09 July 2018

The Civil Litigation (Expenses and Group Proceedings) (Scotland) Act was passed by the Scottish Parliament on 1 May 2018 and received Royal Assent on 5 June 2018. The Scottish Government has indicated that it intends to begin implementing the Act towards the end of this calendar year, although full implementation is expected to take a number of years.

The Act deals with a number of issues. Measures include introducing a cap on the amount that can be deducted from an award of damages by the solicitor's success fee and allowing damages based agreements to be offered to clients by solicitors. It also provides for class action style ‘group proceedings’ where a number of litigants have the same or similar claims. 

The Act also introduces Qualified One-Way Costs Shifting (QOCS) for the first time in Scotland given the perceived "asymmetric relationship" between individuals and insurers by introducing measures to regulate the funding of personal injury claims and restricting the costs payable by a pursuer if their claim is unsuccessful. QOCS acts in the pursuer’s favour and provides that a pursuer will not be liable for a defender’s costs provided that they have conducted the litigation in an appropriate manner. This applies to all defenders, whether insured or not. Exceptions to that general rule will include where the pursuer:

• Makes a fraudulent representation or has, in some other way, acted in a fraudulent manner;
• Behaves in a manner which is manifestly unreasonable;
• Conducts the litigation in a way which the court deems to be an abuse of process. 

It will be interesting to observe how the Scottish courts will approach the ‘fraud’ exception. It may be that only cases of proven fraud will be caught. Difficulties may arise where an insurer successfully defends a claim on causation or in a ‘low velocity impact’ claim.

Will a defender then be able to convince a judge that QOCS should be dis-applied in the absence of a formal finding of fraud? Alternatively, in some cases defenders may wish to consider arguing that, by bringing the action, the pursuer acted in a way which was either manifestly unreasonable or was an abuse of process. Another interesting factor will be how the courts deal with fundamental dishonesty (for more on this see Joanne Farrell’s commentary here).

A further dimension to the new costs rules is the uncertainty over whether QOCS will apply in cases where a pursuer fails to beat a tender, or accepts a tender late. Unlike in the equivalent English Civil Procedure Part 36 rules, the Act does not specifically address this issue. It appears that this will be provided for in secondary legislation to follow later this year. The tender is one of the most useful tools in a defender’s toolbox but only if the costs rules ensure that it has sufficient ‘bite’. It remains to be seen whether tenders will provide sufficient protection on costs going forward.

The Act presents more questions than answers at this stage, particularly for insurers. It is expected that until the scope of the exceptions become clear there will be a considerable amount of satellite litigation relating to QOCS, particularly in suspected fraud cases and in cases where a pursuer fails to beat a tender. It will only be when cases come before the courts that insurers will be in a position to know the real implications of the legislation.

Contact the Insurance team at: insurance@bto.co.uk