the sanction for counsel in the Sheriff Court (including solicitor advocates and senior counsel) and expert witnesses. Safeguards already exist in the existing system which is working well. On the issue of prior sanction for Senior Counsel in the Court of Session this would only increase the cost of cases as such motions would routinely be opposed and would also take up a disproportionate amount of court time. There should be a table of fees for counsel as set out in the appendix to this response. This was one of the Recommendations of the Civil Courts Review (No 185). (See also answer to Q 13). 9. From when should the fees of an expert witness be a competent outlay in a judicial account of expenses? Many cases need input from an expert before the action is raised, and there should be no rule limiting the court s discretion on the time from which an expert s fees are payable in a judicial account. 10. Should the presiding judicial office holder assess what would be a reasonable fee for an expert witness in any account of expenses? If so, at what point in the proceedings should that assessment be made? The issue of vouching experts fees at taxation is covered by Para 5 of the Consolidated Guidance Notes for Taxation of Accounts issued by the Auditor of the Court of Session in An Auditor of Court is far better placed than a judge to assess the appropriate rate for an expert, and the current method of dealing with these in the Account of Expenses should continue. The cost of experts can be very significant in many types of case, sometimes reaching over 50,000. The test of reasonableness as set out in our answer to Q 58 should apply.

6 There will be considerable practical difficulties if motions for sanction/assessment need to be made on a piecemeal basis. These are likely to come before a different judge each time, with a strong likelihood of inconsistent outcomes. A case can have a number of experts, even into double figures on occasion. As with prior sanction for Senior, an opposed motion on each occasion would add substantially to the cost; would act as a disincentive to prospective litigants (going back to Q1); and would take up a huge amount of court time. It would also give rise to ECHR issues under Article 6, particularly in cases with parties of vastly different means on each side, such as personal injury cases. 11. Is it reasonable for counsel to be entitled to charge a commitment fee and, if so, should that be prescribed or left to the discretion of the Auditor? Yes. The matter can be left to the Auditor at taxation, from which the aggrieved party has the right to appeal by way of a Note of Objections. 12. Should the level of fees recoverable by the successful party in a commercial action be greater than in other types of action and, if so, what is the justification? As the Society has submitted to LPAC on previous occasions, there should be a specific block fee table for Commercial Actions in the Court of Session to reflect the different way such cases run, and the same should apply in Sheriff Courts that have a different procedure for commercial actions. There is a clear precedent for such a table in personal injury actions in both the Court of Session and the Sheriff Court. Like the other tables this new block table should be reviewed annually. In practice a relatively senior solicitor is likely to be dealing with a commercial case, possibly as leader of a team, and the fees chargeable to the client are likely to exceed the hourly rate in the court tables. 13. Should a tariff-based system for assessing the level of recoverability of judicial expenses be introduced? If so, how might such a system be structured? A tariff system already exists through the block fees in the judicial tables, with the possibility of an additional fee if one or more of the relevant criteria is present. A tariff based on value would be too broad an approach (see comments on Q2). However the block tables should more accurately reflect the cost to a successful party in pursuing the action. This should be achieved firstly by creating a new block table for commercial actions (see Q12) and secondly by reviewing the existing blocks to reflect the amount of time needed for each stage. (See also answers to Qs 41 and 58). To the existing tables there should be added a table of fees for counsel (see answer to Q 8 and the appendix) 14. Should any table of fees provide for a more experienced solicitor to recover at a higher rate than a newly qualified solicitor and/or for an

7 accredited specialist to recover at a higher rate than a solicitor without accreditation? There is merit in this approach in a detailed account, for example where a more experienced solicitor has required to deal with a specific aspect of the case, but not in the block fees. It must be stated that experience (ie number of years qualified) does not necessarily mean more able, or even more experience of the type of litigation in question. The additional fee criteria already provide a mechanism for reflecting experience in the award of expenses, and the same applies to accredited specialist solicitors. 15. Is the ability to request an additional fee a reasonable procedure for regulating the recoverability of judicial expenses? Yes (see Qs13 and 14). 16. If the concept of an additional fee is retained: a. at what stage in the proceedings should a motion for an additional fee be made? b. should motions for an additional fee, and the percentage increase, be determined by an auditor of court or by the member of the judiciary hearing the motion? (a) At the end of the case when the court will know what has happened, including how the case has been conducted as well as the outcome. (b) The existing systems in the Court of Session and the Sheriff Courts work well, even though they are different. The differences reflect the different experience and qualifications of the Auditor of the Court of Session compared with almost all Sheriff Court Auditors. It should be noted that some motions for an additional fee in the Court of Session are unopposed as the Auditor will normally determine the amount, and there is on occasion an acceptance that such a fee is appropriate in principle. However, in the Court of Session there should always be an interlocutor remitting the matter to the Auditor and in the Sheriff Court, an interlocutor instructing the Auditor what additional fee should be allowed. 17. Should a litigant be entitled to claim interest on an award of judicial expenses and, if so, from what date and at what rate? Yes. This was recommended in the Report on the Civil Courts Review in relation to outlays (Recommendation 187). The Society s view is that interest should be payable on both fees and outlays. The critical issues are from when and at what rate? At present there is no certainty in Scotland. As this is being written Lord Hodge s decision in Farstad Supply AS v Enviroco Ltd has been reclaimed but the hearing has not taken place.

8 In Dalmahoy and Wood v Magistrates of Brechin (1859) 21D210 the Court held that the date from when interest runs is the date of decerniture, but that is a very old case. In England the House of Lords held that interest runs from the date the case was settled (Hunt v R M Douglas (Roofing) Ltd [1990] 1AC398) and is applied to the final figure. This has led to interim payments being made in England and Wales, with a speedier and more certain outcome serving the interests of all parties. This approach should be adopted in Scotland in respect of fees. The cost of outlays has risen significantly in recent years, especially court dues, experts fees and fees to counsel. Although interest on money invested is low, the cost of borrowing remains high in relative terms. In respect of outlays the date from which interest should run should be the date they were paid or the date of decerniture whichever is earlier. The appropriate rates in respect of outlays are a commercial rate up until decerniture and the judicial rate from that date on. This would achieve recompense not a penalty. The four month rule for lodging Accounts of Expenses in the Court of Session should also apply in the Sheriff Court to avoid unnecessary delay simply to earn more interest. Chapter Should the court have a discretion to restrict recoverable expenses in a small claim even in cases where a defender, having stated a defence, has decided not to proceed with it? The Society is not aware of any difficulty caused by the current rule which should be retained. Defenders have a reasonable time to obtain advice on whether their proposed defence is valid in law, and should have knowledge of the facts themselves. If a defence is stated and later withdrawn, the defender should meet the financial consequences in terms of the current rule, which is necessary to deter spurious or time-wasting defences. 19. Should more cases in Scotland come under the scope of a fixed expenses regime? If so, what types of case should be included? No. There is a danger in importing tranches of law on costs from other jurisdictions where procedures are very different. The introduction of fixed fees in line with (say) the small claims track in England and Wales would have an unequal impact on parties depending on whether they can claim tax relief or set VAT off against VAT on turnover (see answer to Q1), and create an additional barrier impeding access to justice for members of the public. 20. Should each party to a litigation in Scotland bear their own expenses? If so, in what types of litigation? Should the rule be qualified and, if so, in what circumstances? In particular, is the general rule in family cases appropriate?

9 The courts should continue to have discretion as at present to award expenses to a successful party. To bring in a rule requiring each party to bear their own expenses with no hope of recovery would fly in the face of the principle of restitution and would almost certainly raise an Article 6 challenge to any legislative attempt to do so. It would deprive the vast majority of the population of access to justice in claims against wealthy individuals, businesses or insured parties. In family cases the court should continue to have discretion to deal with expenses as seems just, having regard to the manner in which the case has been conducted as well as the merits, with the general presumption remaining that no expenses should be awarded to or by either party. 21. Should a procedure for the summary assessment of expenses be introduced into the civil courts in Scotland? This would be a retrograde step. The Auditor of Court is the person best equipped to deal with assessment of reasonable expenses within the framework of the Tables of Fees approved by the Lord President, and also to assess appropriate outlays where these are not fixed. The Auditor s mind will be equally focussed by the introduction of a provision for interest. As mentioned in our answer to Q12, the introduction of a block fee table for commercial actions will assist parties to agree expenses in such cases, leaving only truly contentious cases needing to be taxed by the Auditor. 22. If a procedure for summary assessment was introduced, in what circumstances should the summary assessment of expenses take place and should it be restricted to any particular types of action? Not applicable. 23. Would there be any benefit in introducing a procedure of submitting schedules of expenditure similar to the pilot scheme operating in the Birmingham Mercantile Court and TCC? No. While many clients, particularly those in business, want a budget and will measure a firm against that, it should not be made a rule. It should be left to the market. 24. Apart from imposing sanctions, what other powers, if any, should be made available to the courts to promote predictability and certainty of judicial expenses? There already exist considerable powers available to the courts which are adequate. This area should be a matter for judicial training. With greater use of block fees as already suggested, the unpredictability will be in the area of experts fees. The introduction of a Table of Fees for Counsel as proposed in the appendix, and accepted by the Civil Courts Review (Recommendation

10 185), will reduce the scope for challenge to such fees creating greater predictability of cost to both sides as the case progresses. (See also answers to Qs 8 and 13) Chapter Should the power to apply for a PEO in Scotland be limited to environmental cases or should PEOs be available in all public interest cases? Such orders should not be limited to environmental cases. The Supreme Court s decision in AXA General Insurance Limited and others v The Lord Advocate will allow scope for other parties to be represented in a range of different cases. Most will seek protection and that should be available in any public interest case, subject to the normal discretion of the court in dealing with an opposed motion. 26. Should limits be set on the level at which a PEO is made or should this be a matter for judicial discretion? The Scottish Government has already issued a consultation paper on this matter with limits of 5,000 and 30,000 proposed. The intention is to ensure the UK is compliant with an EU Directive on Public Participation, implementing the Aarhus Convention. If those limits come into law in environmental cases, they should be the starting point for all cases. Chapter Should lawyers be permitted to pay a sum of money to a third party in return for referrals or instructions for other business? The Society s Practice Rules deal with the issue of solicitors sharing fees with unqualified persons. The relevant rule is in Section D and reads as follows You shall not share with any unqualified person any profits or fees or fee derived from any business transacted by you of a kind which is commonly carried on by regulated persons [solicitors] in Scotland in the course of or in connection with their practice; provided always that: (a) a practice unit may pay its overheads out of income from fees; and (b) the provisions of this rule shall not apply to the sharing of profits or fees where: (i) a person who has ceased to practise as a regulated person shall receive from any regulated person a share of the profits or fees of the latter, as a price or value of the business which he has transferred to the latter or shall receive a share of such profits as a voluntary or other allowance out of the profits or fees of a business in which he had been a manager; or (ii) the widow, widower, civil partner, heirs, executors, representatives, next of kin or dependants of any deceased regulated person receive from any regulated person who has purchased or succeeded to the business of such deceased regulated person or from any practice unit of which such deceased

11 regulated person was a manager at his death any share of the profits of such business; or (iii) the salary of any employee of a regulated person is partly or wholly paid in the form of a percentage on the profits of such regulated person's business or any part thereof; or (iv) such profits or fees are received by any public officer in respect of work done in the course of his duty; or (v) an agreement for sharing such profits or fees is made between a regulated person and a lawyer; or (vi) such profits or fees are received by an officer of a public body who is a regulated person or by the public body and are dealt with in accordance with statutory provisions. The definition of overheads is costs and expenses incurred by a practice unit in the running of its business which may include the costs of services provided to the practice unit (including services in relation to the advertisement and promotion of the practice unit) but shall exclude any payment purely for the introduction or referral of clients or business to the practice unit or any of its directors, members or employees save for any fee paid by the practice unit for its inclusion on a panel of legal advisers to whom referrals of business may be made provided that such fee is not expressed as a proportion of the fees generated from the business so referred Solicitors in Scotland are therefore only permitted to pay a fee to be on a panel to which referrals are made, but that fee cannot be a proportion of the fees generated by the actual referral. If however solicitors explain to the clients in their terms of business that the client will pay such a fee at the end of the case, and that is later shown in the fee note as an outlay, solicitors will not be in breach of the Society s Rules. There seems no reason why clients should not be entitled to agree to such an arrangement, provided it is transparent and explained to them at the outset. This issue goes beyond the question of costs and impinges on parties freedom of contract. Institutions such as banks are now starting to charge solicitors a fee to be on their panels for doing security work. Any change in the law to prohibit fees to be on a panel will have significant repercussions in the wider provision of legal services. 28. Should lawyers be permitted to provide legal or other services to a third party at no cost to the third party in return for referrals or instructions for other business? Yes. The existing Practice Rules contain appropriate safeguards. Any legislative attempt to prohibit the provision of services at no cost would have significant consequences across a wide range of work, and could mean that a

12 solicitor could not even draft a will for a parent without charging a fee in case the parent recommended a friend or other family members to use that firm. 29. Should lawyers be permitted to make payment to a company, or some other body, either in money or by some other consideration, in order to have their name placed on a panel for the purpose of securing a flow of instructions in litigation? Yes, as set out in our answer to Q Should the answers to questions 27, 28 and 29 be different, please explain why the situations should be distinguished. In our view the answers above are not different apart from what is prohibited by the Society s Practice Rules. Those Rules have been approved by the Lord President in accordance with S34 of the Solicitors (Scotland) Act In the event that payment for referrals, whether by money or provision of services, is permitted, should there be a limit upon the value of the referral fee or services provided? This should be left to the market, and an attempt to restrict the amount would be anti-competitive. Chapter Do BTE insurers adversely influence the conduct of the litigations which they are funding? The requirements of BTE insurers can adversely influence the conduct of litigation. The deadlines and reporting standards set by different insurers are not standard, making it extremely difficult to deal with a case as a one-off in a firm that has invested in a case management system. In such cases a bespoke approach is necessary, which leads to an inefficient use of time and a lower proportion of the cost recovered in the event of success. BTE insurance is more efficient and cost-effective when the firm receives volume referrals and can set up a system to manage them in accordance with the insurer s requirements. In the experience of our members, BTE insurers have a nit-picking approach to fees. They are mainly English based and have either no or a very limited understanding of Scottish procedure. Levels of indemnity are too low and do not even provide cover up to the pre-proof stage in the Court of Session. Furthermore, BTE policies are not available in stress cases or for Repetitive Strain Injury, and it is unusual for them to cover Medical Negligence. They are therefore of limited use. 33. Is it appropriate for a lawyer in the direct employment of an insurance company to assess whether a policy holder s claim falls within the terms of the policy?

13 Yes. It is the duty of an employed solicitor to advise their employer, and that includes advising on such a matter. 34. Is it reasonably practicable for BTE insurance policy holders to be entitled to instruct any lawyer of their choice, at any stage? It is right that an insured person should be entitled to instruct a solicitor of their choice, but for the reasons set out in our answer to Q32 it is not practical. 35. Should BTE insurance be encouraged and, if so, what suggestions would you make to address some of the criticisms levelled against it? BTE insurance can be a useful means of providing affordable access to justice, but as set out above it has disadvantages as well as advantages and is not a panacea. The Society s experience of promoting BTE insurance in the 1980s demonstrated that take-up is low and renewal even lower. In more recent years we were advised by our brokers that insurers see no market among the public for stand alone BTE insurance. There is a market for it as a low cost add-on to motor or home insurance. Chapter Are there any aspects of speculative fee agreements that require regulation? Speculative fee agreements are already regulated in Rule of the Rules of the Court of Session and in the Act of Sederunt (Fees of Solicitors in Speculative Actions) 1992 in the Sheriff Court (SI 1992 No 1879). These provisions appear to be working well. 37. What should be the maximum uplift for success fees in Scotland? The current level of 100% of the solicitors fees in the judicial account (ie the fees recoverable from the other party less any additional fee allowed by the court or Auditor) is appropriate. 38. Should there be a cap on success fees as a percentage of damages? If so, at what percentage and at what level and heads of damages? This should be left to the market. When the Society ran an ATE insurance policy called Compensure in the late 1990s/early 2000s it included a cap on the success fee of 25% of the damages agreed or awarded. That however was part of the promotion of the policy, and was never a Society Practice Rule. There is a safeguard for the public in the form of S39A of the Solicitors (Scotland) Act 1980, which provides as follows: 39A Powers where excessive fees etc charged.

14 (1)This section applies where the Council are satisfied, in the case of any solicitor or incorporated practice, after inquiry and after giving the solicitor or incorporated practice an opportunity of being heard, that the solicitor or incorporated practice has issued an account for professional fees and outlays of an amount which is grossly excessive (whether or not the account has been paid by or on behalf of the client or debited by the solicitor or incorporated practice to the account of any sums held on behalf of the client). (2)Where this section applies the Council may (a)in the case of a solicitor, withdraw his practising certificate; or (b)in the case of an incorporated practice, withdraw the practising certificates of all or any of the solicitors who are directors of the incorporated practice; and a certificate so withdrawn shall cease to have effect and the solicitor shall be suspended from practice as a solicitor. (3)On being satisfied by the solicitor or, as the case may be, incorporated practice that he or it has complied with the requirements of subsection (4) the Council, unless they are of the opinion that the solicitor or incorporated practice is liable to disciplinary proceedings under Part IV, shall terminate the suspension from practice of the solicitor or solicitors concerned and shall restore to him or them any practising certificates held by him or them for the practice year then current. (4)The requirements referred to in subsection (3) are (a)to submit the account to the Auditor of the Court of Session for taxation together with all documents in the possession or control of the solicitor or incorporated practice which relate to the matters in respect of which the account was issued; and (b)to refund to the client a sum not less than the relevant amount. (5)The Council shall be entitled to be represented at a diet for taxation by virtue of subsection (4)(a) and to make representations to the Auditor of Court. (6)Where, on taxation of an account by virtue of subsection (4)(a), the amount due in respect of the account as taxed is the amount specified in the account as issued, the fee of the Auditor of Court shall be paid by the Council; but in any other case the fee shall be paid by the solicitor or, as the case may be, the incorporated practice. (7)In subsection (4)(b) the relevant amount is the amount (if any) by which the sum received by the solicitor or incorporated practice in respect of the account exceeds the amount due in respect of the account as taxed. (8)A solicitor may, within 21 days of receiving written notice of a decision of the Council under subsection (2) to withdraw his practising certificate, appeal to the Court against that decision; and on any such appeal the Court may give such directions in the matter, including directions as to the

15 expenses of the proceedings before the Court, as it may think fit; and the order of the Court shall be final. (9)The withdrawal of a solicitor s practising certificate under subsection (2) shall be without prejudice to the operation of section 35(3) or section 37(8). 39. Should success fees be recoverable in Scotland? If so, under what circumstances? No. The experience in England has been of satellite litigation, uncertainty and damage to the reputation of the legal profession. 40. Should ATE insurance premiums be recoverable in Scotland? If so, under what circumstances? No, with the possible exception of Medical Negligence cases (see answer to Q61). 41. If success fees and ATE insurance premiums remain irrecoverable in Scotland, is it reasonable to expect successful pursuers to contribute some of their damages towards payment of their legal fees and insurance premiums? If not, what are the alternatives? Yes but that should be a smaller proportion than at present. We note that general damages are to be increased by 10% in England to compensate for the withdrawal of the right to recover success fees/ate premiums. This would be an unsatisfactory solution. It would be difficult to build such a modest increase into settlement negotiations. The reasonable expenses currently allowed in Scotland are insufficient and should be increased by taking a different approach to party/party expenses and by increasing the block fees (See answer to Q 58). If the gap is closed there will be no need for an extra 10% on the damages. Chapter 9. In answering the questions in this chapter our primary concern is that the successful party should be able to keep as much as possible of the amount they have accepted or been awarded. There is no prospect of Scottish courts increasing awards of damages to take account of the fact that the party s lawyers will take a percentage! Fees based on a percentage of the award remunerate the lawyers in a way that bears no relation to the work done. We answer the next two questions together -

16 42. Should the law be changed to allow solicitors and counsel to enter into DBAs? 43. Should claims management companies continue to be entitled to enter into DBAs? In cases where the court has discretion in how much to award, such as personal injury cases, fees should be based on the work done. So far as we are aware Damages Based Agreements are not illegal in the criminal sense, but have been declared by the Court of Session to be void and unenforceable. If the court in which an action of this nature would be raised is in Scotland, Damages Based Agreements should be made illegal. Claims companies who operate such charging arrangements in Scotland provide no consumer protections such as the Master Policy for Professional Indemnity Insurance; the Guarantee Fund; nor are they subject to the Scottish Legal Complaints Commission. Percentage fees expose vulnerable clients to unacceptable risks. If, correctly in the Society s view, lawyers cannot take a percentage fee there is no reason why claims companies should be entitled to do so. Such arrangements should be prohibited for all. There may be a case however for allowing parties seeking payment of specific sums of money, such as debts due to them, to enter into enforceable agreements with solicitors in which a percentage of what is recovered will be taken as fees. Many such arrangements exist informally already. The client knows exactly what the value of the case is and can readily understand how much they will be left with if there is a recovery. 44. If DBAs are permitted in Scotland: a. is it reasonable to expect successful pursuers to contribute some of their damages towards payment of their legal fees? b. should there be a cap on the percentage of the damages that lawyers are entitled to charge? c. should the percentage recoverable under a DBA be applicable to all heads of loss? d. should there be an increase in the level of damages awarded? If so, by what percentage and how is this to be achieved? e. what forms of protection may be required for clients entering into such an agreement? (a) Yes, but see answer to Q 41. (b) Yes but the percentage should be on a reducing basis as the award increases, similar to the Completion Fee in the voluntary Pre Action Protocol agreed between the Society and the Forum of Scottish Claims Managers representing insurers -

17 (c) No. It should be restricted to certain heads of damages solatium; past wage loss; and past care costs. It should not extend to future wage loss or future care costs. (d) No. This would create an unacceptable level of uncertainty. (e) The agreement must be set out clearly in writing. There should be a cooling off period. Subject to these fundamental differences, the provisions of the Damages-Based Agreements Regulations 2010 (SI 2010 No 1206) should be adapted to fit. 45. If the current prohibition on solicitors and counsel entering into DBAs is retained, should steps be taken to prevent its circumvention by the formation of a claims management company in which solicitors are directors or shareholders? Yes. See Answer to Q Should there be regulation of claims management companies operating in Scotland? If so, what are the mischiefs to be addressed and how should regulation be achieved? Yes. See Answer to Q 43. In addition they should be brought into the remit of the Scottish Legal Complaints Commission in respect of complaints, with consequential requirements to contribute to SLCC s running costs. Chapter What are the risks/potential abuses involved in third party funding and how might these be addressed? There is a clear distinction between a membership organisation funding cases in the interests of its members and commercial funders such as venture capitalists whose primary motive is profit, but account also needs to be taken of debt factors and funding by a party s creditors both of which are in the party s interests and give rise to no public interest concern. The question of conflict of interest may arise, particularly in respect of funding by creditors, but the Society s Practice Rules contain sufficient protection in that regard, as such agreements will normally be negotiated between solicitors acting for the different parties. The Unfair Contract Terms Act also provides appropriate consumer protection. 48. If regulation is desirable, what form(s) should it take? Commercial funders should also come within the remit of the Scottish Legal Complaints Commission in respect of complaints about provision of funding

18 for litigation (again with a requirement to contribute to SLCC s running costs) if they are not already subject to the Financial Ombudsman Service. 49. Should a party to a litigation who has entered into a funding arrangement be obliged to disclose details of that arrangement to any other party and, if so, in what circumstances? No. The current law is satisfactory. (See also answer to Q 56) Chapter Is a disproportionate amount of the civil legal aid budget allocated to family actions and, on any view, are there ways in which this might be reduced? The concept of disproportionate has not been properly considered in this section. No evidence has been presented as to what proportion of all civil actions are family actions. This is clearly relevant to the question of proportion within the civil legal aid budget. For example, if family actions made up 60% of the total civil actions, it would be proportionate for 60% of the civil legal aid budget to be applied to them. In addition, although it is noted that family actions constitute 60% of civil legal aid applications, it is not stated what proportion of actual civil legal aid grants are for civil legal aid. Paragraph 11.3 notes that grants of civil legal aid are dropping at nearly twice the rate of applications. This is reflected by recent solicitor experience that legal aid is being refused in a much larger proportion of cases than previously. Even if family actions do have a larger share of the civil legal aid budget, this would not necessarily mean that it should be reduced. Family actions form the majority of cases where there is no other funding or advice available. As a matter of public policy it is right that civil legal aid is available in these socially difficult cases. The alternative would have serious ramifications for society. Paragraph 11.4 states that some family cases have the potential to be high cost, as there is often more than one legally aided party in such cases. However, the evidence presented is that the difference is on average only 1,000 which, we would argue, is not extremely high. Solicitors have a duty to report to the Board where there is a change in circumstances or prospects of success or if he client unreasonably refuses to take advice. Solicitors generally take this duty seriously and have regard to the use of public funds. We would suggest that this relatively small difference where there are two legally aided parties ( 500 per party in total) indicates that solicitors, and indeed parties, do not generally act without due regard of the costs involved. The Society is strongly supportive of the use of reports. It is correct that reports will be ordered by the court in many cases, but in fact such reports have been shown to reduce costs overall. They are a very effective way of resolving disputes over children and cost on average less than 3,000. The

19 cost of such a report is well justified if it saves even one or two days of Proof in court. Further, the Society has put forward a number of ideas to the Scottish Government and the Scottish Legal Aid Board to control the cost of such reports. For example, it has been proposed that the cost should be capped at 3,000 without justification and prior authority of the Board. This would make savings immediately and would not require regulations to be brought into effect. In addition, the Society has suggested that there may be a need to reconsider eligibility for civil legal aid in the light of current economic conditions and the need to achieve savings for the legal aid budget. The change to the eligibility requirements for civil legal aid in 2009 brought around 70% of the population into the reach of civil legal aid. We believe that in this difficult financial climate, and consistent with the move towards ensuring legal aid as a funder of last resort, it is important that resources for civil legal assistance are refocused onto those in society that can least afford it and recommend that the issue of financial eligibility is revisited. While some family cases can be high cost, so can other types of case, and this will tend to be where there is some point of law in issue. In such cases, the outcome will form a useful precedent in future cases. Scotland should not follow the example of England & Wales in removing civil legal aid from most family cases. This would leave many people without a remedy altogether and at the mercy of a spouse, ex-spouse or partner with resources to spend on legal action irrespective of what is in the best interests of the children involved. It should be noted that in many divorce cases involving financial claims, solicitors are already declining to use legal aid where the client will receive a payment from which fees can be recovered. In any event, in such circumstances the Scottish Legal Aid Board will usually recoup expenses from property recovered or preserved. 51. Should a CLAF or SLAS be introduced in Scotland? If so,which is preferable? We would caution against the introduction of a CLAF or SLAS at this point without much greater consideration. This issue is too complex to be considered in the context of this response. There are many widely differing considerations between not only different parts of the world but also even between the two parts of the UK, and a very careful analysis would be required if an idea like this were to be taken forward. If this idea is to be taken forward, it should be the subject of a detailed report in its own right. As part of that exercise, specific attention should be paid to medical negligence cases (see answer to Q 61)

20 52. If such schemes were to be introduced, what types of litigation should be covered? See answer to Q If such schemes were to be introduced, what should be the minimum and maximum disposable income of successful applicants? It is premature to comment on such specific matters (see answer to Q 51). 54. Should such schemes be liable for payment of the expenses of successful opponents? See answer to Q What further steps, if any, should be taken to promote pro bono funding of litigation and by whom? The focus of pro bono work should be on a wider range of work than litigation. A huge amount of work is done by the Scottish legal profession for charities and individuals without charge. The Society manages a trust fund The Scottish Legal Services Trust set up in about 1998 to meet the cost of outlays in a matter in which a solicitor is acting pro bono. Any element of compulsion would be contrary to the whole ethos of pro bono. Whilst there is no doubt that pro bono funding of litigation is a good thing, it cannot and indeed should not be regarded as replacing a properly publicly funded scheme to make legal representation available to all those requiring to vindicate their private or public rights but who do not have the means to pay. 56. Should the Scottish courts have the power to oblige an unsuccessful party in a civil litigation to pay judicial expenses where the successful party has been represented on a pro bono basis and, if so, to whom should such a payment be made? Yes. Whether the case was taken on pro bono or on any other basis should make no difference to the court s decision on expenses. There should be no requirement to disclose a party s feeing arrangement with their solicitor. Any litigation which might lead to a finding of expenses in favour of a party should be categorised as a speculative action not pro bono. Such a case would not normally be eligible for a grant from the Scottish Legal services Trust. Chapter What steps could be taken to make Scotland the forum of choice for litigation? As the Society stated in its Response to the Scottish Civil Courts Review, the following may go some way towards achieving this objective: