Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill

The Convener (Margaret Mitchell)

Good morning and welcome to the Justice Committee’s 27th meeting in 2017. No apologies have been received.

Agenda item 1 is our second evidence session on the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill. I refer members to paper 1, which is a note by the clerk, and paper 2, which is a Scottish Parliament information centre paper.

It is my pleasure to welcome to the committee Ronnie Conway, who is co-ordinator at the Association of Personal Injury Lawyers; Brian Castle, who is regional co-ordinator Scotland for the Motor Accident Solicitors Society; and Patrick McGuire, who is a partner with Thompsons Solicitors. I thank all the witnesses for their written submissions, which are extremely helpful. We will move straight to questions.

John Finnie (Highlands and Islands) (Green)

Good morning, panel, and thank you for your submissions. Will you outline whether damages-based agreements have any advantages over no-win, no-fee arrangements?

Patrick McGuire (Thompsons Solicitors)

I am happy to begin answering that question. The reality is that the terms—particularly in the bill—are entirely interchangeable. The bill legalises the type of arrangement that, until now, professional rules and other aspects have prevented solicitors from entering into, whereby, in the event of a case being successful, a specific percentage of damages could be taken as a fee. Until now, solicitors could enter into a specific form of speculative fee agreement that centred on the ability to charge a percentage increase on damages.

The bill seeks to make things simpler for practitioners and—most important—for victims of accidents, injuries and disease so that they can have a clear picture in their mind in deciding whether to take forward a claim and which solicitor to choose to engage in that process. The bill is about providing simplicity and clarity, and for that reason, it will be a good and welcome addition to the law.

Brian Castle (Motor Accident Solicitors Society)

At the moment, when a client engages a solicitor on a written speculative fee agreement, the client has no clear understanding of how much they will be charged at the end of the day. Under the rules as they stand, a solicitor can charge up to 100 per cent of the judicial expenses that they recover. Even a solicitor at the outset of a case cannot tell a client what the judicial expenses are likely to be.

Under a damages-based agreement, a client can readily understand that a percentage of damages can be taken as a fee. That gives certainty and, as Paddy McGuire said, makes things simpler. The proposal under the Taylor review was to cap success fees or DBAs to prevent solicitors from taking an inordinate amount of damages from clients.

I think that, as well as the certainty, clients will like the idea that, if a solicitor is fighting their corner and can charge a fee that is based on the amount that is recovered, they will have an interest in fighting for the best deal for their client.

Ronnie Conway (Association of Personal Injury Lawyers)

I agree with what my colleagues have said. Taylor looked at the fact that some larger firms of solicitors have a parallel claims management company and that clients are already offered a damages-based agreement. In the main, Taylor found that clients were perfectly happy with that. The existing rules on speculative fees are byzantine and incapable of being understood by the public.

I have no factual basis for saying that there has been abuse, but the rules at present are open to such abuse, and it seems to me that the bill represents a substantial improvement on the current position.

John Finnie

If damages-based agreements were to be introduced, where would that leave the no-win, no-fee arrangement?

Patrick McGuire

A damages-based agreement is just a form of no win, no fee. Simply, it has clarity; the basic building blocks are the same, but the solicitor will act and charge a fee only in the event of success. It is just about what happens in the event of success; under the bill, the success fee will be at a fixed percentage that is clear from the outset. As colleagues have described, there is at the moment a strange and byzantine—I agree with Mr Conway’s description—approach to fees uplift.

As I said, this is just a matter of clarification. No win, no fee is a generic term, and damages-based agreements are a form of such arrangements. As I think Hamish Goodall explained the other week, the bill allows solicitors to engage in old-fashioned speculative fee agreements, if they so choose, but I would be surprised if they did.

John Finnie

Is there confusion about the terminology, or is there just a lack of clarity on my part? The position does not necessarily seem straightforward to the layperson.

Patrick McGuire

Do you mean the terminology in the bill?

John Finnie

Yes.

Patrick McGuire

For the public, the common parlance is “no win, no fee”; when they hear that, they expect to be able to engage a solicitor and be charged a fee only in the event of success. That currently happens, but the rules that govern what a solicitor can charge are in the main not clear.

There is also an unlevel playing field, because claims companies and certain organisations of solicitors who are allied to such companies can engage in the type of arrangement—the damages-based agreement that you are talking about—that is being envisaged for all under the bill. At the moment, only a limited number of organisations can say, “In the event of success, the fee will be X per cent.” Most solicitors cannot do that, so all that the bill does is allow everyone to operate in the same way and in a way that is entirely clear to the public. To take your point, Mr Finnie, I think that that is what the public expect and need. They want to know that there will be no charge in the event of the case being unsuccessful, and they want to know—I think—what the charge will be in the event of success. The bill sweeps away the confusion, and the market will balance out and determine things.

Ronnie Conway

I wonder whether part of the answer relates to the regulations, which have still to be made and which will be subject to the affirmative procedure. In its recommendations, the Taylor review—I make it clear that, although I was part of the Taylor reference group, I did not write a single word; Sheriff Principal Taylor is the review’s only begetter—set out provisions, which Mr McGuire just highlighted, on clarity for the public. Members of the public will have access to a fixed format of agreement, and I suspect that, within a very short time, the kind of speculative fee agreements that have been used up to now will wither on the vine.

The Convener

One of the points that John Finnie has raised and which Mr McGuire has clarified is that no win, no fee comes in various forms—it is just a generic term. The bill sets out a precise formula.

I will take a supplementary from Stewart Stevenson.

Stewart Stevenson (Banffshire and Buchan Coast) (SNP)

You must excuse my voice.

Mr Castle has spoken with approbation about the solicitor having a financial interest in the outcome. Is that really a good thing? Historically, a solicitor has, of course, represented their client in court, but they were independent of their client’s interests; they were able to provide independent advice, and they had duties to the court.

I accept that the train might well have left the station on the subject, but I wonder whether solicitors having a financial interest of the kind that you describe, which you appear to speak of approvingly, is a good thing in any circumstances.

Brian Castle

I was speaking on behalf of the client. We were talking in the context of looking at damages-based agreements and the potential benefit to a client. The client would see it as a good thing if the solicitor was fighting their corner and had an interest in doing well and securing full and proper compensation for the client.

You are right about the traditional situation. As it stands, the law that prevents solicitors from directly entering into a contingency fee agreement with the client is there because of concerns in the past. Sheriff Principal Taylor’s review took account of those concerns, but he recommended that, for the sake of clarity and certainty at the outset of an agreement, a client who was entering into an agreement should know at the outset what the terms of that agreement and the charging regime were.

Stewart Stevenson

Do you—and possibly others—see it as important for the professional standards regime, which is not a matter for Parliament, to be updated to make clear where the boundaries in respect of responsibilities are in the new regime, if Parliament passes the legislation?

Brian Castle

Absolutely. That has to be and remains important. A solicitor will have duties to the court, aside from looking at personal interests, and that has to be reflected in the rules.

John Finnie

Is anyone on the panel aware of examples of clients being required to pay two separate fees from an award of damages—one to a claims management company and one to their solicitor?

Ronnie Conway

I am not aware of any such examples.

Brian Castle

Likewise, I am not aware of any.

Patrick McGuire

Not to my personal knowledge.

John Finnie

The phrase “access to justice” is much used. Will the provisions enhance access to justice?

Patrick McGuire

I have absolutely no doubt that the provisions that are in the bill will enhance access to justice. That includes the provisions that cover group litigation, which we might come on to talk about. The entire purpose of part 2 and qualified one-way costs shifting under Sheriff Principal Taylor’s recommendations was to enhance access to justice. We have all expressed some concerns about the drafting of the bill and how it could be improved. There is no doubt in my mind that, if we assume that Sheriff Principal Taylor’s recommendations are reflected fully in the bill, it will improve access to justice. Equally important, it will also do what Sheriff Principal Taylor said was his prime focus and what I see as the mischief of the bill, which is redressing the imbalance in the asymmetrical relationship, which Sheriff Principal Taylor spoke about, between pursuers of personal injury claims and the extremely large, powerful and wealthy insurers that count their profits in billions of pounds.

Ronnie Conway

APIL strongly supports the bill’s aims and has been waiting on such legislation since the Taylor report was issued in 2013. In world jurisprudence, the most widely cited article is “Why The ‘Haves’ Come Out Ahead”, which Marc Galanter wrote in 1974. His critical point is that litigants can be divided into two categories. On the one side, we have the one-shotter, and on the other side, we have the repeat player.

If my car is rear ended by someone else, I am a one-shotter. If I have to get involved in litigation or a dispute with the person who banged into me, I am dealing not with a one-shotter but with a repeat player. That covers not just personal injury cases but cases of landlords and tenants and of private utilities and so on against individuals.

The repeat players have distinct advantages: they are resource rich, have easy and well-established conduits to blue-chip lawyers and can decide what cases to settle and what cases to take to the Supreme Court. We know from the Parliament’s experience of the asbestos wars that they are perfectly capable of doing that. Critically—and this is the point about the bill—they have no real financial or emotional involvement in the dispute.

10:15  

The Convener

We will cover that in more depth. You have taken quite some time to explain that point. The issue is complex and the one-shotters can come in various forms; we hope to tease that out.

Before we move on, I will ask about the possibility of two separate success fees from an award of damages. You all said that you were not aware of that happening, but it would not be impossible under the bill. Is that correct? I am talking about a situation where a claims management company charges a fee and the solicitor to whom it referred the case also charges a fee.

Patrick McGuire

I have not considered that in respect of the bill’s wording and I apologise for that. Given what has been said and the fact that there is a requirement for secondary legislation under part 1, the issue might need to be addressed at that point.

Ronnie Conway

Convener, you are correct that that is a possibility. APIL’s hope is that claims management companies will wither on the vine—there is no real need for them and they are a kind of dating agency that no one needs. Once clarity has been introduced into the system, people should go straight to a solicitor, who will charge a single fee.

The Convener

So there is nothing in the bill to stop two fees being charged. Does that need to be looked at?

Brian Castle

To repeat my colleague’s comment, if there is a concern that that is a possibility, it can be addressed through secondary legislation on fee charging.

Rona Mackay (Strathkelvin and Bearsden) (SNP)

I will follow on from Mr Finnie’s line of questioning but focus on the pursuers side of things. How can the future care needs of pursuers who have suffered significant injury be managed if some of their damages award goes towards paying a solicitor’s success fee?

Ronnie Conway

I think that you are looking at section 6. Taylor adopted an evidence-based approach to the matter. If you do not mind, convener, I will refer to section 6.

The Convener

Go ahead.

Ronnie Conway

If you are talking about care costs, you are probably talking about cases that are worth more than £2 million. Once the proposed damages bill comes into play, in cases against institutions such as the national health service, the Motor Insurers Bureau or regulated insurance companies, the expectation is that periodical allowances will be put in place. In that event, Taylor excluded the possibility of any success fee being calculated on the future amount. In cases that are worth more than £1 million, under section 6(5), the norm will be that there will be no calculation of a future success fee.

The bill has to envisage two possibilities. The first is one in which there is an adjudication, so the court resolves matters. If it is a choice between a lump-sum payment and a periodical allowance, the judge will have to be satisfied about the future element being paid as a lump sum. In cases where damages are obtained by settlement, the pursuer’s lawyer will have to instruct an independent actuary, who will have to certify that the future element should be paid as a lump sum rather than periodical payments. Therefore, once the legislation on periodical payments is introduced, the expectation is that there will be periodical payments rather than lump sums.

If all of that falls by the wayside and we end up with a lump sum, Taylor’s suggestion is that the amount of success fees should be a once-and-for-all 2.5 per cent on damages of more than £500,000. In his report, he uses an example in which there is a future loss element and the amount that is recovered is £1 million. He says that, in such a case, the maximum success fee should be 20 per cent for the first £100,000, 10 per cent for the next £400,000 and 2.5 per cent for all the amount after that. From a practitioner’s perspective, that additional amount is the most difficult, involved and disputatious element of the litigation. There are constant disputes about life expectancy in particular, as well as about amounts and levels of care. I agree with Taylor that a single success fee of 2.5 per cent for damages of more than £500,000 supplies sufficient incentive to keep going without overrewarding the lawyers involved.

Rona Mackay

How do you feel about the argument that Scotland should follow England and Wales in protecting the future loss element of a claim from forming part of the success fee calculation?

Brian Castle

Taylor considered that in some detail. He considered the possibility of restricting a success fee to past damages only and decided that the better position would be to allow solicitors to charge a limited success fee on future damages. I think that the rationale was largely that, as Ronnie Conway said, the bulk of the work in these big-value cases goes into the claim for future damages and continued care costs. Those are hotly disputed and the vast majority of the solicitor’s time examining such cases would be focused on calculating and putting forward the future element. Taylor did not want to discourage solicitors from doing that work or from doing it properly.

The secondary point that Taylor recognised is that, anecdotally, it has been suggested that, if solicitors were to be allowed to charge a fee only on past losses, there might be an incentive to drag a case out for as long as possible so that more of the compensation would be treated as past losses. That is clearly not in the client’s best interests. We want to get to full and appropriate compensation as quickly as possible and we want the legislative framework to encourage that.

Patrick McGuire

The overall purpose is to achieve a fair balance with appropriate safeguards for the victim. Sheriff Principal Taylor spent a great deal of time looking at that, and the recommendations in his report, as reflected in the bill—subject of course to the issue of section 4, which requires secondary legislation to set the parameters of the sliding scale of fees, as my colleagues have spoken about—strike the balance appropriately. Solicitors will be paid fairly for the extremely hard work that is put into these extremely trying and difficult high-value cases, but in a way that means that the victim is properly protected. The bill just strikes that balance correctly.

Another difference with England and Wales is that the fees there are 25 per cent of damages and Sheriff Principal Taylor’s recommendations are for less than that, so not everything that happens in England and Wales will necessarily find its way up here. The bill strikes the right balance.

Rona Mackay

I take it from what you have said that you dispute the view that the success fee calculation rewards the solicitor to an extent that is not justified by the amount of work that is carried out, which is what my colleague Stewart Stevenson said?

Patrick McGuire

Yes, I dispute that. I think that the balance is correct.

Rona Mackay

Does the additional fee that is available in the current legal expenses system sufficiently reward solicitors when dealing with exceptionally complex cases?

Ronnie Conway

Taylor recommended that the additional fee regime be retained. In my practical experience, how the judge deals with applications for additional fees depends on the particular golf course you are playing on.

Rona Mackay

Could you give us an idea of what the level might be, because I do not have a clue about that?

Ronnie Conway

The additional fee relates to judicial expenses only. I am speaking from memory, but there are a number of separate heads, which include value to the client, complexity, novelty of the issues determined and the number of documents. If you want an additional fee, you have to say that the case goes above and beyond the normal run-of-the-mill litigation. On balance, Taylor came to the conclusion that what we have is the best system. As I said, it appears to me that there is not a great deal of consistency throughout Scotland in the application of additional fees, but I am not really sure how that can be addressed.

Looking at the recommendations on the auditors of court, I noticed that, under the new regime, the auditor of the Court of Session will be obliged to issue guidance as to how matters of expenses are to be dealt with. The additional fee regime might benefit from guidance from the auditor of the Court of Session.

Rona Mackay

It sounds as if it might. Is it not at odds with a damages-based system to also have an additional fee?

Patrick McGuire

It is not necessarily at odds with the system. As Mr Conway said, the simple fact is that Sheriff Principal Taylor and his group, who of course are the ones with great knowledge of how the system currently works in practice, considered the issue in detail. It is probably a case of putting the cart before the horse, because Sheriff Principal Taylor’s overall view was that we need to introduce damages-based agreements, in the way that he recommended, to improve access to justice, and that that will rebalance the asymmetrical relationship. That was his primary objective, and his primary method of achieving that is the form of damages-based agreements that the bill contains.

As Mr Conway pointed out, the current regime of additional fees is quite opaque, byzantine and difficult to judge. To suggest that that is the solution to future damages misses the point. The proper way of addressing the issue that you raise, Ms Mackay, is for the Scottish Civil Justice Council, at the point when the damages-based agreements come in, to look at the big picture and decide whether it means that additional fees need to be changed. That is one for the Scottish Civil Justice Council down the line; it is not for us to second-guess how it is all going to work and put something into primary or secondary legislation that will frustrate the entire purpose of Sheriff Principal Taylor’s recommendations.

10:30  

Brian Castle

An additional fee is entirely at the discretion of the trial judge or the court. You would have to argue that your case was in some way exceptional or outwith the norm to persuade the judge to award an additional fee. At the outset of a case, if you had a view that the case was worth £200,000 or £2 million, there is no guarantee that the size of the damages or the settlement would result in a guaranteed additional fee. In many cases, applications are made for additional fees but are refused by the trial judge or the court on the basis that there was nothing outwith the norm.

Rona Mackay

How often is an additional fee applied for?

Brian Castle

I am not sure that we would have the numbers—

Rona Mackay

Just very approximate.

Brian Castle

You have to persuade the court that you have an exceptional case that falls outwith the norm. You have to make submissions to the trial judge under certain guidelines or heads—for example the undue complexity of the case or the extensive efforts that you have made to settle the case—but the court would award an additional fee only where it thought that the case was in some way exceptional.

Rona Mackay

You are saying that it is rarely used at the moment.

Brian Castle

Yes. It would be the exception rather than the norm, that is for sure.

Ronnie Conway

I wonder whether I can assist, simply from a practitioner perspective. Additional fees are very rarely used in the sheriff court. I suspect that they are used a bit more frequently in the Court of Session, where there is a level of complexity, but in the sheriff court, I think that I have made an application on about four or five occasions in the past 10 years.

Liam Kerr (North East Scotland) (Con)

I will go back to the basic premise for the bill, if I may, and the issue of access to justice. Mr Conway, you said in your submission that cases are not being brought or there is routine undersettlement. Mr Castle, you said that people were

“prevented or dissuaded ... because of ... costs implications”.

This is a very important point. Are you aware of any research that shows how many claims are not being made or progressed, broken down by what those claims are and why they are not being made or progressed?

Brian Castle

There have been studies. I cannot put my hands on the references at the moment, but I would be happy to submit them following the meeting. A number of studies have said that—even now in Scotland and the rest of the United Kingdom—statistically speaking, a majority of people who would, on the face of it, have a valid claim for damages decide not to pursue that claim. There are various rationales for that, which the studies look at to a degree. One of those must be a concern that, in advancing a claim, they are putting themselves at significant risk of adverse expenses if they do not prove their case. However, it is difficult to give you first-hand evidence because, by the very nature of the situation, those clients are not coming to me, as a practitioner, to seek advice.

The Convener

If you gave us the details of the studies later, that would be very helpful.

Brian Castle

I am happy to do that.

Liam Kerr

If you would not mind because, although I suspect that you are right, I am concerned that the fundamental premise behind the bill, which is that costs are preventing access to justice, may be groundless. It may not be, but we need some data, because I understand that there has been a significant increase in personal insurance claims in the past six years in Scotland, which would tend to suggest that it is not to do with cost.

Perhaps I will move on. Is there a concern—

Ronnie Conway

Can I comment on that point?

Liam Kerr

Yes, of course.

Ronnie Conway

It is impossible to have empirical data, Mr Kerr, as you can imagine. One study that Mr Castle may have been referring to is by a well-known legal researcher called Hazel Genn. The study is called “Paths to Justice Scotland: What People in Scotland Do and Think About Going to Law”. However, it is of some antiquity. It was in the early 2000s that Hazel Genn interviewed potential litigants and so on.

In so far as the bill is concerned, it is important to remember that it deals with litigated cases. We know that, in Scotland, there has been an increase in claims registered with the compensation recovery unit. However, that increase is from a very low base. The figures that we have looked at and which can be made available to you show that, in England, 926,000 claims were registered last year. That is 1,652 claims for every 100,000 persons in the population. In Scotland, the figure was 973 claims for every 100,000 persons, so we are still considerably lower than England. The concern always is that compensation culture is shorthand for some kind of cheats’ charter or fraud. It seems to me that there are no figures anywhere to decide that argument one way or another.

What QOCS addresses—I should have explained that the CRU statistics relate to all claims registered—

Liam Kerr

Mr Conway, forgive me for interrupting—it is just that I know that we are coming on to QOCS later, so perhaps we can pick that up in a second, if you would not mind.

Ronnie Conway

Okay.

Patrick McGuire

Mr Kerr’s question was premised on—and the suggestion is that the bill ought to be premised on—a need to increase the number of claims. The suggestion is that whether there is a need will be judged on that basis, so if there is an increase in claims, there is no problem with access to justice.

Perhaps there should be a deeper and greater purpose for the bill. Improving access to justice is a good thing—full stop. That is what I would say is at the heart of the bill. It is not about looking at raw case numbers and taking a view; it is about what we, as a society, say we ought to be doing. Improving access to justice is certainly a good thing and that is what is at the heart of the bill.

More than that, of course, we know from the recent decision of the Supreme Court in relation to employment tribunal fees—the Unison case—that not only is it a good thing that society should encourage access to justice, there is an absolute legal obligation on this Parliament as much as on any other Parliament to improve access to justice. That is what the bill does and it does it very well indeed.

The Convener

We do not dispute that, Mr McGuire, but at the heart of the bill is cost and money—it is very much addressing that issue. I think that that is the point that Liam Kerr was making.

Liam Kerr

I want to pick up on a point that Rona Mackay was talking about. When you look at the award end, is there a danger that the courts might inflate future loss awards to ensure that the funds that have been given for care, for example, will not be eroded by fees or costs? Is there a possibility of award inflation?

Patrick McGuire

I think that this question came up at the previous committee meeting and eventually, we got to the answer. I will give an absolutely black-and-white, no-holds-barred answer—no, I do not think that there is any prospect of the judiciary somehow deciding to work around the years and years of precedents that set the parameters of damages. There is a very clear basis on which judges look at cases and make awards and they will continue to follow those precedents. I think that the prospect of them taking it upon themselves to increase damages in some sort of noblesse oblige fashion is negligible.

Liam Kerr

Could you help me with something, Mr McGuire? It is a long time since I practised in England, so I might be wrong on this, but, when England and Wales did what they did, did the judicial college there not increase awards by 10 per cent?

Brian Castle

I can help you with that. Historically, when a claimant in England was pursuing a damages claim and took out after-the-event insurance, the insurance premium and the uplift in terms of the fee agreement or the speculative element of the fee were recoverable from the insurers on success. As part of the regime in England, where they decided that they were no longer comfortable with having the insurers pay for the success fee and the insurance premium, the quid pro quo was an instruction to the judiciary to increase damages by 10 per cent to balance that out.

In Scotland, we have never been able to recover an insurance premium if the client has taken out after-the-event insurance. As Mr McGuire said, there are well-founded principles for how to calculate a damages claim that are used day in and day out by the bench in Scotland. The bench is not going to depart from that and I suspect that, if it did, there would readily be appeals. Therefore, like Mr McGuire, I do not see any prospect of damages awards being increased, which some of the submissions have suggested might happen. I think that that is a smokescreen; it simply is not going to happen.

Ronnie Conway

I say to Mr Kerr that the tender-hearted judge or sheriff is not a creature that I recognise. Judges and sheriffs have taken a judicial oath to uphold the law and to follow practice and precedent. They will not be adding a little extra to the damages.

The Convener

Mr Conway, I do not think that you answered the first question about how pursuers who have suffered significant injury can properly manage their future care needs if some of their damages go to pay solicitors or anyone else. You mentioned periodical payments being omitted from the agreement but, inevitably, somebody will fall through the net. How do people meet their costs if some of the amount that has been attributed for them to look after themselves—that is, an amount that has been deemed appropriate for that purpose—has to be paid to solicitors? Perhaps some of the other panel members would like to answer that first, Mr Conway, because you have already had a shot at it.

Patrick McGuire

I have made my view on that clear. It comes down to a question of balance, with the appropriate safeguards. I think that that balance has been properly struck. I have certain views politically and in an industrial sense about where the argument is coming from. I have seen that argument being made by the insurance lobby and I am happy to share my views on that now, because it ties into another recent development south of the border that will no doubt come before the committee soon in relation to the discount rate, as it is called.

I can deal with the issue now or we can move on—it is up to you—but the bottom line is that that particular line has been promulgated by the insurance industry as part of its attack on the bill, and I simply do not accept it as a legitimate argument.

The Convener

I think that we are talking about the issue not from the perspective of the insurance companies but from the perspective of a client who has had a severe personal injury and has been given a certain amount of money to enable them to look after themselves but who is not getting that full payment.

Patrick McGuire

Absolutely. I am happy to explain my point. The argument about concern for the victim comes from the insurance lobby. That is the same lobby that recently decided that it was going to stand up against a decision of the United Kingdom Government to increase what is called the discount rate. The discount rate applies to the most serious levels of claims, which involve people who have had life-altering injuries and receive damages that have to see them through the rest of their lives.

The discount rate recognises that, if someone gets money now, they are expected to invest it, which will give some form of return over the years. It says that, to be fair to the insurance industry, some discount should be given—hence the term “discount rate”—because the money has been paid now.

Until now, the discount rate has overlooked the incredibly low levels of interest and inflation that there have been in the UK. The Lord Chancellor made recommendations that the discount had to be reduced. That is exactly the point that the convener makes—that people should get as much as possible in damages.

By reducing the discount rate, the money that insurers pay is increased. The insurance industry decided that it was completely inappropriate that they should be paying more money. The insurance industry went to war and the UK Government backed off. That shows what is really behind the apparent concern for victims from the insurance lobby.

10:45  

The Convener

I want to stop you there. My question is from someone who is going to court, is not familiar with things and has a huge injury. I am not talking about the insurance lobby; I am talking about an individual in court who is awarded so much money to look after themselves for years to come and they are not getting the full amount. That is what they understand when they are in court.

Please leave the insurance lobby out of it and answer that point specifically.

Patrick McGuire

I answered that question before and I will answer it again. It comes down to what is a fair balance between the solicitor being paid fairly for the extremely pressured work involved in the most high-value cases and safeguards to ensure that the victims do not have to pay too much. We are talking about victims—victims of the most serious accidents.

The bill as currently drafted strikes a fair balance with appropriate safeguards.

The Convener

I will take Mr Castle, and then we will move on.

Brian Castle

I do not have much to add. It is a concern that the committee is right to consider. The Taylor review looked at the issue, and, in contrast to the position in England, Taylor decided that—looking in the round and making a balanced decision as to the best interests of the client, and the overall purpose in securing proper access to justice—he would permit a charge on future damages but rein it right back.

The Convener

I know that Liam McArthur has a supplementary. I have a quick question first. How often do those on the panel advise the client not to proceed with the case because it would be uneconomical?

Patrick McGuire

It is a pity that Dave Moxham cannot be here. As a trade union solicitor at Thompsons, I find that we regularly have to advise our trade union institutional clients on whether they can support a case and, in doing that, we have to look at the prospects of success. Hard decisions regularly have to be made, which—I go back to what Sheriff Principal Taylor said about the asymmetrical relationship—shows that such an imbalance exists not only in relation to individual one-shotters but in relation to the power and financial resources of the organisations that support victims, including trade unions. Such decisions are a regular part of what we do.

The Convener

So there is perhaps some empirical evidence to be had.

Patrick McGuire

Indeed.

Brian Castle

Such things will happen on occasion.

I would like to go back to one of Mr Kerr’s questions about the evidence base for why clients would not pursue a claim, and whether the introduction of QOCS would help.

The solicitors in Scotland who are members of MASS will certainly have numerous examples of cases in which a client has started the process of claiming damages and has an offer that the solicitor tells them is inadequate and inappropriately low. Depending on the funding arrangements, the client may say that he hears what the solicitor has said about being entitled to a greater award of compensation but, because of that funding regime, he is not prepared to advance with the risk of a significant adverse costs award in the end.

The Convener

You might actually advise them not to pursue the claim, in some circumstances.

Brian Castle

Yes, in some cases. You have to balance the risk. If we are talking about a black-and-white case in which there is absolute certainty, that is fine. Unfortunately, however, and particularly with litigation, there are seldom certain or black-and-white cases.

The Convener

Please be brief, Mr Conway.

Ronnie Conway

There is no problem with stonewall certainties—we would take such cases on, and we would advise our clients to do so.

Two particular cases resonate with me—

The Convener

I do not think that we have time to go into that kind of detail. Can you give us an idea of how often you would advise people not to proceed, because to do so would be uneconomic?

Ronnie Conway

In the past couple of years, I advised against proceeding in one case in which there had been a fatality. It was an arguable case—a 50-per-center. I have also abandoned a case on day 1, because it was clear that, if the case lost, the costs would overwhelm the pursuer.

The Convener

So there have been two occasions over a certain period.

Ronnie Conway

That does not take into account the cases that do not get started.

The Convener

That is what I am looking at: the cases that do not get started because it would be uneconomic to take them on.

Ronnie Conway

In our daily round, probably about one case in four or five does not get off the ground, because, for various reasons, the prospects are not good enough.

The Convener

Thank you. Liam McArthur has a supplementary; he will then pursue his line of questioning.

Liam McArthur (Orkney Islands) (LD)

Going back to Liam Kerr’s line of questioning, you will have seen the evidence that we took from the bill team a couple of weeks ago. Figures from the Department for Work and Pensions were quoted that suggest that between 2008 and 2011 personal injury claims rose by 23 per cent south of the border and 7 per cent in Scotland. Indeed, I think that Sheriff Principal Taylor alluded to a compensation culture south of the border that was not reflected north of the border.

However, between 2011 and 2016, there has been a 16 per cent increase in PI claims in Scotland, while the figure for the UK has fallen dramatically to 4 per cent. Although I take Mr McGuire’s point about the bill’s general principles, those of us who are charged with the responsibility of scrutinising legislation need to understand its basis and the case that is being made for it. We will be hearing from Sheriff Principal Taylor next month. Although that will be helpful, it appears that the picture has changed quite dramatically since the publication of his report, and it is reasonable for us to seek an understanding of what the trends tell us about what is happening and about disincentives or obstacles in relation to access to justice. I would therefore welcome your comments on that.

Brian Castle

You are right, Mr McArthur. Looking at the CRU figures, which have to be the best guess with regard to the number of personal injury claimants, I think that it is true to say that there has been a percentage increase in claims since Taylor carried out his review.

Liam McArthur

It would be interesting to hear your understanding of the rationale behind that. What has driven it?

Brian Castle

There is an element of clients being more aware of their rights and more willing to assert them, even over such a short period of time. However, you have to put the figures in context. You might say that there has been a 17 per cent rise or whatever, but if you look at the most recent CRU figures alongside the figures in England and Wales—indeed, Mr Conway mentioned figures earlier—you will see that we are still talking about 1,650 people in every 100,000 making a claim in England, while the claims ratio in Scotland is still under 1,000 per 100,000. In fact, the figure is 970 per 100,000. The suggestion that we have something progressing towards full access to justice is not necessarily borne out by those figures, and if we look at the ratio of claimants per 100,000 of the population, we see that we are still some way behind our neighbours in England and Wales.

As I have said, there are empirical studies that say that a majority of people with a valid claim still choose, for whatever reason, not to assert their rights to pursue it.

The main driver of the bill, which is to increase access to justice for valid claimants and allow an increasing proportion of them to assert their rights and get the full and proper compensation to which they are entitled, is good. As a society, we should promulgate it.

Liam McArthur

That is helpful. I have a couple of other questions but they are more related to QOCS, so I will bring them up when we turn to that later.

There seems to be confusion among some of the stakeholders from whom we have heard about liability for paying for actuarial advice, which the bill requires in certain instances. The Government bill team insisted that it would fall to the pursuer’s solicitor. Is that your understanding? Even if it is, would the bill benefit from further clarity about precisely where that liability lies?

Ronnie Conway

Certainly, it is my understanding, and it is what Taylor wanted. I thought that it would be covered by section 6(2), which says:

“The agreement must provide that … the relevant legal services … (including outlays incurred in providing the services)”

are to be paid for by the provider. Whether that could be spelled out in block capitals would be a matter for the committee, but that is certainly how people expect the legislation to turn out.

Liam McArthur

So you do not see that as a problem.

Another issue that has been raised is the suggestion that the pursuer would take the actuarial advice absent his or her solicitor, which seems slightly strange. I would welcome your guidance on whether that is a reasonable stance for the bill to take and what the rationale for it is.

Ronnie Conway

A success fee will be paid only if a lump sum is agreed. Taylor was concerned about the written advice saying one thing and a nod and a wink to the client saying something different. That is why he tried to build in protection for the client that the actuarial advice should be completely independent of the instructing solicitor.

Liam McArthur

So you do not see a problem in enforcing such an arrangement.

Brian Castle

It needs to be clarified. A number of MASS Scotland members were concerned that, if the arrangements fell on the pursuer and the pursuer’s firm, that would be another additional cost in the equation. Presumably, it would be a recoverable cost at the end of the day because if it is an essential step in the process, it ought to be treated as a recoverable cost on success, as other outlays would be.

The other slight concern that MASS members in Scotland had, which may or may not be shared by my colleagues on the panel, was the suggestion that the actuary was the final determinant of which road we would go down. In the context of a court action, the framework is that all parties would get an opportunity to feed in their wishes and hopes, there would be an actuarial report and the judge would decide what was in the best interests of all and what the outcome would be. However, the framework proposes that, if a case of value is settled before it gets to court proceedings, an actuary will take a view and that will be the end of the matter.

There has to be some mechanism for an individual client’s wishes and circumstances to be taken into account. There absolutely have to be safeguards as well because, if the matter is driven by the solicitor, it will be suggested that self-interest is driving it because the solicitor wants to charge a success fee for the future element of the damages if it is paid as a lump sum. The MASS membership is slightly worried that there might be a number of reasons to advise an individual client that they would be slightly better off if they took a periodical payment rather than a one-off lump sum, but the client might say, “No—I prefer to do it this way.” In those circumstances, there must be a mechanism in which some cognisance is taken of their interests. Quite how we arrange that will have to be a matter for further consideration and, presumably, secondary legislation.

11:00  

Ronnie Conway

I say to Brian Castle that there is no reason why that cannot happen. A success fee is chargeable on the future element if the client insists that he wants a lump sum. If you like, the protection is trying to force clients away from lump sums and preventing solicitors from getting a success fee if the advice is otherwise.

Mairi Gougeon (Angus North and Mearns) (SNP)

I have some questions about QOCS. Looking at such matters is not my day-to-day job, but I am sure that the panel sees a full variety of cases. One thing that has struck me is that—as I understand it—Sheriff Principal Taylor gave the justification of the David and Goliath scenario for the pursuer and the defenders in the vast majority of cases that panel members would see. However, my point is about the other cases. From looking at the surface, I say that it would strike me as being unfair if I, as an individual, were taken to court by someone, the court found in my favour and not in favour of the pursuer, but I then had to pay the pursuer’s legal fees. I would like to hear panel members’ views on whether that is a realistic example, or what other examples they can give us to illustrate the scenario.

Patrick McGuire

Sheriff Principal Taylor took that view because in the vast majority of cases an insurer will act for the defender. The scenario in which any of us, or any of our colleagues in the profession, would bring a personal injury claim against an ordinary person is virtually impossible. It is very unlikely because we have to be conscious of the fact that if we are successful, our clients must be able to get the money to which the court says they are entitled. We could not do that and bring a claim against an ordinary member of the public except in a case such as the one that was discussed at the committee’s meeting on 5 September, about a half-billionaire. We might contemplate it in such circumstances, but in no others. Therefore, I take Mairi Gougeon’s point, but it is so unlikely that there would probably be a danger that the old adage about hard cases making bad law would bleed into the process. Sheriff Principal Taylor got it right.

Mairi Gougeon

I am interested to hear whether anyone else has examples of cases that are not quite that David and Goliath scenario.

Ronnie Conway

I read about the billionaire cyclist example; it is not completely daft, if I may say so. I cannot remember who came up with it. That probably also illustrates the ubiquity of insurance: almost all such people would be insured, one way or another.

The only other example that I can think of is a case in which someone says that I assaulted them but I say that that person assaulted me. Mairi Gougeon is right to say that if QOCS comes in, I would lose the benefit of getting costs back from the person who is suing me. I would be able to raise a separate claim for my own damages. However, I have to say that we are in the realm of completely fanciful examples. To be frank, it seems to me that we should be legislating not about those but about the litigation landscape as it is.

Mairi Gougeon

I thank panel members for those examples. As I said, in looking at the issue on the surface, that was the one thing that jumped out at me. That is why it is important to hear what is actually happening and whether the way in which the situation has been portrayed to us is realistic.

If we consider QOCS together with the introduction of damages-based agreements, what do panel members think the bill will do to the level of claims, and will it also give rise to more spurious claims because it takes all the risk away from the pursuer?

Patrick McGuire

It is very difficult to say how many more cases there will be. I expect that there will be an increase. In many ways, that is the purpose of the approach.

Will there be an increase in spurious claims? I am glad that we are staying away from the term “compensation culture” this week, which I bitterly oppose. I do not think that the bill will lead to an increase in spurious claims. Hamish Goodall addressed that matter quite well in the meeting he had with the committee. The protection is—if I dare say it—us and our colleagues in the profession, because even though the claimant will not at the end of the day lose out and be required to pay legal fees to the other side, we will not pursue spurious claims, because we have a duty to the court, as was said earlier. We always have had, and always will have, that duty, which we take very seriously. Also, we always have had, and always will have, a duty to our profession, which we also take seriously.

More than that—or perhaps less than that—there is a financial imperative. Although the claimant will not lose out, we most certainly would if a claim were spurious, because we would have wasted our money and our time. Running a spurious case might involve court fees, expert fees, fees for reports and so on, which we would simply lose. We are too busy trying to pursue meritorious claims as we run our businesses to waste time on frivolous ones.

At the previous meeting on the matter, there was a question asked about whether claims management companies and/or after-the-event insurers might incentivise and even pay solicitors to run spurious cases. I am happy to respond to that now—and I will try to be polite. That is just not how claims management companies operate. They do not pay solicitors anything; they never have done and they will not. It is not a realistic scenario. Similarly, there is no after-the-event insurance company out there that would pay a solicitor to run a frivolous case in such circumstances, and it would not make financial sense for an insurer to do so. Insurers are a betting shop, in effect, and I do not see how they would ever win in such a scenario. They would constantly be paying out, so that is not a realistic scenario, either.

Mairi Gougeon

Okay.

Brian Castle

Concern was expressed in some of the submissions about an increase in fraudulent claims—that there is a fraudster’s charter. I do not see that as a realistic scenario, for a number of reasons. Solicitors have no interest whatever in having any truck with fraudulent claims, which do not benefit pursuers’ solicitors in the least.

Of course, there are safeguards in the bill: QOCS would fly off in a case that was evidently fraudulent, and expenses would be paid. There are also provisions for making awards against legal representatives—there is that protection, if someone is running a wholly spurious and fanciful claim. I do not regard the bill as an open invitation to a huge number of spurious and fanciful claims, given the protections, and given that reputable solicitors have no interest in running such cases, because they would only lose money on them.

Mairi Gougeon

Do you think that there are enough safeguards in the bill to prevent an increase in spurious claims?

Brian Castle

Yes.

Patrick McGuire

Yes.

Ronnie Conway

Yes. May I answer somewhat obliquely by recommending the APIL campaign, can the spam, which wants cold calling and nuisance texts to be banned? If there is an engine for fraud in this process, it is the texts that people get that tell them that they are entitled to £3,000 if they have been in an accident, and so on. Such a ban was in the UK Conservative Party manifesto. I understand that the issue is being considered in the House of Lords, in the context of the Financial Guidance and Claims Bill.

A ban would be a simple measure. There are a lot of people out there in Wongaland who live from pay cheque to pay cheque. They get a phone call or text saying, “You’ve been in an accident, and you must have some kind of injury.” Of course, the firm has got the person’s mobile number from a repair garage that is paid a referral fee for the number. It must be very tempting for people who are told that it will be easy—

The Convener

We get the picture, Mr Conway. We are pressed for time, so if you could be succinct with your answers, that would be much appreciated.

Ronnie Conway

Can the spam is the answer to a cheat’s charter.

Liam Kerr

Very briefly, the justification that Mairi Gougeon has put up for QOCS is the David and Goliath situation. What about the situation in which the pursuer is fully backed by, for example, a trade union? Effectively, that is Goliath versus Goliath. The arms have been equalised. Should QOCS not disapply?

Patrick McGuire

As I said earlier, Mr Kerr, that is not a Goliath versus Goliath situation. Sheriff Principal Taylor took evidence widely and recognised that point. There is a financial imbalance between an insurance company that counts its profits in billions and a trade union that has a fiduciary duty to use its members’ dues fairly and appropriately. It is not the same thing.

Liam Kerr

If there were equality of arms—if there were an uninsured defendant, for example—should QOCS disapply?

Patrick McGuire

That goes back to Ms Gougeon’s point—I apologise for my pronunciation. The prospect of there ever being a claim brought against an uninsured person is negligible.

An example that makes the point is dog-bite cases, which echoes what Mr Conway said. There are individuals who are insured through home or pet insurance. When someone is injured by a dog and there is insurance, we would look to see whether there was a proper claim. If there was, we could take it forward. There are plenty of people who do not have that type of insurance so, in that circumstance, we would not and could not take a claim forward. QOCS is not going to change that.

The Convener

We still have quite a lot to cover. Liam, please be very brief.

Liam McArthur

I have a couple of very brief questions.

The Convener

It needs to be just one.

Liam McArthur

I will bundle them together, convener.

The Convener

If you could.

Liam McArthur

Mr Conway talked about the need to look at

“the litigation landscape as it is.”

You will be aware of the information that I asked the bill team for the other day, which was the proportion of cases in which the defence will seek its legal costs from the pursuer in the event of a successful defence. I am to interested to hear whether you know that figure.

Can you also shed light on the Government’s point in the financial memorandum, that

“Defenders will have to balance the cost of going to court with the risk of losing a case. For example, if expenses in a case exceed the expected payout, insurers may settle rather than go to court even if they consider it likely that they will be successful in the case.”

The financial memorandum then goes on to say that

“Pursuers are unlikely to raise actions with little prospect of success”.

It is difficult to square those two statements. Can you square them for us?

Ronnie Conway

On QOCS, the civil judicial statistics on cases raised show no increase over the past five or six years—there has probably been a decrease. Those are the cases to which QOCS will apply. The CRU figures are the whole balloon, so to speak, and it is only the litigated cases to which QOCS will apply.

If you are asking whether there will be situations in which insurers will make an economic decision to settle a case rather than run it, that happens at present; there are nuisance-value offers and settlements. In significant cases, such a decision is not made.

Liam McArthur

Will there be more of those as a result of the provisions in the bill?

Ronnie Conway

It is impossible to know—

The Convener

Please be succinct, Mr Conway.

Ronnie Conway

It is impossible to know exactly. There is no doubt that there will be more cases raised.

Patrick McGuire

I can try to square the circle, if that will assist. The two quotations are referring to two different parts of the claims process. There is the compulsory pre-action protocol that a claim must go through before a court action is raised, which was spoken about at the committee’s meeting on 5 September, and there is the litigation itself.

My reading of the two quotations is that the first relates to the compulsory pre-action protocol through which the parties may settle before going to court. The second relates to a solicitor advising the claimant pursuer to proceed to raise a court action when there is little prospect of success. That is how the circle is squared. We would continue, with the advent of QOCS, not to raise frivolous cases. In terms of the cost to the insurance industry—

11:15  

Liam McArthur

I am grateful to you for shedding light on the Government’s financial memorandum. Witnesses were not able to do that on 5 September. Is it your expectation that there will be a higher proportion of cases through that pre-action protocol that will settle in the terms that are set out in paragraph 59 of the financial memorandum?

Patrick McGuire

That comes back to some of the questions earlier. It is impossible to tell. The question is whether we are looking at it through the wrong end of the telescope. Some of the challenges to the bill and the entire notion behind it are that all additional claims are frivolous, bad and arising from a compensation culture—I use the term disparagingly—that does not exist. I utterly challenge that view.

If there are more claims, the vast majority are likely to be meritorious. If they increase, that is a good thing. That is what the bill is there to do and that is what we should encourage. It goes back to my point about the primary purpose being to improve access to justice.

The Convener

I know from the recent submissions that there are concerns about the tests in the bill which would determine where QOCS protection is lost. Would you outline some of those concerns and let us know if you have any specific suggestions about how the test could be improved, and the consequences if those concerns are not addressed?

Who would like to start?

Ronnie Conway

I am happy to start. It is not just about cases which are not taken, although there are meritorious cases in the middle which are not.

The expenses rule as presently advised—

The Convener

Could you please speak directly to the three tests—fraudulent behaviour, reasonableness and abuse of process. We are running out of time, Mr Conway.

Ronnie Conway

I have to make this point.

The Convener

Please do it briefly.

Ronnie Conway

I will. The expenses rule bleeds into every part of the litigation process. At every part of the process is the spectre of an adverse award of expenses, bankruptcy and ruination for the pursuer. In a high-value case, there is a 50 per cent chance of winning and a 50 per cent chance of losing. A low-ball tender comes in. What advice—

The Convener

We have got the picture. We understand what is at stake. Would you cut to the chase, Mr Conway?

Ronnie Conway

If we can turn to—

The Convener

Perhaps someone else could answer if you would like to reflect on your notes.

Patrick McGuire

Having read all three of our submissions and the submissions from the Scottish Trades Union Congress and others, I can say that the concerns relate to the current drafting of section 8(4)(a), which says:

“makes a fraudulent representation in connection with the proceedings,”

and section 8(4)(c), which says:

“otherwise, conducts the proceedings in a manner that the court considers amounts to an abuse of process.”

Although the concerns are phrased slightly differently, they are the same in relation to both tests. They are all about certainty. The entire purpose of Sheriff Principal Taylor’s recommendations is the need for certainty. All the trade unions would say that the current drafting does not provide that certainty. It is an open invitation to challenges and to what is called satellite litigation.

Both section 8(4)(a) and section 8(4)(c) need to be tightened. The problem with “a fraudulent representation” is that that could be a single comment that is entirely peripheral to the centre point or significant material part of the claim. The equivalent test in the English rules that have been in place since 2013 is that the entire claim must be fundamentally dishonest. That is the level that we have to get at to reach the very high bar—to refer to Sheriff Principal Taylor—that is required.

In our submission, we suggest that it has to be something that is not peripheral but at the heart of the claim. For alternative forms of words, there are greater minds than mine when it comes to drafting. It could be something that indicates that the entire claim or a material aspect of it is fraudulent. There has to be material proportionality.

Everyone who commented on section 8(4)(c) makes the point that Sheriff Principal Taylor recommended that QOCS should be removed if the Wednesbury test of reasonableness is met. I do not need to go over that as it was in every submission and was canvassed at length at the committee meeting on 5 September. Our submission states that the current drafting does not meet that test. There is a suggestion that the words at the end of the section 8(4)(c)—

“amounts to an abuse of process”—

may be the saving grace, as they suggest that there must be not only unreasonable conduct but an abuse of process, which takes the test to the Wednesbury level.

That may be the case, but we all want to avoid hours upon hours of satellite litigation. The subsection could be framed more tightly, and to make things simpler for everyone it ought to be. A statutory definition of “unreasonable conduct” ought to be in the bill and should be the Wednesbury test verbatim.

The Convener

Thank you. That is comprehensive. Are the other members of the panel happy with that explanation or do they have anything to add?

Ronnie Conway

In the APIL submission, the suggested phraseology regarding “fraudulent representation” is on pages 4 and 5.

The Convener

Thank you. Do you have anything to add, Mr Castle?

Brian Castle

I am happy.

Mary Fee (West Scotland) (Lab)

I will be very brief. I want to direct my questions to Mr McGuire, in the absence of Dave Moxham from the STUC.

Will you give the committee some assistance on the issue of unions? I would like a bit of detail on the impact that unions paying court fees up front currently has on the union and its members.

I will roll my questions into one, because that might make things easier. Do unions currently recover fees from members? Could there ever be a situation in which unions would consider referring members to no-win, no-fee solicitors?

In their submissions, the STUC and Thompsons have said that the bill should expressly state that section 10 does not apply to trade unions.

Patrick McGuire

Thank you for that lengthy question.

I have neither the hair nor the beard to stand in the stead of Dave Moxham, but I will do my best to answer on his behalf.

Perhaps we can deal with some of the simpler questions quickly. Section 10 should not apply to trade unions. It is perfectly clear from Sheriff Principal Taylor’s recommendations and from the Scottish Government’s response that it is intended to apply only to litigation venture capitalists—I guess that that would be the term—and not to trade unions.

I return to the point about the clarity of drafting. There is an argument that, as currently drafted, section 10 does not apply to trade unions, because of the words:

“but has a financial interest in”.

There is an argument that trade unions do not have such a financial interest. Let us not, however, invite satellite litigation. Let us have a clear black-and-white interpretation section.

Here is an even easier answer. Trade unions would never take court fees from their members. Trade union members always receive 100 per cent of their damages. Trade unions would also never refer their members to a claims company. The forefathers of the trade union movement would turn in their graves at that prospect. The answer is an unequivocal no.

We have to find a system that recognises that it is not Goliath versus Goliath. Trade unions are under more and more financial pressure these days because of the sweeping and aggressive changes in law south of the border, many of which are specifically aimed at trade union finances. It is becoming more and more difficult to operate.

Court fees place an additional financial burden on trade unions—it is that plain and simple. The current model of court fees is described in the submissions from Thompsons and the STUC as a pay-as-you-go model. As soon as a person wants to go to court, they have to get their cheque book out and pay for different stages of the process. If and when a trade union client is successful, that money comes back, but the model represents a significant—I use that word deliberately—cash-flow strain on trade unions when they can least do with that problem.

With regard to the recent decision by the Supreme Court that relates to employment tribunal fees, it is interesting that those fees were roundly accepted as inappropriate and an absolute barrier to access to justice, and so they were. Court fees have been an overlooked barrier, but that barrier is absolute and real and is becoming more so as trade union finances become more strained. Thompsons and the STUC propose a simple remodelling—no more, no less—with no reduction in the overall income to the Scottish Government or the civil justice fund. Our model is simply a different way to pay court fees. A move from a pay-as-you-go model to a model of deferred payment at the end would treat court fees in exactly the same way as defenders’ costs are treated in the bill. Because the bill deals with access to justice, and especially because of the Supreme Court judgment, the bill is a perfect opportunity to make that change.

Mary Fee

That was very helpful. Thank you.

The Convener

I should say that Dave Moxham, deputy general secretary of the STUC, was due to appear but has been unable to due to ill health. Thank you for answering on his behalf. We move to our final set of questions.

Ben Macpherson (Edinburgh Northern and Leith) (SNP)

Good morning, panel. Could there be consequences of formal regulation of claims management companies not being introduced as part of the bill? A few of you have already touched on this important area, but I seek your thoughts and would like to get clarity on it.

Patrick McGuire

Your final words—“as part of the bill”—caused me to hesitate. There is an absolute need to regulate claims management companies, but there is an even greater need at this moment for the bill to be progressed. I would not want one to derail or put on hold the other. If regulating the companies will take place a year down the line and the bill comes into force in the meantime, so be it.

Ben Macpherson

However, just for clarity, do you think that it would be more beneficial if regulation could be introduced in tandem with the bill being passed?

Patrick McGuire

If that could happen right now, that would be a better scenario, but I do not see how the parliamentary timetable could permit that. However, that is not for me to say.

Ben Macpherson

Does anyone else have anything to say on that question? It is quite important. Mr Conway touched on the matter.

Ronnie Conway

I agree with Mr McGuire, but I understand that the matter is to be reviewed in this place in the next few months. In an ideal world, regulation would be introduced at the same time as the bill is passed, but we have already waited since 2013 for this legislation, so I would ask the Parliament to please get on with it. We will deal with the claims management companies as and when.

Ben Macpherson

Your clear view is that we should proceed and take action as quickly as possible.

Definition is important, as was touched on earlier. Do panel members consider that the definition of “relevant legal services” in section 1(2) is wide enough to catch the no-win, no-fee arrangements of claims management companies?

Patrick McGuire

The definition ought to be wide enough, but I go back to my comments about the need for clarity and the need to avoid satellite legislation. The sensible thing would be to have some form of interpretation section to confirm that it is wide enough. It certainly ought to capture those claims management company arrangements.

Ben Macpherson

However, you would say that a specific tightening of the definition, to use your earlier phraseology, would be advantageous.

Patrick McGuire

A tightening would be helpful.

11:30  

Ronnie Conway

We would never like to predict ways in which people might worm their way through legislation, but it seems to me that the phrases “subject of civil proceedings” in section 1(2)(a) and

“in relation to which such proceedings are in contemplation”

in section 1(2)(b) would clearly attract claims management company activities.

Ben Macpherson

Therefore, there is a slight divergence on that point.

Patrick McGuire

I am very cautious, because Thompsons and the trade union movement are part of a wider organisation and movement. The amount of satellite litigation that we have seen over the years because of bills that are exactly like this one makes me extremely cautious. My preferred route would be for a one-liner to be added at stage 2 or, indeed, at stage 3 to put the definition beyond doubt.

The Convener

That concludes our line of questioning, so I thank the panel members for attending. That was a very worthwhile session.

The Convener

Item 3 is our third evidence session on the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill. I refer members to paper 2, which is a note by the clerk, and paper 3, which is from the Scottish Parliament information centre.

It is my pleasure to welcome our first panel of witnesses: Simon di Rollo QC from the Faculty of Advocates; Andrew Stevenson, vice president of Glasgow Bar Association; and Kim Leslie, convener of the civil justice committee of the Law Society of Scotland. I thank all the witnesses for providing submissions, which is hugely helpful to the committee.

Before we move to questions, I invite Liam Kerr to make a declaration.

Liam Kerr (North East Scotland) (Con)

I declare an interest in that I am a director and 100 per cent shareholder of Trinity Kerr Ltd, which is a provider of legal services, and I am a member of the Law Society of Scotland.

The Convener

Thank you for that declaration.

We move to questions and I will start with success fee arrangements. Do the panel members support the changes in the bill that will allow lawyers to enter into damages-based agreements?

Kim Leslie (Law Society of Scotland)

Yes. The Law Society welcomes that change in the way in which personal injury claims and other civil litigation can be funded. We understand that there has to be some regulation of and cap on DBAs for public protection but, broadly speaking, we welcome the liberalisation of how solicitors can provide legal services to their clients. We welcome the simplicity of a damages-based agreement and hope that it will enable clear communication with the public, so that they can understand what they are getting and what they will pay at the end of the day.

The Convener

Are there any other views?

Simon di Rollo QC (Faculty of Advocates)

I agree that the proposals are welcome and I support them.

Andrew Stevenson (Glasgow Bar Association)

Glasgow Bar Association also supports the introduction of the bill in so far as it permits that form of contract. A degree of secondary legislation is also to be introduced, which we would be interested in seeing. In principle, we agree with the bill.

The Convener

Given that damages-based agreements give lawyers a direct interest in the outcome of a case, does the panel consider that any changes will be needed to the current professional standards regimes to deal with conflicts of interest?

Kim Leslie

We must be mindful that such work is already being carried out. I do not foresee a need for a change in the regulatory regime. Where there are potential conflicts—for example, in relation to future losses—the bill tries to build in visibility. It puts additional protections in place so that, when conflicts arise, there will be ways of dealing with them to protect the public.

The Convener

Will you elaborate on what those protections are?

Kim Leslie

For example, the bill suggests that, when the legal provider has not recommended that compensation for a future loss should be taken as a periodical payment order, independent scrutiny by an actuary is required to certify—or the court must, in effect, certify—that it is in the client’s best interests for the future payment to be made by way of a lump sum rather than a PPO.

The Convener

We will cover future losses in more detail as we continue our line of questioning.

Simon di Rollo

Your question was specifically about professional regulation, convener. Counsel have a duty of independence and a duty not to present a case unless it is statable. There is a case from the inner house in the 1930s—as far as I am concerned, it is still good law—that maintains that, for a case to be conducted on a speculative basis, there must be reasonable prospects of success. There is in place a requirement on counsel not to conduct a case unless there are reasonable prospects of success, and a case may not be stated unless it is statable—I suppose that that is another way of saying the same thing.

Protocols may be needed to ensure that cases are not presented when there is no reasonable prospect of success. By that I mean that pre-action protocols must be in place, such as I believe are envisaged. Case management procedures in the courts are also designed to ensure that cases cannot be presented unless there is a statable basis, and summary dismissal of cases that have no merit is possible.

Liam McArthur

I will follow up Kim Leslie’s point about the involvement of actuarial advice. It came up in our evidence session last week that that advice would have to be sought in the absence of the solicitor, which raised some eyebrows. Do you see any problems with a client having to seek that actuarial advice without having a solicitor present? Is it assumed that that provision will work and is in place for a good reason?

Kim Leslie

If the provision gives comfort that there is no taint to the advice, the Law Society will accept it. I wonder whether it is strictly necessary because, in such high-value cases, there will generally be a legal provider, potentially senior and junior counsel and maybe even a financial guardian. However, if the provision gives comfort that the public are being protected—given that there will be a change that means that solicitors will for the first time have a stake in the outcome of a litigation—we understand the reasoning behind it.

As lawyers, we always have a duty to act in our client’s best interest. It is comforting that, because of the transparency that is involved, there are very few complaints to the Law Society about arrangements, which are on-going, in which claims management companies are being operated as a funding vehicle but the work is being carried out by solicitors.

The short answer is that we believe that the primary objective must be to include future losses at the appropriate tapered level. If the committee feels that the provision in the bill is essential to protect the public, we understand that and are prepared to accept it.

Liam Kerr

Is the point about the actuary or the court certifying that the deal is in the client’s best interest a tacit admission that the true independence of the profession—of which it is, rightly, proud—is potentially compromised? Could there be a public perception that that independence is being compromised?

Kim Leslie

I made the point that a number of people advise in such cases. I have experience of such work and I have certainly never felt conflicted in my advice to a client. As I said, if the provision gives comfort, it is necessary. However, it anticipates a choice that means that a lawyer could be paid more by way of a success fee, or less. I would agree with anyone who said that the lawyer should always be able to make the right choice because it is in the client’s interest. The provision is an extra stage that says that the advice will be without taint but, to be frank, the advice will probably be the same as the advice that the lawyer would have given in the first instance.

Simon di Rollo

The Faculty of Advocates has commented that its concern is that section 6(6) carries with it the statutory suggestion that there is a conflict and that the lawyers cannot be trusted, as Mr Kerr just indicated. That is problematic.

It is not clear to the Faculty of Advocates how an independent actuary will be able to assist with the question that requires to be answered in such a situation. An actuary’s purpose is to give advice on how a calculation will work out, but the decision as to what to do in the light of that calculation is for the client to take. Normally—in my experience, invariably—the client should have independent advice from counsel in such cases, and a financial guardian, who should be a professional person, should be present. I have never come across a solicitor who was not conscious of the need to do what is in the client’s best interests in such circumstances.

10:30  

The Taylor proposal created a conflict and then sought to resolve it. I suggest that the way around the problem is to avoid the conflict by allowing the solicitor to charge a fee when there is a periodical payment order. That would mean that there was no conflict between a lump sum and a periodical payment order. Surely we can find some mechanism to allow a fee to be charged in such circumstances. The fee would have to be a very small percentage of the value, perhaps over a number of years, of the periodical payment order. That money could be found from the damages and should not affect the future element because, in claims of the size that we are talking about, there will be enough money to pay the fee without affecting the ability to fund future care and so on.

Stewart Stevenson

As a mathematician and someone who has been involved in financial things, I have undertaken actuarial calculations. In law, does that make me an actuary?

Simon di Rollo

I imagine that the idea is that someone is an actuary if they are a member of the Institute and Faculty of Actuaries. I do not know whether the Institute and Faculty of Actuaries is happy about all this or whether its members are keen to get involved and do what they are being asked to do in such a situation. I do not know whether that has been considered.

Stewart Stevenson

I am on the same page. I would not wish to be described as an actuary, but I wonder whether we are aware of any legal definition of an actuary and whether—this might not be a question for the panel—there are professional standards for actuaries that cover their independence as part of their professional duties.

Simon di Rollo

Actuaries have professional standards—there is a professional body. You would have to ask the representative body to deal with that question.

The Convener

What does the panel think the impact will be on lower-value cases once caps on the fee levels under the success fee agreement are introduced?

Kim Leslie

Are you suggesting that the power to cap in a written speculative fee agreement would have an impact on lower-value cases?

The Convener

Once the lower value and the cap have been agreed and the case appears to be low value and not worth the solicitor’s time, will that have an impact?

Kim Leslie

We are always keen for the judicial expenses to be increased so that what we are getting paid for the work that is done is met by those expenses.

In the lower-value cases, there has to be proportionality. Again, it is about fairness to the client. If it is a low-value claim, we do not want to take too much of the client’s damages.

The Convener

Is it likely not to proceed on a no-win, no-fee basis?

Kim Leslie

No. Lower-value claims, like any other claims, are assessed as the best way of doing the work. The bill is introducing options. A client or a consumer will have to work out what is available on the market, and a lawyer will have to analyse those cases and how they can work the cases profitably while still ensuring that the client gets the majority of the damages.

The Convener

I suppose that the fear is that lawyers may be attracted to cases where they know that there is guaranteed income, which would be more lucrative, and that, despite the bill trying to make access better for individuals, very low-value cases may not be taken up on a no-win, no-fee basis.

Kim Leslie

That has not been our experience.

The Convener

Some panel members have highlighted in their submissions that success fee agreements, where the lawyer gets a fee uplift, are currently used in family actions. That would be prevented by provisions in the bill. Can you explain your concerns about that?

Simon di Rollo

I think that it was the Faculty of Advocates that indicated a concern about that. It is important not to overstate the concern, because I do not think that it happens very often. However, there are cases in which, where there is dispute about financial provision on divorce or on the dissolution of a civil partnership or cohabitation and where there is an asset to be preserved or a share of an asset to be sought, counsel might be instructed on a no-win, no-fee basis—not on a percentage of the asset to be recovered or preserved, but on the basis that, if there is an achieved result, they will be paid and, if there is not, they will not be paid a fee. That does not happen very often, but it happens from time to time. It would be useful if that possibility could be maintained. Given how the bill is currently framed, it does not seem to permit that, and we feel that, if possible, it should be amended or altered to allow that to happen.

The Convener

Is that very much a niche situation?

Simon di Rollo

Yes, it is.

The Convener

It would be helpful, before we leave this line of questioning, if each of the witnesses could estimate the point at which they receive a payment before the action starts, whether representing the client goes on to pre-action protocol, judicial expenses, the SFA, the DBA or any uplift, and approximately what percentage is involved or how that is valued.

Kim Leslie

I did not quite follow the question. You are asking about the point at which a lawyer—

The Convener

When you are acting for a client, at what stage do you receive payment? Would you receive payment if all the expenses were paid, including the pre-action protocol, the SFA, the DBA and any uplift or judicial expenses?

Kim Leslie

In a damages-based agreement, there might be an interim payment before the claim has concluded. That may be before it has gone into court or after it has gone into court. If there is an interim payment, the lawyer would be entitled to deduct their success fee at that point. They might choose not to, if there is a reason why they are getting an interim payment, because the client has to pay for something, but in effect, the lawyer would be entitled to do that at that point.

At the crystallisation of the claim, when the lawyer gets their cheque or their funds in from their opponent once they have won the case, they will take their success fee and pay the balance. At that point, the lawyer’s files are reviewed by a law accountant and an account is drafted and negotiated, and the judicial expenses are either agreed or sent to taxation. An auditor determines what will be paid by way of judicial expenses, and the lawyer would get their judicial expenses at that point.

The Convener

I am just trying to quantify it. When you tot up your fee, along with any interim payment and the final payment, does the final settlement include a payment for the pre-action protocol?

Kim Leslie

No. If the case is settled through a pre-action protocol, that is out of court, and the fee is negotiated. In effect, there is a fixed fee at that point and you are paid when the claim is settled. You will have agreed with your opponent what you will be paid for your client.

The Convener

If the case is not settled but goes ahead, is there still a charge for representing the client at the pre-action protocol?

Kim Leslie

No. There is either the pre-action protocol, which is out of court, or litigation, which involves judicial expenses. You will get a fixed fee if the case is settled out of court, with a success fee over and above that. If the case goes to court, you will get the success fee and then judicial expenses, which are based on a table of fees for judicial work; you will not get anything for the pre-action protocol.

The Convener

Right—that is what I wanted to get at.

Do the other two witnesses want to add to that explanation, or are you happy with it? You are having it very easy.

Simon di Rollo

I am happy with the explanation, but I will add something just so that the committee understands the position of counsel. If counsel are acting on a speculative basis—a no-win, no-fee basis—they will be paid at the end of the case. It is very unusual to be paid at any point before that. Counsel will almost certainly not be acting on the basis of a damages-based agreement; they will continue to be instructed as they are at present, which is on a no-win, no-fee judicial recovery basis. There are reasons for that. The solicitor enters into a damages-based agreement with the client, but counsel is not involved in that. They are brought in at a later stage, in essence as an independent consultant, and they are paid through judicial recovery from the person who is paying the damages.

Liam Kerr

Kim Leslie talked about how the lawyer can “work the cases profitably”. Are you aware of any evidence that suggests that extra rewards to solicitors’ firms are actually required?

Secondly, I ask the whole panel whether the bill will actually solve the problem. Is there not a risk that solicitors will still prefer to choose the easy, more straightforward claims, or the ones that are most likely to be settled, such as road traffic accidents, whereas the more difficult cases—the longer and more evidentially challenging ones such as stress claims—that are lower value and higher risk, will remain unattractive, so we will not have solved the problem of how those can be taken on?

Kim Leslie

That problem will be solved to an extent by the introduction of qualified one-way costs shifting. Undoubtedly, there are cases where the fault element is straightforward—or it should be, although no case is guaranteed to win—but there are some cases where the risks are higher. You are absolutely correct that some types of work are more complex and time consuming and require greater investigation and financial outlay in the investigation and preparation of the case.

The system has to tie together, and Sheriff Principal Taylor looked at the system in an overarching way. In effect, he acknowledged that there is an issue with access to justice in certain types of case, which may not be attractive. That is simply because, when a lawyer is balancing up a case and analysing it, if they think that they will have to invest too much money and time in investigating it, and if the cost ramifications will be significant if they lose, it becomes less attractive. The introduction of QOCS will enable certain work types to become viable that may not be viable at present, given the risks involved of losing the case and paying adverse costs to your opponent.

Simon di Rollo

The short answer is that the bill will improve the position but not resolve it altogether, because there will still be difficult cases that are unattractive to take on.

Those cases will probably continue—the bill will not completely resolve that problem. Therefore, there is still a need for legal aid, which is an important resource in allowing those cases to be brought. The very difficult cases for which legal aid is not available will still be difficult to bring, but the solution to that problem will not be easily found.

10:45  

Rona Mackay (Strathkelvin and Bearsden) (SNP)

Good morning, panel. I was going to ask about compensation for future loss, but I feel that the subject has been covered extensively. Instead, I will ask for clarification on a point about periodical payments. If I understood you correctly, Mr di Rollo, you said that, at the moment, a solicitor can decide on periodical payments. Should the court be able to impose periodical payments?

Simon di Rollo

The current law is that, in Scotland, a court cannot require parties to go down the periodical payments route; that has to be agreed between the parties. Up to now, however, it has been quite rare for that agreement to be reached, because either the pursuer or the defender does not want to do it and, if one or the other does not want to do it, it does not happen. There are proposals to change the law on which there has been a recent consultation, which I am sure you are aware of. That would improve the situation by giving the court the power to require a periodical payment order, irrespective of what the parties wanted. The court would also be able to enforce a PPO if one party wanted it. That would make a big difference.

One of the problems with the bill is that, until we have resolved the periodical payment matter through that proposal, it is perhaps not a good idea for the provisions to require an actuary or the court to certify a PPO, as the court currently does not have the power to do that and I do not know whether the proposed legislation will be passed.

Rona Mackay

What are the rest of the panel’s views on that?

Andrew Stevenson

I do not have anything to add to Mr di Rollo’s evidence.

Kim Leslie

We do not want to take future damages out of the equation altogether. Periodical payment orders may develop in Scotland, where there might be more of an uptake of them and the court is likely to be able to impose such an order on parties. We are content with the provisions so far.

Rona Mackay

The Law Society’s view is that that is acceptable—you are all right with that.

Kim Leslie

Yes.

Rona Mackay

Okay. Thank you.

The Convener

Why do you think that damages for future loss should be included?

Kim Leslie

Sheriff Principal Taylor has balanced it out. Rather than ring fencing, it is about getting the percentage right, so that it is a modest amount that does not encourage cases languishing and taking longer. We want to incentivise cases being dealt with as expeditiously as possible, and we see the amount as being very important to that. If it is a modest amount, there is always likely to be enough in the past losses to ensure that it is taken care of.

Frankly, with any future loss, there is always going to be a range. The pursuer is going to have a value for it and the opponent is going to have a value for it, and those are not necessarily going to be the same—it is not a fixed amount; there is always going to be a range. The reality is that the margin between those two figures is unlikely to be as little as 2.5 per cent.

The Convener

Mr Stevenson, do you have a view on why that should be included?

Andrew Stevenson

My organisation, the Glasgow Bar Association, does not generally get involved, in that its members are not generally involved in high-value reparation actions such as those that you have been referring to. I do not really have anything to add to what the others have said, because they, in my submission, are far more qualified than I am to give your committee useful information on these matters.

Mairi Gougeon (Angus North and Mearns) (SNP)

I would like to discuss qualified one-way costs shifting, which you mentioned earlier. The bill would apply it to personal injury cases based on what Sheriff Principal Taylor called the David versus Goliath relationship between pursuers and defenders. That David and Goliath scenario might describe the majority of cases, but what about other cases and other situations? That is my concern. Do you have any examples that highlight those other situations that people might be caught up in?

When I raised that with the witnesses who gave evidence last week, I was told by the witness from Thompsons Solicitors:

“The scenario in which any of us, or any of our colleagues in the profession, would bring a personal injury claim against an ordinary person is virtually impossible.”—[Official Report, Justice Committee, 19 September 2017; c 19.]

He said that that would not really happen. I will be interested to hear your take on that—and do you have any examples to add?

Simon di Rollo

There are a number of examples of individuals being sued in the non-accidental injury area, for assault, abuse or things of that kind. The person might not be insured, they are not a public authority and they might not have resources. Therefore, they might be in a David against David scenario, rather than David against Goliath. We have suggested that QOCS could be available only to somebody who is insured, a public authority, somebody who has the backing of the Motor Insurers Bureau or somebody whose means and resources are such to enable them to make payment of expenses.

The formulation that I have just given you is the same type of formulation that is found in the interim damages rule of court, whereby you cannot get interim damages against someone who is not a public authority or insured or whose means and resources are such to enable them to make a payment. The idea would be to protect individuals against financial ruin as a reason for paying a small amount to get rid of a claim.

When it comes to such cases, the phrase “almost impossible” is too strong. They are rare, but they do occur from time to time.

Kim Leslie

To extrapolate from that, I add that it is not impossible for a case to arise where someone is suing an individual and abuse is a feature. An example is a survivor suing a perpetrator. Part of the analysis is whether the person is worth suing. Clearly, we cannot take a person through a court exercise that is a paper exercise. In those circumstances, recoverability will be at the forefront for all the representatives of survivors. Examples might involve assault, harassment or stalking. Effectively, the primary question in such cases is, although there might be a great case in law, whether the person has the means to pay out pounds, shillings and pence at the conclusion of the action.

Mairi Gougeon

I return to what you suggested in your submission, Mr di Rollo. Would it be relatively straightforward for people to apply under the proposed legislation?

Simon di Rollo

I would have thought so. You do not want to undermine the whole scheme by having exceptions to the QOCS protection, but I would have thought that it would be possible to build in a formulation of the type that I have indicated by using the phraseology of the interim damages ruling.

Mairi Gougeon

If the bill goes ahead in its current form, with QOCS as a part of it, we will pretty much eliminate all the risk for the pursuer in bringing forward an action. Could that lead to a large increase in spurious claims?

Andrew Stevenson

It will lead to an increase, but I do not know whether it will be a huge one. If we take away the risk, there will be those who will be inclined to sue in circumstances where, otherwise, they would not have sued. That is why I see a real problem with the bill. The whole scheme is predicated on everyone having insurance, but that is simply not the case. For example, it is unlikely that insurance will be involved when a collision between a cyclist and a pedestrian gives rise to a personal injury claim.

Under the scheme, the pursuer will be running no risk—unless they are at it and are a fraudster or someone who is behaving completely unreasonably. However, that would be very much the exception. As Mr di Rollo suggested, it would be far more appropriate to restrict QOCS to situations where the defender is insured and has insurance covering his or her conduct of a litigation. Otherwise, it will give rise to unfairness.

I have come across cases where no insurance has been involved. It does not seem fair to remove the application of the general principle that expenses follow success. Essentially, it would mean that anyone who gets sued in a personal injury case would be out of pocket regardless of whether they were successful in defending the claim. That does not seem fair.

The Convener

On that point, you say that it should apply only to someone who is insured, but in your written submission you pose the question of what should happen if a defender chooses not to involve their insurer because the value of the claim is low relative to their policy excess or because they do not want future loadings on their premium.

Andrew Stevenson

I would suggest that QOCS should not apply at all. However, if it is to apply, my suggestion is that it should be restricted to situations where the defender either has insurance or chooses to invoke insurance. My primary submission is that it should not apply at all.

The Convener

Okay.

Mairi Gougeon

I have one more question on that point. I would like to hear the panel’s thoughts on after-the-event insurance. Is that an alternative? Is it commonly available in Scotland?

Kim Leslie

It is available, but at a considerable price.

Simon di Rollo

After-the-event insurance is prohibitively expensive, so it is not available from a practical point of view. I have heard of a recent example. I cannot speak at first hand, but my understanding is that it is extremely expensive and not really worth trying to obtain.

Kim Leslie

Unless someone has a volume of cases, it is difficult to get a premium at a level that is manageable cash flow for most legal firms.

Liam Kerr

Mairi Gougeon made an important point about the removal of risk. Do the panel have views on the impact that QOCS will have on settlement negotiations and the prospect of settlement throughout the process?

Kim Leslie

Both sides of the litigation have a part to play in being the gatekeepers for the courts. We might want to talk some more about the exceptions to QOCS but, in effect, you are building in conditions that, if they are met, remove the benefit of QOCS. Those are—

The Convener

We will come to that aspect, so there is no need to go into it now.

Kim Leslie

I apologise.

Simon di Rollo

The question that you are asking is about the effect of the removal of risk on settlement. In most cases, I do not think that it will make a massive difference. Cases in which defenders recover expenses are relatively rare. The most important incentive for the pursuing lawyer is that they will get paid if the case is settled or won and will not get paid if the case is lost. There is a big incentive for the pursuer’s lawyer to resolve the case—on favourable terms, clearly.

It would be wrong to overstate the effect that QOCS, by removing the risk of an adverse finding of expenses, will have on the settlement of cases. It will have some effect, but not a large one, because the big incentive for the pursuer’s lawyer is not to lose the case and therefore not get paid. There are also outlays that the person will be responsible for, such as for experts and medical witnesses, which are quite often high.

11:00  

Kim Leslie

The other point relates to the impact that tenders, which are not in the bill, will have on QOCS. A tender is, in effect, a sealed bid offering to settle a claim. The bill is silent about the impact on QOCS if a defender offers to settle a claim and lodges a sealed bid in court to say, “I’m betting that this case isn’t going to be worth more than this”, but the pursuer says that they will take their chances and does not take the offer as they want their day in court. Taylor suggested that those circumstances would remove the benefit of QOCS save for a restriction. The pursuer would still get 25 per cent of their damages, but if you failed to beat the tender or sealed bid, you would pay the opponent their damages but on a capped basis to 75 per cent of the court award. That is not in the bill.

The Convener

Would you be satisfied if that was done by regulation or should it be in the bill, given that the bill is supposed to reflect the findings of clarification? We are supposed to know exactly what we are talking about.

Kim Leslie

The Law Society suggests in its submission that the issue be addressed by an act of sederunt. If it is not in the bill, we will be relying on the Parliament to get it in for clarity, so that we can advise our clients on it.

The Convener

Would you prefer to see it in the bill or dealt with in the rules of court?

Kim Leslie

Tenders are generally being dealt with. There may be a reason why it is not in the bill—I am just raising the issue for the committee. If it can be put into the bill, that will be a matter for the bill’s draftsman. However, I am surprised that it is not in the bill, and there must be a reason why it is not.

The Convener

So it is a question for the minister.

Andrew Stevenson

There should be specific reference to tenders in the bill, because they are a very important part of this form of litigation.

The Convener

Mr Di Rollo?

Simon di Rollo

I have nothing further to add.

Liam McArthur

I want to pick up on various themes. I anticipate where the bill may take us and I appreciate that there are uncertainties around it. QOCS has been in place south of the border for a while now and, according to Department for Work and Pensions data, the rate of increase of cases was fairly significant at the time when Sheriff Principal Taylor’s report came out. There was a sense that a compensation culture existed south of the border that did not exist north of the border. Since then, there has been a rapid decline in the rate of increase in personal injury cases south of the border and a marked increase north of the border.

Do you believe that we could learn lessons from any safeguards that were put in place alongside QOCS in its application south of the border? Could we apply those to the bill that we are scrutinising or indeed to any subsequent statutory instruments?

Kim Leslie

One thing to say at this stage is that, although there may be an increase in personal injury claims, the bill deals with civil litigation. QOCS will deal with cases that are in court, which have remained relatively steady over the past four or five years. It is about legitimate claims, is it not? We need to ensure that the cases where people are accessing justice are legitimate claims where the public are choosing to exercise their legitimate rights and seek a remedy.

Is this the point where you want to discuss fraud and the exceptions to QOCS?

Liam McArthur

I think that we will come on to that in a second.

The Convener

We will.

Kim Leslie

I will pause there.

Maurice Corry (West Scotland) (Con)

Do the panel members consider that the tests in the bill for losing QOCS protection will implement what Sheriff Principal Taylor recommended?

Simon di Rollo

I think that the bill will not quite do that in relation to the reasonableness test—the wording does not seem to reflect what was suggested. It was suggested to the committee by another witness earlier in the month that the wording be the same as Wednesbury unreasonableness, but I am not sure that I agree with that suggestion.

The Faculty of Advocates has suggested that in terms of reasonableness, the wording should be,

“if in the opinion of the court that person’s behaviour is so manifestly unreasonable that it would be just and equitable to make an award of expenses against him.”

That is stronger wording than is in the bill. I think that that is required in order to make it clear that it is only where one has behaved manifestly unreasonably that one should lose the benefit of QOCS.

There is no issue in relation to abuse of process, but there is a potential issue about fraudulent representation because of the wording. As the committee will see from our submission, there is concern that it will be a little bit too easy to meet the test. Material fraud or something that goes to the root of the claim should result in a person losing the benefit of QOCS.

Abuse of process is the essence of the matter. If you have abused the process, you should lose the benefit of QOCS. Fraud and unreasonableness are just examples of abuse of process.

Andrew Stevenson

Are you asking about exceptions to the application of QOCS?

Maurice Corry

Yes.

Andrew Stevenson

It seems to me that section 8(4)(b) would really take in 8(4)(a) and (c), although I think that paragraph (b) is a bit nebulous.

The test that applies in relation to legal aid is quite interesting because frequently, where a party is in receipt of legal aid, a motion will be made for modification of his or her expenses if he or she loses. The test is that the court will not make someone in that situation liable for an amount that exceeds an amount that is reasonable, having regard to all the circumstances, including the means of all the parties and their conduct of the proceedings. That may sound a bit bland, but the courts generally know what that means and, in my experience, it works in a fair way. If QOCS is to be introduced, the exception should probably be worded in a way that is similar to the test that applies in relation to legal aid because everyone understands what that means and it works reasonably well.

Kim Leslie

This starts with the principle that introduction of QOCS should give certainty about what our exposure will be. We certainly do not want a provision that says, “You will be protected, unless—”, because that could end up making legitimate pursuers anxious. Given that litigation is perceived as being a costly business, they want total reassurance that they are protected.

There is absolutely no doubt that the principle is that QOCS should apply in the majority of cases, but exceptions to it should be of a high standard. In other words, one should lose QOCS only if conduct has been such that it would be unjust and inequitable for QOCS to apply. You do not want in effect to push people back into having to get insurance because of the exceptions.

The Law Society of Scotland is also concerned about the reference in section 8(4)(a) to making “a fraudulent representation”. Again, we are trying at all costs to avoid satellite litigation so, as a result, we talk in our submission about “materiality” and suggest that the bill refer to a person making a material “fraudulent representation” that is designed to materially increase the value of the claim. We want the provision to get to the root of the litigation instead of its dealing with some ancillary claim about, say, an individual being off for three weeks instead of two and the paperwork not showing that.

With regard to abuse of process, I just want to pause and point out that Lord Gill said in a case in 2004 that

“There are many diverse ways in which a litigant can abuse the process of the court; for example, by pursuing a claim or presenting a defence in bad faith and with no genuine belief in its merits ... or by fraudulent means ... or for an improper ulterior motive, such as that of publicly denouncing the other party.”

The definition of abuse of process could be broader than that which has been suggested by Sheriff Principal Taylor, who used it in relation to falsification of documents: in other words, someone has gone to court, borrowed out-of-process documents and put back different and more advantageous ones. That would, of course, be an abuse of process, but we argue that if you have section 8(4)(a) and (c), you might not need section 8(4)(b) at all.

Maurice Corry

A number of respondents have suggested that the test of fraud be replaced by the English test of “fundamental dishonesty”. Do you agree?

Simon di Rollo

I would be slow to agree without having considered the issue more carefully. All I can say is that the test of fraud that is proposed at the moment is a little light, so I am keen for it to be strengthened. It should be stronger and clearer about whether there has been a fraud relative to the claim.

Andrew Stevenson

I do not think that there is any need to introduce English law terminology.

Kim Leslie

I do not agree with the suggestion. Material fraud and abuse of process should be the exceptions to QOCS.

Maurice Corry

Finally, do you have any other suggestions for improving the tests?

Simon di Rollo

I have already made a suggestion with regard to section 8(4)(b) and its reference to reasonableness.

Maurice Corry

What about sections 8(4)(a) and (c)?

Andrew Stevenson

As I have said, I think that the committee should look more at the exception that is set out in section 18 of the Legal Aid (Scotland) Act 1986. It has been operating for decades now—everyone knows how it works and it seems, to me, to work very well.

Maurice Corry

Is that a justification for continuing to use that exception?

Andrew Stevenson

I think that it is a justification for replicating the exception in the bill. As I have said, we all know what it means, and it works well. People who are in receipt of legal aid should not be able to use that as a means of pursuing a claim in bad faith, and we would always advise clients in such situations that they are not immune to an award of expenses simply because they have legal aid. People are not allowed to abuse it.

The situation in the bill is analogous to that. If you are going to introduce QOCS, you should have a safeguard similar to that with regard to parties who are in receipt of legal aid.

11:15  

Kim Leslie

We say that section 8(4)(a) should read, “makes a materially fraudulent representation which is designed to materially increase the value of the claim.” Our position on section 8(4) is that, if we have paragraphs (a) and (c), paragraph (b) may not be necessary, but if (b) is retained its wording should be drawn from the Wednesbury unreasonableness—the “manifestly unreasonable” principle. The current wording does not quite match the wording that has been suggested by Sheriff Principal Taylor.

Liam Kerr

Sheriff Principal Taylor recommended that claims management companies should be regulated. They will not be regulated under the bill, and probably will not be for a number of years. What are the consequences of not regulating claims management companies under the bill?

Kim Leslie

In effect, that will mean that solicitors and claims management companies are not on a level playing field. There is obviously a public protection issue. Sheriff Principal Taylor, the Law Society of Scotland and, no doubt, others would welcome regulation of claims management companies. We understand that Esther Roberton is currently conducting a review.

I appreciate that there is anxiety that the changes may make this more attractive ground for claims management companies. The committee may have evidence about that; we certainly do not. It might be worth considering that although claims management companies cannot be regulated through the bill, solicitors can be. Conduct of civil litigation is a reserved area, so claims management companies need lawyers, certainly to carry out appearances in court, and there is a way of regulating what instructions lawyers are able to take from claims management companies.

It will depend on how long the regulation review takes. There will be a lag, but how long will it be? It would clearly be optimal to have it all wrapped up but, on balance, we would not want to delay the legislation’s implementation until that review concludes. However, we may well be able to manage the issue by regulating solicitors who accept instructions from CMCs.

Liam Kerr

So, do you think that the issue should be dealt with in the bill?

Kim Leslie

In fairness, we have not consulted on that. Regulation of CMCs is not in the bill and we would want more time to think about it. I appreciate from the discussion that there is a bit of anxiety about the bill being implemented without regulation, but the matter would need to be given more good-quality thinking.

Andrew Stevenson

I agree.

Liam Kerr

The Scottish Government’s position appears to be that there is a kind of quasi-regulation, in so far as claims management companies are caught by section 1 because they are providers of “relevant legal services”. Is it the panel’s view that claims management companies are providers of relevant legal services and are therefore caught by section 1?

Kim Leslie

I am not sure that they would be caught comprehensively, because not all CMCs are structured in the same way. One claims management company may employ paralegals and carry out work in-house, but another may in effect be nothing more than a funding vehicle that contracts a firm of solicitors to provide legal services.

Simon di Rollo

It is fair to say that, depending on how it is structured and how it goes about its business, a claims management company may not necessarily be caught by section 1.

Liam Kerr

Kim Leslie made a good point earlier. During last week’s meeting, a witness expressed hope that claims management companies will “wither on the vine”. I think that his argument was that, following the passage of the bill, law firms would start to take claims management companies in-house. Do you have a view on that? I presume that separate claims management companies would remain unregulated, but if a law firm takes one in-house it would be subject to all the perfectly appropriate regulation that the Law Society would expect and will, therefore, become less attractive. Is that fair?

Kim Leslie

It could be argued that such a firm would be more attractive, because the provision will allow businesses to compete—for example, solicitors firms that would not need a claims management company in order to offer a DBA. That is, arguably, a selling point to the public: firms could say, “Come to us. We’re regulated and there are additional protections available to you that you will not get from a claims management company.” The effect would be to widen the market by introducing damages-based agreements. Claims management companies have in part existed because there is no alternative to funding. One view is that a solicitors firm that was offering such work might not need a claims management company. What would a CMC add? What would it bring to the party that the law firm cannot do?

Liam Kerr

It would bring lack of regulation.

Kim Leslie

But the solicitor is regulated—and solicitors provide the legal services.

Liam Kerr

Yes.

Recommendation 75 in Taylor’s report suggested that the Law Society should make it a ground of professional misconduct for a solicitor to accept a referral from a claims management company that makes cold calls. My understanding is that just north of 40 per cent of cold calls are about accident claims. Will the Law Society be looking to implement that recommendation?

Kim Leslie

I would take some advice on that. I cannot answer today.

Mary Fee (West Scotland) (Lab)

Good morning, panel. I will move on to third-party litigation funding. The bill would make it possible for third-party funders to be found liable for legal expenses. In the evidence that we have received, the Law Society’s submission referred to “unintended consequences”, and Mr di Rollo’s submission suggested that certain sections of the bill should be reworded. There are concerns that trade unions, insurers and solicitors might be caught. The Scottish Government has given an assurance that those organisations will be exempt and that they are not where the bill is aimed. Could you expand on your concerns and tell us how you think those concerns should be dealt with?

Simon di Rollo

It is really a drafting problem. The concern is that the bill, as it is currently framed, would catch people that it is not intended to catch. As I understand it, the idea behind the provision is more to deal with people in a commercial context, who are using the funding of litigation as an investment vehicle, and to make them liable for expenses in such situations. The concern is that, as it is framed, the bill is wide enough to catch even solicitors firms that are offering that service—not just trade unions and the like. I understood from reading Mr Goodall’s evidence that there is an understanding that the provision needs to be looked at again and redrafted in order to make it clear that that will not happen.

Mary Fee

Would you like the bill to state explicitly who will be caught by that provision?

Simon di Rollo

That is difficult; I think that that might be the case. It should be clear and explicit, but how that is achieved is a matter for the draftsman.

Mary Fee

Okay. What is Ms Leslie’s view?

Kim Leslie

There is an exception for family proceedings. Who could be caught? Imagine a divorce proceeding in which a father is providing funding to his daughter who is going through a divorce. It can be argued that they would be caught by the provision.

Also, solicitors that are offering DBAs would be caught if they were to pay for an outlay. That would create a bizarre situation; the solicitors might be better simply not to prepare the case, because if they were to pay for an outlay they would effectively be putting themselves forward as third-party funders. It is clearly a drafting issue and it needs to be looked at again.

Mary Fee

So, if nothing was done, might solicitors in particular be put off taking cases because they might get caught up in the third-party funding provisions?

Kim Leslie

Absolutely. Any firm that offered a damages-based agreement and said that it would pay for the pursuer’s outlays would, as soon as it paid for a medical report for example, be caught, which would mean that, if it lost the case, the solicitors firm would be found liable for expenses.

Mary Fee

Mr Stevenson, would you like to add anything?

Andrew Stevenson

I share the concerns that have been expressed. It is a drafting issue. The provision needs to be tidied up and it needs to be made clear who would be drawn into the net of the provision.

Mary Fee

Thank you. The Scottish Government stated that it would amend the bill so that transparency requirements on funding arrangements are not linked to liability to pay expenses. Do you have any other concerns about revealing funding arrangements?

Simon di Rollo

I cannot think of any at the moment, although I am not suggesting that everything is okay.

Mary Fee

If you think of anything, it would be helpful of you to let the committee know.

Simon di Rollo

Yes.

Mary Fee

What about you, Ms Leslie?

Kim Leslie

I have nothing to add.

Mary Fee

And you, Mr Stevenson?

Andrew Stevenson

I have nothing to add, either.

Ben Macpherson (Edinburgh Northern and Leith) (SNP)

For clarity and transparency, I point out that I am no longer a non-practising member of the Law Society of Scotland, but I am still on the roll of Scottish solicitors.

Paragraph 32 of the Law Society’s submission suggests that after-the-event insurers be excluded from the provisions on third-party funding. I ask Kim Leslie to specify why the society thinks that that is important.

Kim Leslie

It is, in effect, because of the cost. If you allow solicitors to offer DBAs, they have to be meaningful. The cost involved will still be prohibitively expensive if the after-the-event insurers are caught by the third-party funding arrangements.

John Finnie

The bill will empower the Court of Session to introduce rules on group proceedings. I ask the witnesses to outline their position on those provisions.

Kim Leslie

The Law Society was originally a bit more ambitious but has, on reflection, agreed that because group proceedings are novel—we have not had them before—the simplest route is perhaps not the wrong choice.

In our response to the bill, we distinguish between liability and causation. The bill does not allow jury trials for group proceedings. However, once all common issues of liability and causation have been dealt with, there may be pursuers whose claims may be better dealt with or could be dealt with by juries, so we did not understand why that restriction encapsulated liability, causation and quantification of damages. We wanted to bring that to the committee’s attention. Of course, if a pursuer makes an application for their case to be heard by jury, the defender can always make the argument that the case is too complex and not suitable. Therefore, there is a hurdle to get over at that point, anyway.

Simon di Rollo

I welcome the proposals. There is a long-standing need for provision for group proceedings. It is not the easiest matter to resolve by way of legislation, however. The provisions are enabling and will allow the court system to work through a method of dealing with such matters through court rules. However, they are a significant improvement on what we have at the moment, which is nothing. There are lots of examples of cases going through the courts in which groups are involved, but there has been no specific provision in the rules for that. Lord Gill’s report highlighted that and the provision is long overdue.

11:30  

John Finnie

Sheriff Principal Taylor mentioned the contingent legal aid fund. It is mentioned in the Law Society evidence but not in the bill. Could the society comment on that, please?

Kim Leslie

That is something that we picked up on that was in the recommendations but did not find its way into the bill. The contingent legal aid fund is for when one does not know whether one has a case. For example, in a clinical negligence case, something might have gone wrong medically but we do not know whether the case has merit and so would have to get a report from a suitable expert to say whether there had been clinical negligence. One would go to that fund as a precursor, before offering a DBA, to enable payment of the outlay to determine whether there was a case, on the understanding that, if there is a case and it is successful, the outlay will be paid back to the Scottish Legal Aid Board.

John Finnie

Does the fund’s absence from the bill suggest that anything has changed with that?

Kim Leslie

We just suggested that it is a good idea and that there might well be benefit from its being in the bill.

Ben Macpherson

I have a small point, convener. It goes back to the group proceedings in section 17. I read with interest that the Law Society submission states that England and Wales distinguish between class actions and group actions and it is not clear whether that has been deliberately omitted from the current draft. Kim Leslie said that it would be helpful if that were to be considered. Could you elaborate on that?

Kim Leslie

Because group proceedings are novel, some of the terminology is interchangeable. As I understand it, class actions are opt-out actions, whereas group litigation orders or group procedure are opt-in actions. I do not want to elaborate further, but we have picked up on the fact that some language might be being used that might not mean the right thing.

Ben Macpherson

It is almost about making sure that the public’s expectations are not inflated.

Kim Leslie

Absolutely.

The Convener

Will the provisions in the bill have the net effect of overrewarding solicitors?

Kim Leslie

There is still an issue with recoverability of judicial expenses. We are looking for imaginative ways to be paid properly for the work that we do.

Simon di Rollo

The essential point is that there will be a cap set by statutory instrument or some other mechanism. The ability to obtain a fee will therefore be subject to control. If there is a need for modification in due course, that can be done.

Andrew Stevenson

That is right. As I indicated at the outset, secondary legislation is still to come in. That will no doubt keep things reasonable.

The Convener

Are we depending on the secondary legislation to keep things reasonable?

Andrew Stevenson

It is clearly envisaged that there will be further control. It is a package and we cannot look at one in isolation from the other. We will need to see what the secondary legislation says, but I anticipate that it will ensure that there is control over how the primary legislation operates, and will provide a reasonable package.

The Convener

I thank the witnesses for attending this comprehensive evidence session.

11:34 Meeting suspended.  

11:42 On resuming—  

The Convener

I welcome our second panel of witnesses on the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill. Calum McPhail is from the Association of British Insurers, Luke Petherbridge is a senior public affairs manager at the Association of British Travel Agents, Andrew Lothian is from the Forum of Insurance Lawyers and a partner at DWF LLP, and David Holmes is the head of legal services, Scotland and corporate, at the Medical and Dental Defence Union of Scotland. I thank you all for providing written submissions. The committee finds that hugely helpful.

I will ask the first question. Does the panel support the introduction of damages-based agreements? Who would like to start?

Andrew Lothian (Forum of Insurance Lawyers)

I am happy to start. In the main, such agreements are contracts between pursuers and pursuers’ solicitors. The members of my organisation—FOIL—are comfortable, in principle, with damages-based agreements being available for solicitors. They are available at the moment but they are unenforceable—there is a distinction. It makes sense for them to be regulated.

I suspect that you will come on to address the issues that we have with DBAs in relation to future losses, so I will pause there.

The Convener

It is a qualified yes from your organisation.

Andrew Lothian

Yes, it is.

Calum McPhail (Association of British Insurers)

I echo Mr Lothian’s comments. In principle, we have no objection to damages-based agreements—it is very much for a pursuer and their agent to come to such an agreement—but we have concerns about future losses.

The Convener

Is that the view of the other panel members?

David Holmes (Medical and Dental Defence Union of Scotland)

Yes, that is our view, too.

The Convener

The Association of British Insurers has highlighted research that suggests that consumers do not understand DBAs and do not shop around between providers. Could you explain the results of that research in more detail, Mr McPhail?

Calum McPhail

I am not sure that I have that information immediately to hand. I will need to check with one of my colleagues.

The Convener

If you do not have it to hand, you could get back to the committee in writing.

Calum McPhail

We are certainly willing to get back to you on that.

11:45  

The Convener

The bill’s provisions would allow a solicitor to keep judicial expenses that were awarded in a case as well as charge a success fee. Do panel members think that that is justified?

David Holmes

The comments that my organisation has made have sought to draw out the fact that there are three levels of recovery for a claimant’s solicitor: there are the judicial expenses that are recovered at the moment; there will be the DBA with the client; and, as of now, a claimant can apply for an additional fee from the court to reflect a range of factors such as the case’s importance, its value, its complexity and the amount of work that has had to be done. That money will be reimbursed to the solicitor who is representing the claimant if they are the successful party in the case.

As an organisation, we do not have an issue with the DBA success fee or the recovery of judicial expenses, but we think that there might be room to look at reforming some of the means of recovery of the additional fee in the circumstances that I have described.

Andrew Lothian

I echo that. The position of the additional fee is quite important. I think that the committee received some evidence on the matter last week. In higher-value cases, the solicitor’s judicial expenses—the first level of recovery that Mr Holmes mentioned—will normally be a five-figure sum. The additional fee is calculated as a percentage of that, and it can sometimes be 100 or 150 per cent of the first amount. On top of that, under the bill, there might be a DBA, too. In effect, the solicitor will be paid three times for working on the case. I mention that because it plays into some points that we might develop later on in the discussion.

The Convener

It was helpful of you to set that out.

Calum McPhail

I have just had a bit of clarification. I think that the point that was made in the report that you referred to was about conditional fee arrangements. We would be happy to write to you with the details of that.

The Convener

That would be very helpful.

Rona Mackay

Would the panel like the bill to provide greater protection for compensation for future loss? As you know, we covered that issue with the first panel.

Andrew Lothian

I think that the answer is yes. Our position is that future losses—in the main, we are talking about the most seriously injured victims—are calculated carefully according to an actuarial table. Care reports are submitted and the losses are calibrated in such a way that care can be provided for in the future. As far as we can see, there is no reason why some of those losses should be paid over to lawyers; we think that they should stay with the victim.

In his report, Sheriff Principal Taylor recognised that issue. I understand that his difficulty was more to do with the practicalities. If a case is settled out of court, as happens with most cases, how do we know which part of the £5 million settlement is for the future and which part is for the past? There are a number of ways in which that practical issue could be dealt with. For example, a threshold could be set whereby, above a certain level, the deduction under the DBA would be nothing rather than 2.5 per cent. The solicitor would still be paid, because they would still receive the judicial expenses and, in cases of that value, they would always get an additional fee. That is the position at the moment.

Rona Mackay

You feel that, as the proposal stands, it is more heavily weighted towards the solicitor benefiting.

Andrew Lothian

Yes. Our members think that that is unnecessary. It is the pursuer’s money that we are talking about, and it should stay with the pursuer. There are ways in which the issue could be addressed—for example, a threshold could be set beyond which no deduction could be made. Above that level, the pursuer’s solicitor would still have an incentive to pursue the case, because they would have a professional obligation to do so and would be paid the judicial expenses and an additional fee anyway.

Rona Mackay

Are there any other views?

Calum McPhail

As insurers, we are of the view that people who have been injured through no fault of their own should be compensated for pain and suffering and that that should include past and future losses. We would like as close to 100 per cent as possible of the pursuer’s damages to be received by the pursuer.

David Holmes

It is relevant to bear in mind the context of the discount rate change in February this year, which I am sure the committee is aware of. That change, which was brought in by the Lord Chancellor and by ministers in Scotland, was said to ensure that full damages are available to the severely injured party for all their future care.

Luke Petherbridge (Association of British Travel Agents)

I echo Calum McPhail’s comments. We support the principle that the claimant should retain as much as possible of any award.

The Convener

We have a number of supplementary questions.

Liam McArthur

You will have heard the previous panel’s responses to this line of questioning by the deputy convener. The Law Society said that there would be an actuarial table but that a range of projected future costs would also be put forward by the defence and by the pursuer. The gap between those costs often exceeds by some margin the proposed 2.5 per cent cap. Although we all want to ensure that any of a claimant’s future costs are fully and properly met, is there not a risk inherent in the line of argument that you are prosecuting, given that we are generally dealing with a range of estimates of future costs?

Andrew Lothian

There is a range of estimates, but what is ultimately determined is the right amount of compensation for the pursuer. It would not be surprising if the pursuer’s solicitors argued for a higher figure and the defender’s solicitors for a lower figure—that is their job. However, at the end of the day, the figure that is arrived at is intended to be the correct figure to provide for the pursuer’s future care.

Liam McArthur

Do you see a risk that, due to the additional work and complexity involved in these cases, some of them might not be taken forward or might not be taken forward as successfully were there not some form of reward? That suggestion was put to us during last week’s evidence session. Although we want future costs to be met, we also want to ensure that no case that has validity and all the rest of it is not embarked upon in the first instance because of that complexity and the additional workload that would be involved in pursuing it.

Andrew Lothian

No, I do not see such a risk. The position that you describe is the position that exists now. Solicitors are more than adequately compensated for those cases. With the additional fee, the fees can be significant in higher-value cases, and rightly so. The more work that the solicitor does, the higher the judicial expenses will be, and the higher the judicial expenses are, the higher the additional fee will be, because it is calculated as a percentage of those expenses.

Ben Macpherson

This is another question for Andrew Lothian and FOIL. In your written evidence, you make two strong statements about the issue. At paragraph 19, you state:

“To safeguard pursuers we strongly support an overall cap on the success fee.”

You add, at paragraph 21, that you believe that a

“complex mechanism is unnecessary, and can be avoided entirely by ring-fencing future losses and making them exempt from the DBA/SFA.”

For clarity, will you put that in the context of your statements about the threshold and your answer to Liam McArthur?

Andrew Lothian

Yes. In a case in which an award is made by a judge or a jury, it is possible to identify what the future losses will be and to ring fence them, because they are known—they are identified. However, that will be harder in a case that is settled out of court, because in current circumstances it will be settled for a lump sum—an amount—and the distinction between future and past losses will not be described within that amount. That is why we are suggesting, as an alternative, that a threshold should operate as a means of protecting the likely future losses. There are other potential mechanisms—a threshold is only one—but we are trying to avoid the sort of complex mechanism that the bill envisages to deal with the conflict of interest that the bill creates. That point was made in the earlier evidence session. That complexity can be avoided by introducing some sort of cap or threshold in cases that are settled out of court and ring fencing future damages in cases in which the court makes the award.

Ben Macpherson

Thank you for clarifying that point about the threshold and cap. That is helpful.

Liam Kerr

This point is of concern to me and I raised it with a previous panel. In the panel’s view, is there a risk that there will be an inflation of the awards given by the court in order to ensure that future losses are covered? One of you—Mr Holmes, I think—made the point that a pursuer should get the full amount. Will the court decide, in order to ensure that the pursuer gets the full amount, to add the legal fees on, whether explicitly or not, leading to an inflation of the awards? I ask you, with your insurer’s hats on, what impact that would have on your business models and the premium for the consumer at the other end.

Calum McPhail

Potentially, that raises a driver or an expectation that the pursuer will be aware that an element of their damages is not going to be paid to them and that, therefore, they might seek a higher amount than they would ordinarily. That may have the result of driving cases into litigation that would otherwise have been settled out of court.

I understand the point that you are making about how the courts might view the matter. I am not qualified to comment on how any individual court would view the matter, but I certainly understand your concern that that awareness might colour how they approach awards. If we see that in court awards, we will also see an increased expectation in pre-litigation awards. We will see claims inflation, which will increase the cost of claims and will ultimately have an impact on our customers’ claims experience. That will obviously colour how their renewals are viewed. For some of our customers, we handle claims with their money, so there will be a direct impact on their bottom line.

David Holmes

I will answer just the second leg of Liam Kerr’s question, about the impact on premiums. The MDDUS, which I am representing today, is a rather different organisation because it is not an insurer. It is a not-for-profit organisation that has no shareholders but has 14,000 members from the medical and dental professions in Scotland. If there is claims inflation, either in the level of award or the number of cases coming forward, that will directly correlate with what general practitioners and dentists have to pay for their annual indemnity subscription. The MDDUS is slightly different, because there is no shareholder body as there is with an insurer. It has a more direct correlation with the membership, so claims inflation would be a significant concern for us.

Luke Petherbridge

In the travel industry, the vast majority of claims do not fall back on an insurer but are within the deductible costs of the tour operator. I echo the comments that have just been made. We have some concerns about claims inflation and the knock-on impacts of that for the premiums that our membership will pay.

Mairi Gougeon

I would like to discuss qualified one-way costs shifting. In its submission, FOIL said that

“if QOCS is implemented without appropriate safeguards, there will be significant adverse consequences including increase in nuisance calls, increase in fraudulent claims and higher insurance premiums”.

The submission then goes into further detail about that. Will you elaborate? What additional safeguards should there be if the bill passes?

12:00  

Andrew Lothian

We think that it is important to have safeguards to balance QOCS. Some of the safeguards were in Sheriff Principal Taylor’s review and are not in the bill, but the world has moved on since he finished his report. In the Taylor review, as has been discussed previously, there was provision that claims management companies should be regulated. I imagine that we might come back to that. That is one thing.

The second part of the Taylor review that is not in the bill was discussed earlier, where a pursuer does not beat a tender—a sealed offer. For example, if the offer is £10,000, the pursuer could reject it and go to court but only get £8,000; they would still have full QOCS protection, despite the defender offering more than the case is worth. That is not in the bill. We might come back to that, too.

Sheriff Principal Taylor also recommended that it should be a criminal offence to pay a referral fee to someone who is not a regulated person, or for an unregulated person to receive a referral fee. In other words, if you are paying or receiving a referral fee, you should be a regulated person; otherwise, it is a criminal offence. That is not in the bill either, as I read it. Those are important safeguards that were in the Taylor review but are not in the bill.

Over and above that, because the world has moved on, there are other safeguards that we think would assist. We might talk in a minute about the fact that there are now more injury claims in Scotland than there have ever been. There are procedural steps that can help, for example the courts in England and Wales have put in place steps that might assist. I can write to the committee about that, if that would help, so that I do not get too far into the detail now. There is no anticipation of such steps happening here—at least, they are not in the bill and we have no indication that they will be coming through the court system either.

I will pause there, because the next thing that I would like to say is about the exceptions to QOCS, which might take me into someone else’s area.

Mairi Gougeon

Thank you. Tenders and claims management companies will be covered by other members. Does anyone have any further comments?

Calum McPhail

We have a real concern that we will see a further influx of claims management companies into Scotland. It has already been identified that that is happening. We are very conscious of what is happening in England and Wales, and the work that has been done to try to deal with that. We are also very conscious that there is regulation of claims management companies in England and Wales for the protection of the man in the street—the consumer—and that we do not have that in place in Scotland at the moment. Whether to transfer that to the Financial Conduct Authority is currently under review in England and Wales.

Changes that have happened in England and Wales around the compensation culture, as it might be described, have created more pressure on less scrupulous bodies. Our concern is that with the advent of QOCS and the removal of the risk, the development of a compensation culture will accelerate in Scotland.

If I can use a bit of conjecture, the UK Government has said that, by mid-2019, it intends to stop entitlement to claim payment protection insurance compensation—these are very sophisticated companies that pursue those claims on behalf of people and they will be looking for something else to generate their revenue. Some of the activity that is being considered around whiplash will change the small claims track in England and Wales and will move business models. As we see it at the moment, there is a real risk that we will see an influx—with all the challenges, such as increased nuisance calls—into Scotland.

Luke Petherbridge

It is probably worth adding that, since the introduction of QOCS, the travel industry in England and Wales has seen claims increase by more than 500 per cent on average across our membership. We certainly think that there is a risk that the introduction of this regime will increase the activity of claims management companies in Scotland.

Mairi Gougeon

I presume that you heard the earlier evidence session. There was a suggestion from the Faculty of Advocates about the David and Goliath situation that we talked about earlier. Would you agree with the suggestion that QOCS should be limited to people who have insurance and larger organisations?

Andrew Lothian

Yes, I would.

Liam McArthur

I am conscious that we have touched on a couple of issues there. The evidence that we heard from the earlier panel showed the shifting picture of claims from the time that Sheriff Principal Taylor was taking his evidence and producing his report to now. There was a rapid increase year on year in claims brought forward south of the border while there was a less pronounced increase in Scotland. That situation has in effect been reversed in the more recent past.

Mr Petherbridge made a point about the rapid 500 per cent increase in claims that his industry is seeing. I am not sure where that increase is coming from but it must be matched by a significant decrease in other areas if those figures are to be believed.

The point that the Law Society was making was that QOCS will apply to cases brought to court when a civil action is brought forward and a lot of the DWP data reflects claims that go nowhere near court. Therefore, getting an accurate picture of the impact that QOCS would have here—although we are to have a discussion about safeguards—is pivotal. However, the figures might not be as straightforward to interpret as they first appeared.

Andrew Lothian

That is absolutely right in the sense that the majority of claims do not ever reach court; they are never litigated. Something like 85 per cent of injury claims never result in a court case being raised because they are settled before they reach that point.

The rules that apply to litigated cases go right through to the very start of a claim, even if it is never litigated. That is because the question in the minds of the insurer and the pursuer’s solicitor—who is advancing that claim through the protocol—at all times is “What will happen if this is litigated?” The change will have a huge impact on every single claim, whether it is litigated or not. It does not matter. The decisions about whether to pay a little bit more because the pursuer has QOCS will be made pre-litigation just as much as they will be made post-litigation.

To pick up on a couple of other points, the rate of claim in England is actually going down. There is negative growth, if you like. The rate is declining by about 4 per cent a year. While claims are going down in England, we are seeing a substantial increase in Scotland.

Liam McArthur

That is from a much lower base, we were told last week.

Andrew Lothian

That is right. There are dangers with comparing ourselves to England; I do not know why we keep doing it. The reality is that this is a form of arbitrage by claims management companies. Injured people are not choosing which place to litigate in; business models determine where they will bring their activities and generate claims.

Mr McArthur made a point about travel claims increasing; I will let Mr Petherbridge speak about that. That is right, because there was a decline somewhere else. In England, that decline has been in road traffic claims. That happened because QOCS came in but claimant costs were capped, so the margin reduced in that area of work. The risk reduced, but the margin reduced, too, and the business model moved on to travel claims. For us in Scotland, the risk is that, because we are bringing in QOCS but we are not banning referral fees or immediately regulating claims management companies and there is no discussion about reducing costs, we will find ourselves in the same position.

Liam McArthur

I take your point about the regulation of claims management companies, but in its evidence a couple of weeks ago, the bill team gave us a pretty heavy hint that such regulation is coming down the track. Are you seriously saying that, with regard to where you would seek to operate and how you would build your business model in the future, you would ignore the fact that the regulation of claims management companies is coming down the track?

Andrew Lothian

We are looking at a delay of several years.

Liam McArthur

As we are with the implementation of the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill. In a sense, the two things are progressing in parallel. When the provisions on claims management companies are introduced, their implementation will march ahead at the same pace as the bill’s implementation.

Andrew Lothian

If that is the case, we would entirely support the regulation of claims management companies and the bill becoming effective on the same date. That would be a major step forward, but there is a risk that that will not happen and that the bill will be implemented before CMC regulation. From the CMCs’ point of view, we are talking about the flick of a switch. They are technology enabled and, in many cases, they are highly efficient—they are largely call centres. It would be very easy for them to add in some postcodes to the areas that they phone.

Luke Petherbridge

I will provide some additional clarity on travel. The big problem that the travel industry has in England and Wales, which it will also have in Scotland, is the exclusion of travel from the pre-action protocol. That made us particularly vulnerable to the activities of, and attractive to, claims management companies. We will pick that up separately with the Scottish Government and the Scottish Civil Justice Council.

To go back to the principle of sharing the risks of litigation in the bill, we do not think that the bill has struck the right balance. We will come on to talk about QOCS in more detail, so I will not say much about the issue now, but in paragraph 59, the financial memorandum accepts the premise that the bill incentivises the settlement of claims that do not have merit. That does not seem to us to be good policy. As an industry that has struggled with that, we would not like that to be introduced.

Liam McArthur

But the point has been made that that is happening already. The financial memorandum does not go on to quantify the extent to which the situation might shift.

John Finnie

Mr Lothian, a casual listener might think that it is incredibly public spirited of you to make some of the representations that you have made. You have talked about the business model of claims companies, but that is not in any way dissimilar to the business model of insurance companies, which make massive profits.

Andrew Lothian

The distinction is that, in Scotland, insurance companies are regulated and claims management companies are not.

John Finnie

But insurance companies operate the same sort of business model as the claims companies.

Andrew Lothian

I am not sure that I understand in what sense it is the same. We could open a claims management company above a garage this afternoon and we would be in business. Nobody would regulate us or check our contracts, and there would be no one to complain to. Insurance companies, on the other hand, are, as I understand it—I am not an insurer—heavily regulated.

Calum McPhail

I would like to pick up on Mr Finnie’s point about insurance companies making massive profits. I think that I am correct in saying that, in the UK motor insurance market in the past 25 years, two companies have made underwriting profits on their motor books in individual years. Only two companies have done that in 25 years.

John Finnie

I am sorry—I do not understand your point.

Calum McPhail

You talked about insurers making massive profits.

John Finnie

I am quite sure that their business model is not predicated on one form of insurance.

Maurice Corry

Mr Petherbridge, in relation to the QOCS situation, you said that the bill does not strike the right balance. Can you explain why you feel that way?

Luke Petherbridge

Our experience in England and Wales has been that a very low proportion of claims see the reversal of QOCS—I think that the financial memorandum picks up the fact that that happens in 0.1 per cent of cases in England and Wales. We certainly do not feel that the balance has been struck correctly in England and Wales, or that the bill strikes the right balance.

We agree that the wording of section 8(4)(a) needs to be changed, but fundamentally we want a better balance in Scotland than there is in England and Wales. That is the point that I was trying to make.

12:15  

Maurice Corry

Does the rest of the panel agree?

David Holmes

Yes.

Maurice Corry

Do you wish to make any comments about that?

David Holmes

Will there be questions about tenders and exceptions more generally?

Maurice Corry

Yes.

A number of respondents to our call for evidence suggested that the fraud test be replaced with the English test of “fundamental dishonesty”, but Sheriff Principal Taylor thought that that would not be well understood in Scotland. What are your views on that?

Andrew Lothian

It is not a major issue. One of the potential benefits is that there is already case law on the definition of “fundamental dishonesty” in England and Wales, and there might be less risk of satellite litigation if we adopt a test that has already been considered by the courts in the context of personal injury claims.

Calum McPhail

A witness on the previous panel suggested that a material increase in the value of a claim could be used to try to identify fraudulent behaviour, and I would certainly encourage that approach. I can think of one recent case in court in which the pursuer claimed for around £180,000 in damages; although the judge had concerns about the pursuer’s credibility in various areas of his evidence, he still made an award of £7,000. If such increases were regarded as material, I would certainly support the suggested approach, because the legal costs of dealing with that claim were astronomical. This is really about reaching a clear and acceptable definition.

David Holmes

Practical issues arise at a public policy level when we look for a deterrent against, for instance, the embellishment of claims, which could have a significant effect on outcomes. We have certainly seen that at MDDUS; we have had concerns and, ultimately, much lower settlements have been achieved when further evidence has been forthcoming.

Maurice Corry

Finally, do you have any suggestions for improving the tests in the bill?

Andrew Lothian

The fraud test that we have just discussed relates to fraud in connection with proceedings. Given that the majority of claims never reach court, that test should perhaps relate to claims rather than proceedings; otherwise, there will be no incentive for people to tell the truth in the majority of cases that are never litigated. It is a small but, I hope, sensible point.

Liam Kerr

Going back to claims management companies, what are the practical consequences of not formally regulating such companies in the bill?

Calum McPhail

I think that, as has been mentioned, there will be an influx of claims management companies into Scotland and we will see the onset of the types of activities associated with their models, such as increased nuisance calls. There will also be an increase in claims of little or no merit. Our policy holders expect us to investigate claims, to pay out on the correct claims and to pay the correct amount for those claims. We entirely agree with that, but where they think that there is a claim without merit they have a very strong view that they do not want their insurer to make an economic decision to get rid of it.

As we see more claims of little or no merit, we expect our claims departments to be inundated with claims requiring more investigation. That operational strain will get in the way of our handlers dealing expeditiously with the more meritorious claims, and our concern is that pursuers with valid claims will experience delays in getting their settlements.

Luke Petherbridge

I echo that last point. It is something that we have seen in the travel industry, where the sheer increase in the volume of claims has caused problems in dealing with genuine claimants. No one is suggesting for a moment that there are not genuine cases of holiday sickness—there are—but it is important that we deal with those cases as quickly as we can.

I want to build on previous evidence and suggest a couple of areas where the bill could take a practical step. The first relates to the transparency obligations. Claims management companies thrive on the lack of transparency in the links between them and solicitor firms. With the regulation in England and Wales, we have called for an obligation to name the source of claims to make it easier to track things such as referral bans. If such an obligation were to be introduced in Scotland, we would certainly support it.

The bill could also deal with the notification of alternative sources of dispute resolution. The Carol Brady review in England and Wales recommended that the regulation of claims management companies could include an obligation on those companies to notify the consumer of any alternative dispute resolution scheme that might be available to them at low or no cost. We see no reason why that could not apply to solicitors offering DBAs.

Andrew Lothian

I want to add a couple of points. First of all, until claims management regulation is introduced in Scotland, the Scottish consumer will be at a disadvantage compared with consumers in England and Wales. Disreputable claims management companies—and I make it clear they are not by any means all disreputable—have an incentive to operate in Scotland rather than England and Wales, with the result that the deductions from damages can be quite significant.

There has been some useful discussion on that point this morning. It was envisaged that section 1 would apply to claims management companies as well as solicitors, but the difficulty with that is that solicitors are regulated and claims management companies are not. If there were a cap on DBAs and it was breached, the solicitor would, quite properly, be subject to professional discipline, whereas there would be nothing to catch the rival claims management company. Sometimes, two deductions can be made, one by the solicitor and the other by the claims management company, and there is nothing to prevent that from happening until such companies are regulated.

Liam Kerr

Let us say that a claims management company took a significant deduction from damages. What recourse would I have, as the man in the street that Mr McPhail referred to earlier? How could I challenge that, either currently or in the immediate future? Do I have any recourse?

Andrew Lothian

I am not aware of any. In future, you would have to understand the bill and the statutory instruments lying behind it to know what would and would not be enforceable. There is no one to complain to about that.

Liam Kerr

Presumably, I would have to consult a solicitor.

Andrew Lothian

Yes, you would have to find a solicitor.

Liam Kerr

On another point that was raised earlier, is it your view that the claims management companies will wither on the vine when the bill is passed?

Andrew Lothian

Our strong view is that until such companies are regulated, the opposite will be the case. There is little doubt about that. They might well wither on the vine once they are regulated, but who knows? The bill will put solicitors on a level playing field with claims management companies only after such companies are regulated. Until that time, there is no level playing field and therefore no reason why such companies should wither on the vine.

Calum McPhail

Making a profit is the incentive for claims management companies, and there is more money to be made in the claims process in Scotland than there is in England and Wales. Let me take as an example a road traffic claim settlement in which damages of £10,000 are awarded in both jurisdictions; in England, the recoverable costs for a solicitor, excluding any disbursements, would be £500, whereas in Scotland the figure would be over £2,000.

Sheriff Principal Taylor had no objection to referral fees, but their being part of our process and system and the potential acceptance that they are part of what we will allow is a fundamental driver for claims management businesses to seek to operate here and to continue to do so. There is money to be made out of the claims process.

Liam Kerr

Finally, we have talked about premiums and the cost to small businesses increasing. I note in the evidence the reference to the holiday industry and the point that, because many travel agents are small to medium-sized enterprises and because any claims might be below their insurance excess, they do not have insurance backing. If premiums go up, the people who will feel the most impact will be the less well-off purchasing insurance products to cover themselves or their business, as well as those in rural areas seeking motor insurance. Does the panel think that an unintended consequence of the legislation might be a long-term reduction in access to justice because, although it will make the court system more accessible, it will also make damages less recoverable? Does that make sense?

Andrew Lothian

The question does make sense. What you suggest is a possibility. As a solicitor, rather than an insurer, I cannot speak about the effect on insurance premiums, but I have had clients who had to defend claims that fell within their excess and they did not have the backing of insurance. That sometimes happens. There are also the other risks that you have suggested.

Calum McPhail

It is probably a risk for many local authorities with regard to the level of deductible they hold. It is a risk to public funds.

Luke Petherbridge

Just to clarify, the majority of claims on larger tour operators fall within their deductibles and are therefore not insurer backed. We have begun to see some SME members who had previously relied on insurance no longer getting their excess at a level where they can pass things off to the insurers. It is a huge concern for the travel industry, particularly because, next year, the package travel directive is being extended, and that will extend obligations with regard to travel sickness claims to many more small and medium-sized travel companies that currently do not have them.

David Holmes

There could also, as you have mentioned, be a wider societal impact. I know that the convener has written to the national health service central legal office looking for more information on what effect it expects the loss of the deterrent to have on claims frequency with regard to the NHS in Scotland in general. It will also have an effect on my organisation; if the deterrent is lost and more claims are made, subscriptions are likely to rise for general practitioners and dentists. There will be wide impacts across the NHS generally, and perhaps a point for discussion is whether QOCS should apply to all sectors or just in relation to insurers or public bodies.

Liam Kerr

That is interesting. Thank you.

Ben Macpherson

On claims management companies, paragraph 39 of the FOIL submission suggests that regulation could be provided most expediently through the UK Financial Guidance and Claims Bill. Can you expand on that?

12:30  

Andrew Lothian

I understand that the bill is going through Westminster just now. There was a debate in the House of Lords about whether an amendment including Scotland in the regulation of claims management companies should be allowed, but I think that, ultimately, the amendment was dropped. However, that vehicle is still available. The bill has not yet been passed, and it would be possible for the Scottish Government, if it were so minded, to make representations to the UK Government that Scotland should be included, at least for the time being.

Among the Westminster bill’s other purposes is the transfer of the regulation of claims management companies in England and Wales to the FCA, which is a UK-wide body. That, too, would be possible in Scotland. As other parts of the bill relating to financial assistance, debt management and so on apply to Scotland, I think that that would be one option. If it is going to take some time to set up a claims management regulator for Scotland, that could be an option for filling the gap.

Ben Macpherson

That is very interesting. Thank you.

Liam McArthur

On Ben Macpherson’s line of questioning, when I raised the same matter with the bill team, they revealed that they anticipated moves to be made in relation to regulation sooner rather than later. I hope that the minister will read this evidence and come up with a response to that specific suggestion, as it does not seem unreasonable.

Going back to the responses to Liam Kerr’s line of questioning, I am slightly concerned at the suggestion that claims management companies might wither on the vine. In other parts of the UK where regulation has been introduced, we have seen no such withering; indeed, as has been accepted, there are highly reputable claims management companies operating. Despite the margins that Mr McPhail referred to north and south of the border, we in Scotland are still dealing with a market that is very much smaller than the market in the rest of the UK, and I have to wonder about the extent to which Scotland will somehow be seen as a great nirvana in which the unregulated can romp to their hearts’ content, making massive profits, while the bulk of the work will remain, albeit regulated, in other parts of the UK. We are slightly in danger of inflating the risk—to make an entirely valid point, I will admit—as the impacts of what we are talking about are probably going to be more marginal over the next few years.

Andrew Lothian

We have already seen an increase in the number of claims, but as that has been discussed in previous evidence sessions, I do not need to go into it today.

Scotland is, of course, a smaller market; nevertheless, we have seen more evidence of claims management company activity in Scotland. For example, according to Companies House, 16 new claims management companies have opened in Scotland over the past 18 months. As Mr McPhail has said, the margins are better here; as a result, even though the volume of claims is lower, the profit per claim is better. How that plays out might be an unintended consequence of the bill. However, it is not my intention to overstate things.

Fulton MacGregor (Coatbridge and Chryston) (SNP)

The Scottish Government has given assurances that the third-party funding provisions will not apply to trade unions or solicitors, and it has stated that it will amend the bill to remove the link between transparency requirements and the liability to pay expenses. Does the panel have any concerns about those changes?

Andrew Lothian

In our view, third-party funding is an important part of the bill. The origin lay in Sheriff Principal Taylor’s view that a venture capitalist or someone buying part of a commercial claim who benefited and derived a profit from it should also be liable for any adverse consequences. However, the bill’s drafting goes wider than that. An analogy can be made between a claims management company taking a percentage of an injured person’s claim and a venture capitalist taking a percentage of a commercial claim, and it is therefore important that, as I think the financial memorandum mentions, the claims management company is caught by the current provisions. As I understand it, trade unions do not take a percentage of their members’ damages, so they ought not to be caught. If, inadvertently, they were, I would recognise that and would not think it appropriate.

Calum McPhail

I agree with Mr Lothian. What is of interest is how the disclosure is actually achieved, whether it is adhered to and whether there should be any implications for failure to disclose. However, I have no objections with regard to the overall principles.

John Finnie

My question, which I asked in the previous session, is primarily for Mr Holmes, but I am happy to hear from other panel members. It relates to the issue of group proceedings, which Mr Holmes specifically talked about at some length. Mr Holmes, in acknowledging that it would be for an act of sederunt to introduce specific provisions, you said that you had some concerns in that respect. Would you care to outline them?

David Holmes

The MDDUS has been engaged in the group litigation with regard to vaginal mesh material that is working its way through the Court of Session. We have some concerns about the current arrangements in that respect, but we readily acknowledge that efforts have been made, particularly by the Lord President, to improve them. There have been issues around adequate judicial resources, and we also felt it particularly important to have continuity in the judge hearing the case. That is why we focused on those issues at the tail of our submission.

John Finnie

What is the solution to that? Presumably, continuity is desirable in every case. Why does it become an issue? Is it because of the duration of a case?

David Holmes

I cannot be precise on the figures, but the cases in the group have been going on for a matter of years now and are still not at the stage of reaching a conclusion. Indeed, it will be some considerable time before they are resolved. The issues that are raised in those cases are very complex and involve a number of parties.

John Finnie

I just want to clarify that what you are saying applies to more than the one case that you have outlined and that it is actually a general principle.

David Holmes

For now, our experience lies comes from that group of cases. There is quite a number in it.

John Finnie

Thank you. Do other panel members want to comment on group proceedings?

Calum McPhail

If they bring better efficiency and a quicker resolution of such cases, we will support them.

John Finnie

Thank you very much.

The Convener

I have one last question. Insurance responders have suggested that insurance premiums in Scotland might increase as a result of the bill’s provisions. If, now and in the past, the environment in Scotland has been less conducive to spurious claims than that in England, have Scottish customers benefited from reduced premiums in comparison with English customers on that basis?

Calum McPhail

I am sorry, but I am not in a position to comment on that.

The Convener

Perhaps you could follow that up with some written evidence. I would also like to see whether the reverse is true. Is the market for mainstream insurance products currently structured on a UK basis? If so, is it worth it to insurance companies to identify Scottish customers, who make up a small proportion of that market, in order to charge them more?

Calum McPhail

As member companies will look at that on an individual basis, it is difficult to give a generalised view.

The Convener

Okay, but you could answer the first question. Indeed, if the other panel members can come back with a fuller explanation or any further thoughts on whether that is likely to be the case, it will be much appreciated.

In the meantime, that concludes our questioning, and I thank all our witnesses for appearing today. Our next meeting will be on 3 October, when we will begin to take evidence on the Offensive Behaviour at Football and Threatening Communications (Repeal) (Scotland) Bill.

Meeting closed at 12:40.  

The Convener

Agenda item 2 is our evidence-taking session on the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill. I refer members to paper 1, which is a note by the clerk, and to paper 2, which is a Scottish Parliament information centre paper.

Today, the committee will take evidence on two bills, so time is tight. I welcome our witnesses for the first evidence session: Sheriff Principal James Taylor, author of the independent report that preceded the bill; and Elaine Samuel, who is an honorary fellow at the University of Edinburgh and who supported Sheriff Principal Taylor’s review group. Thank you both very much for attending today.

We will move straight to questions, starting with Liam Kerr.

Liam Kerr (North East Scotland) (Con)

I declare an interest up front: I am a practising solicitor and a member of the Law Society in England and Wales and the Law Society of Scotland.

The Scottish Government has stated that the bill’s primary objective is to address access to justice. How far do the recommendations in your report go towards tackling that issue?

Sheriff Principal James Taylor

There are two main elements for consideration today that, in my submission, will improve access to justice. The first is the facility to make damages-based agreements available to solicitors rather than continuing in the present fashion, which is for solicitors, wearing a second hat, to form their own claims management company and offer damages-based agreements. The other element relates to qualified one-way costs shifting.

As far as damages-based agreements are concerned, I would be surprised if there was a material increase in the number of cases being brought to the court or of complaints being made to the compensation recovery unit. The reason I say that is because we do not need to predict what damages-based agreements will do to the legal landscape in Scotland—they are here, alive and kicking.

In order to make sure that I had not fallen too far behind current affairs in my four and a half years of fallow, I made inquiry of one firm of solicitors that has its own affiliated claims management company to ascertain the volume of such work that it is doing. In the past three years it has signed up 17,600 new damages-based agreements—the five-year figure is 23,800. I have seen the transcripts of the committee’s earlier evidence sessions covering the increase in registrations with the CRU and so on, and that will almost certainly be the explanation for that. DBAs are out there and the public are enjoying the benefit of them.

I should say that, in that same three-year period, 14,000 cases were settled. That is because damages-based agreements do much more than give access to the courts—they give access to negotiation.

Liam Kerr

Thank you. We will come back to a few of those matters. Is there a danger of our conflating access to justice with access to the courts, which is a different concept?

Sheriff Principal Taylor

The ultimate arbiter of justice is the court.

Liam Kerr

But is it not the case that we talk in general terms about access to justice when what we mean is access to the court—not to the right result? If we equate justice with the result that people seek, which might be a myriad different things—

Sheriff Principal Taylor

Access to justice is about enabling members of the public to know what their legal rights are and to exercise those rights. That may require recourse to the courts, but more often than not, it does not, as most disputes are resolved by way of negotiation. If a member of the public is not properly advised as to how to go about the negotiating process, or, perhaps worse, does not even know of their legal right, that is a denial of justice.

The Convener

On access to justice, if the legislation is flawed and some of the provisions are in fact disadvantaging the pursuer, is Liam Kerr’s question not valid? There has been access to court, but at the end of the day, justice was not seen to be done.

Sheriff Principal Taylor

If the legislation is flawed, one has to put it right. I am not sure what point you are seeking to make.

The Convener

As we continue our lines of questioning, we will cover provisions that you recommended, which are not in the bill, which at the very least could have improved it. By that definition, access to justice has not been achieved in the way that it possibly could have been.

Sheriff Principal Taylor

I would always be happy for any of my recommendations to be implemented.

Liam Kerr

The Justice Committee heard previously that a great deal of your report was based on Department for Work and Pensions data, which showed that between 2008 and 2011 the number of claims registered in Scotland rose by 7 per cent, compared with the 23 per cent by which it rose in England and Wales. The report concludes from that data that there is an issue with access to justice.

The same data shows that, between 2011 and 2016, in Scotland the number of compensation claims increased by just over 16 per cent, whereas in England and Wales the figure appears to have decreased by 4.5 per cent. Does that change your view of the recommendations that you made in 2013? Given that data, are your conclusions and recommendations on the lack of access to justice still valid?

Sheriff Principal Taylor

That data does not change my conclusions at all. I was aware of the figures. Earlier, I sought to explain—perhaps rather inelegantly—that there has been an increase in the number of claims, but that that is almost certainly because, in the past five years, damages-based agreements have become a common way of funding a party who is seeking to exercise their legal rights.

You mentioned the figure of 16 per cent. I cannot say whether this is the case, because I have not done an analysis, but it would not surprise me at all if that increase occurred as a result of the popularity of damages-based agreements, which is evidenced by the figures that I gave from one firm: 17,600 claims in three years is a lot of damages-based agreements to enter into.

Maurice Corry (West Scotland) (Con)

Good morning, sheriff principal. What advantages do damages-based agreements have that justify overturning the traditional prohibition on their use by lawyers?

Sheriff Principal Taylor

If damages-based agreements are as popular as I have just indicated that they are, it would be legitimate to ask why we need all this. We need all this because, at present, they are completely unregulated. They are being offered by claims management companies, which, as we know, are currently unregulated. My report recommends that damages-based agreements should be permitted to be entered into only by regulated bodies, and I would like the bill to contain such a provision.

The lack of regulation has two major impacts. First, the percentage that the solicitor or claims management company—they are one and the same—can take is unlimited. I understand that the present rate can be anywhere between 15 and 20 per cent of all damages, including past and future loss. I know of one firm that uses a taper, which is what I recommend should be deployed, whereby the rate falls down to 2.5 per cent at the upper levels.

The other mischief that requires to be addressed—I am pleased to say that the bill addresses it—is that, at present, there is no clarity on what “no win, no fee” actually means. Different offerers of DBAs use different definitions of what “no win, no fee” means. For example, who will pay for the medical reports? Who will pay for the court dues? Who will pay for the expert who will inevitably be required? I wanted there to be a level playing field, whereby the solicitor would have to pick up all those costs, save only for any after-the-event insurance premium. That would mean that a member of the public could go to two or three providers and get directly comparable quotes. The last thing that I would like to see is a Gocompare for claims management companies.

The Convener

Rona Mackay’s question will probe damages-based agreements a bit further.

Rona Mackay (Strathkelvin and Bearsden) (SNP)

Good morning. Sheriff Taylor, you briefly mentioned future loss. Can you explain the reasoning behind your recommendation not to protect damages for future loss from inclusion in the success fee calculation in most cases? Will that lack of protection for compensation for future loss leave pursuers worse off if they pursue an action under a damages-based agreement?

10:15  

Sheriff Principal Taylor

At present, the success fee that is deducted from future loss is between 15 and 25 per cent; indeed, I heard yesterday that one firm is charging 33 and a third per cent.

The public, notwithstanding what might appear—to me, at least—to be rather generous terms for solicitors, are still entering into those agreements. They do so because the agreements are simple, they understand them and they know precisely what the outcome is going to be.

I included future loss in the calculation of the success fee because to do otherwise provides an in-built incentive to solicitors to delay proceedings. The longer someone waits to get their decision, the greater their past loss will be and the smaller the future loss will be. We do not need incentives for delay.

Further, it is usually the tricky cases that proceed to court. Very often, future loss is the sticking point that prevents a settlement from occurring. It is at that point that the solicitor and the lawyer—counsel are usually involved if it is in court at that level—start to earn their corn. I think that they are entitled to be rewarded for that work.

The vast majority of claims settle. They usually settle on a lump sum, because a broad-brush approach is taken to the negotiation. There is no definition of past loss and future loss. If a case settles at the door of the court, you can bet your bottom dollar that there is no consideration of past and future loss—there is just the lump sum that the insurer is prepared to pay, and the pursuer is prepared to accept, in order to get rid of the claim.

When I was going round during the consultation period, one firm of solicitors told me of the problem that arises when there are multiple pursuers. For example, a family is injured in a road accident and the insurer of the driver of the car at fault simply says, “Here is a large sum—divvy it up among yourselves”. As the solicitors told me, it would be hard enough to divvy up a sum among the individual members of a family, but it would be even harder if they had to start working out not just what each member was entitled to but what their future and past losses were. That is looking at it from the solicitor’s point of view.

Few if any judges would claim that their awards for future loss are accurate to 2.5 per cent. They are not. Furthermore, few care plans are implemented to the letter, and it is the care plan upon which the future loss is predicated. The care plan ends up not being followed for a whole raft of reasons. Those might be social reasons—the family circumstances change or they have to move house; sometimes, there are medical improvements that make life much simpler for the particular handicap for which an award is being made. The 2.5 per cent is not going to make a material difference to the manner in which a pursuer is cared for post-accident, and one ends up with a balance. It is a loss of 2.5 per cent, but it provides access to justice—97.5 per cent of something is better than 100 per cent of nothing.

The evidence that we have is where I started. Damages-based agreements are popular with the public, even though they might end up paying 20 or 25 per cent of their future loss to their solicitor. I know that the position in England and Wales is different and that Lord Justice Jackson recommended in his report that future loss should not be included in the success fee. However, Lord Justice Jackson had second thoughts on that—very much so—and in one of the lectures that he gave post the publication of his report, he said:

“ring-fencing damages in respect of future loss was out of deference to the vociferous submissions of The Personal Injuries Bar Association (PIBA), The Association of Personal Injury Lawyers (APIL) and others”.

Thus, it was not as a result of the application of principle, but because the pursuers’ solicitors lobby wanted future loss to be excluded. They changed their minds and wrote to Lord Justice Jackson, sending what he subsequently described to me as forceful submissions that a deduction should be made. I met Lord Justice Jackson. What he and I said remains in confidence, but it would be a surprise to me if there would have been the same regime in England and Wales had it not been for the attempts by APIL and PIBA to persuade him that future loss should be excluded. He has explicitly said, “I deferred to them.”

Rona Mackay

Thank you for that full answer. Can I ask you to clarify, very briefly, in relation to the second part of my question, that you do not think that pursuers will be worse off if they pursue an action under the bill?

Sheriff Principal Taylor

Under what I recommend they will be a lot better off because they will not be suffering 25 per cent deductions—they will be suffering 2.5 per cent deductions.

The Convener

Can I just clarify whether that just applies to awards of more than £500,000, and that anything less than that—which perhaps does not happen very often—would not be protected in that way?

Sheriff Principal Taylor

No, no. My proposal was that on the first £100,000 the deduction would be 20 per cent; between £100,000 and £400,000 the deduction would be 10 per cent; and if the award was above £500,000 the deduction would be 2.5 per cent.

The Convener

Right. We may be looking at some of the regulations that the Government is proposing, because I do not think that that is in the bill.

Sheriff Principal Taylor

No, and rightly so. That is properly placed in secondary legislation.

Rona Mackay

I have another question, to which Miss Samuel may want to contribute. Who should bear the cost of the independent actuary? Sheriff Principal Taylor’s review recommends that the pursuers’ solicitor should pay for the actuary. Do you think that they should be able to claim that cost as a judicial expense when the case is won and, if so, why?

Sheriff Principal Taylor

It should not be charged to the pursuer. It should be paid for by the solicitor. Whether it then becomes a legitimate part of a judicial account, I really do not know. It is some years since I have been involved in the principles of what is and is not recoverable, so I am afraid that I cannot help you there.

However, I can say this in relation to the actuary recommendation and its genesis. I went about and spoke to a considerable number of firms for both pursuers and defenders, and one pursuer’s firm told me that, very often, great pressure is brought to bear upon a pursuer to accept a lump sum when a periodical payment would be far more advantageous to them. The pressure comes from family members who see the opportunity for a large pot of money—and it has to be said that some pursuers also see the attraction of having a large pot of money available to them. It was out of that discussion that the solicitors told me that, in those circumstances, they send the client to an actuary. They want the actuary to give independent advice, and hope that it will be that the pursuer should accept a periodical payment. It also has the advantage of protecting the pursuer from subsequent criticism. The idea of going to an actuary was not dreamed up by me; it came from the profession.

In one of the committee’s earlier evidence sessions, Mr Stevenson said, “I could add up a few sums and call myself an actuary.” I have to confess that, at the time of drafting the report, I thought that “actuary” was a protected term. It is not, and to reflect that in the bill, a definition will have to be put in that an actuary will require to be a chartered actuary or a member of the Institute and Faculty of Actuaries.

Rona Mackay

Ms Samuel, do you have a view on actuaries?

Elaine Samuel (University of Edinburgh)

No.

Rona Mackay

Okay—fair enough.

The Convener

Liam Kerr has a supplementary question.

Liam Kerr

Going back to Rona Mackay’s question about future loss, it has been suggested to the committee that not protecting future loss could lead to overall award inflation as courts and negotiators will ensure that the pursuer gets the full amount to which they have been judged to be entitled. How do you respond to that?

Sheriff Principal Taylor

I think that there is zero chance of there being damages inflation as a consequence of the proposals. The reason why I say that is that the judiciary does not go about with its head in the sand. I am pleased to say that people saying, “Who are the Beatles?” is a thing of the past. The judiciary knows that the litigations that come before it are being funded by damages-based agreements. In the case of Powell back in 2011, it said that claims management companies perform a useful function and damages-based agreements are a good thing. It knows that a percentage of the damages are presently going to solicitors, and we have not had any inflation of claims to date. I do not think that damages-based agreements will result in a significant rise in claims. We have seen that rise because DBAs have been popular over the past half dozen years or so.

10:30  

Stewart Stevenson (Banffshire and Buchan Coast) (SNP)

I can give you a definition of an actuary: someone who found accountancy too exciting. However, that probably will not do for our purposes.

On section 8, which relates to the restriction on the pursuer’s liability for expenses in personal injury claims, I want to lay out a modest scenario that I have previously suggested. A guy steps out of his Rolls-Royce and is run down and severely injured by a cyclist. The cyclist is about to pay off his mortgage or has already done so, but he has a limited income—in other words, he is asset rich and income poor. It might be worth pursuing him for a damages claim, but given that in such circumstances the pursuer is fundamentally likely to be the wealthier of the two, should the pursuer have the option of knowing that it will always be the defender who will have to pick up the pursuer’s legal costs? Section 8(2) really does not address that, because the assumption is that the defender is a big insurance company and the pursuer a wee person. Surely there are circumstances in which that will not actually be the case.

Sheriff Principal Taylor

The answer to your question is that if the defender is a man of straw the pursuer will not raise proceedings. After all, there is no point in obtaining a court award that cannot be enforced.

Stewart Stevenson

Forgive me, but I am positing a situation in which the defender might have a modest income but, given the modern world, their house, which might have been quite affordable to them when they purchased it, say, 30 years ago, might, if we are talking about Edinburgh, be worth something of the order of £250,000 or £300,000. They are a bit removed from being a man of straw and might well be worth pursuing, but the effects on the person would be disproportionate to the benefit that would be gained by the pursuer, if they were an extremely wealthy person. I just wonder whether the bill should be adapted to constrain the availability of qualified one-way costs shifting more than it does.

Sheriff Principal Taylor

The difficulty in constraining it as you suggest is that that will remove the certainty provided by requiring the pursuer to behave himself. The problem at the moment is that, although successful defenders in personal injury cases rarely recover their expenses, the solicitor advising the pursuer has to act responsibly and say, “I cannot guarantee that you will not be faced with a large adverse award of expenses that will probably bankrupt you.” In such circumstances, the pursuer—not surprisingly—backs off.

I note the example given by, I think, the Faculty of Advocates with regard to restricting the circumstances in which qualified one-way costs shifting would apply to those parties who could be found liable to make an interim award of damages. I think that it mentioned those who are insured and public bodies, and there is a third element that escapes me just now. The difficulty with that is that you could end up with parties not bothering to insure themselves when they ought to or with parties taking on a much higher excess in order to pay a much lower premium and thereby making themselves, in effect, self-insured.

You could find parties who have policies—so QOCS would apply—but who have breached the terms of their policy with the insurers, such as the obligation for fidelity. As a consequence, one-way costs shifting would not be available in circumstances in which it should be available.

The example that you posit, sir, is one that I cannot say is impossible, but it is de minimis. We can look to England and Wales, where the rules of court are the same as what is proposed here, to find out what has happened there. We have heard of no difficulties with qualified one-way costs shifting being operated as it is proposed to be operated here. The lady to my right, Elaine Samuel, has spent a lot of time recently trying to find out what problems there might be in England and Wales as a consequence, and multiple Google searches have not come up with any answers. Surprisingly, when I read the evidence from the insurance lobby that was given to you back in September, I did not see any red flags being waved.

Stewart Stevenson

That is helpful.

Mairi Gougeon (Angus North and Mearns) (SNP)

My first question is about the tests in the bill that relate to the loss of QOCS protection. Three situations are laid out in the bill in which QOCS would be lost, including fraudulent representation among others. The evidence that we have received has been split between pursuers who think that the tests are too strict and defenders who think that they do not go far enough and will not prevent spurious claims.

What are your views on that, particularly the tests laid out in the bill in relation to fraud? Does the bill implement what you recommended in your report?

Sheriff Principal Taylor

I do not think that the bill implements what I recommended in my report. Section 8(4)(a) says:

“makes a fraudulent representation in connection with the proceedings”,

whereas my preference would be for the wording to be:

“has acted fraudulently in connection with the proceedings”.

“Fraudulent representation” involves word of mouth; fraud can take place through actions.

The suggestion that was made to you that, if one stayed with “fraudulent representation” one should at least define it, is, frankly, nonsense. The law of Scotland has known what fraud is for many years; it was decided back in the 19th century that

“fraud is a machination or contrivance to deceive by words or acts”—

that comes from Bell’s Principles.

The suggestion that one could enumerate the circumstances in which fraud would be said to have taken place is a non-starter. I had to look out some really old legal textbooks, but the 11th edition of Gloag and Henderson said:

“it is impossible to enumerate the various words or acts which the law will regard as fraudulent”.

I have dealt there with not just the wording, but the nonsense that you have heard from others.

Therefore, I am not in line with the pursuers’ lobby for section 8(4)(a). However, I am in line with them in their criticism of 8(4)(b), because I do not think that that bar is high enough. Wednesbury unreasonableness was what I recommended, and I think that the formula that Mr di Rollo suggested to you came very close to being what I would choose to have there. I tweaked his formula ever so slightly. I suggest that, as an alternative, it should read, “if, in the opinion of the court, the pursuer’s decision to raise proceedings, or their subsequent conduct, is so manifestly unreasonable that it would be just and equitable to make an award of expenses against the pursuer”. Therefore, I would raise the bar.

I think that section 8(4)(c), which is on dealing with an abuse of process, is okay.

My report recommended another set of circumstances in which qualified one-way costs shifting should not apply, which is in the event that a case is summarily dismissed or, to use an expression from England, “struck out”. Much has been said here—rightly—about the potential for frivolous claims being brought.

In my opinion, there are two reasons why frivolous claims will not be brought. One is that you would need to persuade a solicitor to pick up the cost of his time, the fees and the outlays, with little prospect of recovery.

Secondly, if the action raised is of no merit, there is a facility in the court, which was introduced about five years ago following the civil courts review, whereby a defender can say to the court, “This action has no merit—strike it out.” In those circumstances, the benefit of qualified one-way costs shifting is lost, and should be lost. Therefore, I would add another element to section 8(4)—it could be section 8(4)(d).

Finally, in the session that the committee had with the insurance lobby, it was said by one of their number that even though the pursuer did not beat a tender, qualified one-way costs shifting continued to apply. Well, not in my world, it does not, nor in the report that I made. I accept entirely the bill team’s rationale that dealing with tenders and their nuances should be in secondary legislation, because we do not want to start fiddling with the common law in an act of Parliament. I am persuaded that qualified one-way costs shifting should not be available, and should be specified as not being available, in the event that the pursuer has failed to beat a tender.

Mairi Gougeon

You touched on a few of my other questions and, in particular, on the test in relation to unreasonable behaviour. What you said about spurious claims echoed the evidence that we heard from solicitors, who said that they would not take on a case if they thought that it would not get anywhere.

Sheriff Principal Taylor

I did a little exercise to see the sort of outlays that solicitors have to pay. At present, according to the Scottish Courts and Tribunals Service website, there has to be an outlay of £214 to raise an action. Every time that there is a motion, each party has to pay £54 just to enrol the motion. Further, they have to pay £77 per half hour for the proceedings. Under a damages-based agreement, those payments have to come out of the solicitor’s pocket. That is before we start looking at the costs of medical reports and experts’ reports, all of which will be in the hundreds, if not the thousands, of pounds. That is a pretty strong deterrent for frivolous claims, taken with the knowledge that the defender can come into court and move a summary dismissal or, in the vernacular, “strike out” the action.

Mairi Gougeon

Thank you; that was helpful. You touched on tenders. Should that process be more clearly defined in the bill?

10:45  

Sheriff Principal Taylor

No, I do not think that what I propose in regard to tenders should be dealt with in the bill, because that is getting into more technical detail. I think that that should properly be in an act of sederunt, but one line could be added to the bill. Section 8(4) says that

“a person conducts civil proceedings in an appropriate manner unless the person—”

does various things. We might say that QOCS flies off in the event that “the person—fails to beat a pursuer’s tender”. I hesitate to draft on the hoof, but something like that.

Mairi Gougeon

Okay. Thank you very much.

The Convener

I will go back to the Wednesbury test. Would it be your position that, as it stands, the bill might catch a weak case, as opposed to the Wednesbury test that a decision is so unreasonable that no reasonable person could have reached it? Would the wording that you have suggested meet that test?

Sheriff Principal Taylor

Yes, I think so.

The Convener

Okay, thank you.

Liam McArthur (Orkney Islands) (LD)

Good morning. I will return to an issue that you raised in your initial response to Liam Kerr in relation to claims management companies. One of the red flags that has been raised south of the border about QOCS relates to the regulation of claims management companies. Such regulation will certainly not be in place at the outset in Scotland.

The Government bill team acknowledged that issue in its evidence to us, and we have since had correspondence that suggests that the Government may look to piggy-back on the Financial Guidance and Claims Bill that is being considered at United Kingdom level. What are your thoughts about the advisability of implementing the bill’s provisions on QOCS in the absence of such regulation, which could be achieved either through the UK bill or through separate legislation flowing from the on-going review?

Sheriff Principal Taylor

I understand why the regulation of claims management companies might be dealt with other than in the bill. For present purposes, when we are talking about damages-based agreements, I would be content for the bill simply to have some provision that only a regulated body can enter into a damages-based agreement. That would mean that claims management companies would not be allowed to enter into those agreements until such time as they became regulated. However, my recommendation is that claims management companies fall to be regulated—it is an essential element of the report.

Liam McArthur

That certainly seemed to be the hint that the Scottish Government officials were giving us when they were setting out the objectives of the bill. To your mind, would it be sufficient to have a reference to regulated organisations or bodies for the time being, which regulation will manifest itself either through the changes to the UK legislation or whatever emerges from the Government’s on-going review?

Sheriff Principal Taylor

Yes, it would be a holding element. Unregulated companies would not be allowed to enter into damages-based agreements and take 20 or 30 per cent from all loss. I actually think that most claims management companies in Scotland will disappear, because the vast majority are simply fictions—they are firms of solicitors who have set up their own tame claims management company. The ownership of the firm of solicitors is the same as that of the claims management company.

Liam McArthur

That is helpful. Thank you.

Maurice Corry

Defender representatives have argued that the provisions on QOCS and damages-based agreements will tip the balance too far towards unscrupulous pursuers unless other controls are introduced, such as fixed expenses or more extensive pre-action protocols. Do you agree with those concerns?

Sheriff Principal Taylor

Pre-action protocols undoubtedly assist in weeding out cases that are capable of settlement before they get to court. I confess that I am not completely up to speed on existing pre-action protocols, but, in general, they are worth while. Just now they are mandatory in all cases up to a value of £25,000, but I think that if the system is working you might consider extending it to cases of £50,000 or £100,000. I would have thought that a role of the Scottish Civil Justice Council would be to monitor these aspects and decide at what level the mandatory pre-action protocol should kick in and the sorts of actions it should cover.

Fixed fees are a bit of an unknown quantity. I dipped my toe in that water by suggesting that, in what was then to be a new simplified procedure, the fees should be fixed, and I would have liked to have seen the system in operation before I ventured an opinion on whether it worked and therefore should be rolled out further. As a general concept, though, I like the idea. Such a system operates very successfully in one of the patent courts in London—you can find it in my report somewhere. One of the report’s key watchwords was predictability, and that is what fixed fees bring about. As I said, I like the idea of them, but I am not sure that I would necessarily tie them in with qualified one-way costs shifting.

In fact, I recommend in the report that there be budgeting of litigations; I appreciate that that is nothing to do with you, but it might give you the tenor of where I am going with this. At the outset in a commercial action, each party should set out what it believes to be the cost of the action and get the court to approve it; the court might say, “I don’t like this” or “I don’t like that”, and the parties will be held to that for the future. That, too, provides predictability. I find it unacceptable in this day and age for a client to ask a lawyer, “How much will this litigation cost me?”, only for the lawyer to reply, “I haven’t a clue. How long is a piece of string?” That is just not acceptable and there are ways around it.

The Convener

Do you have any comments on cold calling by claims management companies? Most of these things will disappear, but there is still that element to deal with.

Sheriff Principal Taylor

Cold calling is the biggest mischief of claims management companies. We can go back to several sources, including Lord Justice Jackson; the Conservative peer Lord Young of Graffham, who carried out an examination of claims management companies; and the Legal Services Board in England, which did the same thing. Save for cold calling, they thought that such companies played a useful role in the process.

My report, however, recommends that claims management companies—or anyone, for that matter—not be permitted to cold call. Having a regulator in place helps in that respect. I also recommend that a professional duty be placed on a solicitor to satisfy himself that, before a case is referred to him by a claims management company, it has not been obtained through cold calling. That will require the Law Society to firm up its professional guidance provisions to ensure that if a solicitor accepts such a case without making reasonable inquiry as to whether it was obtained through cold calling, it will be professional misconduct.

I also suggest that only regulated bodies be entitled to charge a referral fee. After all, what incentive will there be for someone to acquire a piece of business by cold calling if the regulator is going to come down on top of them?

The Convener

That would avoid any problems if the Law Society decided not to implement that; they have not committed to inquiring if the referral came as a result of cold calling. However, if only regulated bodies—

Sheriff Principal Taylor

I understand that the same bill as you are praying in aid in Westminster in relation to the regulation of claims management companies will legislate for a ban on cold calling.

The Convener

Therefore, one way or another, we hope that cold calling will be caught.

Sheriff Principal Taylor

We hope so. It is the bane of all our lives, is it not?

The Convener

It certainly is.

Mary Fee (West Scotland) (Lab)

Good morning, Sheriff Principal Taylor. I will ask about third-party litigation funding. You will know that there is an emerging market in England for investors to fund claims in return for a share of compensation. The bill will make it impossible for third-party funders to be found liable for expenses. The Government has said that it is its intention to catch only commercial third-party funders, but we have heard in evidence from trade unions, in particular, that there is concern that trade unions could be caught by the provision. Could you clarify for us who the recommendation on liability of third-party funders is specifically meant to catch?

Sheriff Principal Taylor

It is intended that only the venture capitalist that comes in to fund a commercial action could find itself liable for the adverse costs in a litigation. A trade union should not be caught and neither should a solicitor who provides a damages-based agreement.

My understanding from a chat yesterday with one of the bill team is that further definition will be provided to bring about what I think you and I would both choose.

Mary Fee

Your recommendation was that there should be a voluntary code of practice for third-party funders.

Sheriff Principal Taylor

Yes—as there is in England and Wales.

Mary Fee

There is no provision for such a code in the bill. However, your understanding is that something will be put forward.

Sheriff Principal Taylor

I think that there will simply be a change in a definition in existing legislation, which will make it clear that trade unions and solicitors that enter into damage-based agreements will not be caught. I do not think that it will go as far as you suggest, with a requirement that there be a code of conduct.

Mary Fee

Clarity in the bill would certainly be helpful for trade unions and no win, no fee solicitors.

Sheriff Principal Taylor

That would certainly help.

Mary Fee

Section 10 of the bill includes requirements on transparency of funding arrangements. Could you confirm whether you intend that those will apply to all parties to a civil court action, and not just to third-party funders? Your recommendation was that all parties to civil litigation should be required to disclose to others involved how the court action is being funded.

Sheriff Principal Taylor

Yes, and I stick by that.

Mary Fee

Does that recommendation include trade unions and all funders?

Sheriff Principal Taylor

Yes. I think that there should be disclosure of how actions have been funded.

Mary Fee

Thank you. That is very helpful.

The Convener

I will ask about the definition that you provided of “professional funder”, which seems to me to catch it quite nicely. The definition is:

“A funder, motivated by a desire to make a profit, who effectively purchases a stake in the outcome of a litigation”.

Sheriff Principal Taylor

That is in the definitions section.

The Convener

Would it serve the purpose if that definition were to replace the one in the bill?

Sheriff Principal Taylor

Give me one second; I will look it up.

The Convener

It is in paragraph 57, in chapter 11.

Sheriff Principal Taylor

I am in the glossary at the beginning, which says:

“The funding of litigation by a party who has no pre-existing interest in the litigation, usually on the basis that (i) the funder will be paid out of the proceeds of any amounts recovered as a consequence of the litigation, often expressed as a percentage of the sum recovered; and (ii) the funder is not entitled to payment should the claim fail.”

That does not help us, particularly. Could you give me the number of the paragraph again?

11:00  

The Convener

It is in paragraph 57 of chapter 11 of your review report.

Sheriff Principal Taylor

It would be a bit embarrassing if I had to go back on that now.

“A professional funder who finances part of a pursuer’s—”

The Convener

The definition starts:

“A funder, motivated by a desire to make a profit, who effectively purchases a stake in the outcome of a litigation”.

It is the second sentence in paragraph 57.

Sheriff Principal Taylor

I think that the definition is fine. It meets the point, does it not?

The Convener

Yes, I think so. I think that it is excellent.

Liam Kerr

I have a brief supplementary question. I would like to take you back to the start and to the basis of the whole process. In paragraph 43 of chapter 8 of the report, you talk about individuals being

“put off from pursuing legitimate claims for fear of an award of expenses against them.”

Do you have any idea how many such pursuers exist? Is there evidence that fear of an award against them is putting them off?

This question has just sprung to mind. If the claim is “legitimate”, to use the word in your report, why would an individual have an award for costs made against them? Should not the solicitor say, “You’re okay on this—go forward”?

Sheriff Principal Taylor

From my time in private practice, I can say that there is no doubt in my mind that the fear of an adverse award of costs inhibits people from exercising their legal rights.

I can also speak to that personally. I had a claim that was valued at £30,000 in which my prospects of success were probably about 80 per cent. I settled my action at £10,000—one third of what it was worth—and I did that entirely on the basis that I thought that I had before-the-event insurance, but did not, which was my fault. An award of expenses of well into six figures, which is what it would have taken to litigate the £30,000 claim, was not in my or my family’s interests, so that deterred me from litigating. That fear has certainly deterred a lot of my clients from litigating, so I have absolutely no doubt that it is a deterrent.

That deals with part of your question. I am sorry: what was the other part?

Liam Kerr

The second question just bounced into my mind. In paragraph 43, you talk about “pursuing legitimate claims” but, if a claim is really legitimate, why would there be an award of costs against the pursuer?

Sheriff Principal Taylor

A solicitor might think that the claim is legitimate at the outset. The pursuer will go to see them in their office and give them one set of facts. The solicitor might be perfectly honest in his assessment of those facts, but some witnesses are not very good at remembering what happened two or three weeks ago, particularly if there has been some trauma. In fact, quite a lot of research has been carried out on the effect of trauma on memory. The solicitor might be told that it is a pretty strong case and so takes it on, but the assessment of its prospects of success must be kept under continuous monitoring, because they change all the time. The case might start off as a good one, but cases can easily turn very poor. The damages-based agreements into which solicitors enter make provision for them to be able to back out if things reach the stage at which the case is no longer viable. Have I answered your question?

Liam Kerr

With very great respect, Sheriff Principal Taylor, I am not sure that you have. What you said is that individuals are put off, so they make a decision themselves not to pursue a legitimate claim.

Sheriff Principal Taylor

Yes.

Liam Kerr

When a person presents at the solicitor, they might believe that they have a legitimate claim, but are put off because the solicitor says, “I’ve heard your side of the tale and it seems to be a legitimate case based on the facts as you have presented them. This is what it is going to cost.” At that stage—

Sheriff Principal Taylor

No. It is not usually at that stage that it happens.

Liam Kerr

At what stage are people usually put off pursuing a legitimate claim?

Sheriff Principal Taylor

That happens when the solicitor realises that negotiation will not produce a result and they will therefore have to go to court. The clock only starts ticking for an adverse award of costs when you get into court.

In the circumstances that Liam Kerr has suggested, the solicitor would write to the alleged wrongdoer and then, I would hope, a negotiation would ensue. By that time, both sides will have a fairer idea of how the land lies; rarely is there a monopoly of right on one party. At the point at which they have to go into court because the negotiation has proved unfruitful, the solicitor has to tell the person that, if they lose, they run the risk of a severe adverse award of expenses. In many cases, that could bankrupt the individual.

The Convener

Two of your recommendations that are not in the bill are the additional fee—the extra amount of judicial expenses that a judge can award where the case has been particularly complex or time-consuming—and the suggestion that additional fees should continue to be decided at the end of the case, but limited to 100 per cent uplift of the judicial expense amount. Should those be in the bill or regulated in some other way?

Sheriff Principal Taylor

Those are probably best dealt with by secondary legislation.

The Convener

They should be built in to secondary legislation.

Sheriff Principal Taylor

Yes.

I also have a suggestion about when a judge is asked to make a decision about an additional fee. A number of factors—about half a dozen—have to be taken into account, including the complexity of the case. I cannot remember them all. The provision should be extended to require the judge to consider the extent by which the pursuer’s solicitor is being remunerated by way of a success fee.

The Convener

That is helpful. You also recommended that the solicitor should be required to discuss all potential funding options with the client, including legal aid or an existing insurance policy, and to write to the client with their recommendation and the reasons for it. Should that suggestion be considered, if not included in the bill?

Sheriff Principal Taylor

Lord Justice Jackson recommended that a solicitor should, before they enter a damages-based agreement, have to refer the client to an independent solicitor to make sure that all the pros and cons have been properly explained. I thought that that would be overkill and would involve too much administration, so my version is watered down from what Jackson recommended. It is important to realise that a damages-based agreement does not remove any other funding mechanism from the legal landscape; it is additional and might not be best suited to a particular pursuer.

The Convener

That is very helpful.

Sheriff Principal Taylor

I should have tried to work into one answer that we already have qualified one-way costs shifting in Scotland. It has been in operation for decades and involves the legal aid fund. A legally aided pursuer who loses an action and might, therefore, otherwise have an adverse award of expenses made against them, does not have an adverse award of expenses made against them. In very exceptional circumstances, the successful unassisted party can obtain payment of expenses out of the legal aid fund, but—as I am sure members appreciate—that applies in very limited circumstances. Therefore, we do not need to wonder how qualified one-way costs shifting will work; we already know how it works, albeit in a limited environment in Scotland.

The Convener

That will provide huge reassurance to people who are worried about the bill. The committee members all agree that your evidence has been immensely helpful to us. I thank you and Ms Samuel for attending today’s meeting.

I suspend the meeting briefly to allow for a change of witnesses.

11:11 Meeting suspended.  

11:16 On resuming—  

The Convener

Item 4 is our fifth evidence session on the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill. I refer members to paper 3, which is a note by the clerk, and paper 4, which is a private paper. I welcome Martin Haggarty, managing director of Accident Claims Scotland; Paul Brown, chief executive and principal solicitor of the Legal Services Agency; John Symon, director of Quantum Claims; Professor Alan Paterson of the school of law at the University of Strathclyde; and Thomas Docherty, the parliamentary affairs manager for Which? [Interruption.] I beg your pardon; I have misnamed the director of Quantum Claims, who is George Clark. It is nice to have you with us.

I thank Thomas Docherty in particular for providing a written submission. We will move straight to questions, starting with Fulton Mackay.

Fulton MacGregor (Coatbridge and Chryston) (SNP)

MacGregor.

The Convener

MacGregor. [Laughter.]

Fulton MacGregor

I can let you off for misnaming Mr Clark, but I have been on the committee for a while now, convener. I have also been called Fulton Mackay before.

I have a general question to kick us off. We obviously know that the objective of the bill is to increase access to justice. We have heard evidence from various people on that very issue, but what are the views of the panel? Will the bill increase access to justice? Is there an issue around access to justice in the first place?

Paul Brown (Legal Services Agency)

We vigorously support the introduction of class actions or group proceedings. Indeed, it is an idea that has been floating around for my entire career. I can claim to have been involved with two forms of group proceedings. One was the now defunct procedure under the Public Health (Scotland) Act 1897, which was a group procedure. The other was as one of hundreds of pursuers in a class action in New York. Both sets of proceedings were infinitely more straightforward and supportive than the equivalent individual actions.

In the case of the Public Health (Scotland) Act 1897, it was to do with abatement of a nuisance. There were 18 pursuers and only one writ, and the complexity and the costs to the defender were undoubtedly less than they would have been otherwise. The only complexity was the 18 legal aid applications and some people falling off legal aid, but that was my responsibility and not an access-to-justice issue as such. A remedy—the abatement of a nuisance—was obtained fairly speedily and I was impressed by that. That procedure has now been abolished, but the opportunity to take similar actions seems to me to be a good idea.

The New York action was a small claim that would have been unpursuable without a class action. It was an opt-out class action. You get a letter saying, “You are in this claim whether you like it or not, or you can sign a document to get out if you want.” I had no reason not to pursue the claim and I was impressed by the procedure. It was far more straightforward than claiming most benefits.

I therefore have no doubt that the introduction of a group procedure would increase access to justice. The main issues would be legal aid and publicity, but problems in that regard can be overcome. I think that the ordinary person who reads the national press or watches the television news and hears about class actions will come to an understanding of them fairly speedily. As I said, my experience is that class actions are hugely less stressful and more straightforward for the pursuers involved.

Professor Alan Paterson (University of Strathclyde)

I, too, have been a member of a class action in America. I think that it was for overcharging for gas services and applied to a whole area. Instead of hundreds of thousands of people in the area each having to raise an individual action against the gas company, a collective action was raised. We did not have to opt in, because it was an opt-out process and was very straightforward. That is how to deal with small or medium-level cases involving defective washing machines, for example, where everybody has a common interest and thousands of people are involved. It is not cost effective for thousands of people to have to raise the same action against a washing machine company, a gas company and so on.

As Paul Brown has indicated, though, the problem is how we fund such class actions. We have known for 30 years that class or group actions are a good thing. We have had three reports in Scotland that have all said that we should have class actions, but the problem has been how we fund them. We will no doubt come back to that.

Thomas Docherty (Which?)

We echo the view that it is important to have the principle of group proceedings. I think that the key point that you are hearing already, convener, is that opting out is the crucial aspect rather than having an opt-in mechanism. As we indicated in our written submission to the committee, our concern is that, although we believe that the bill is a glass half full and better than nothing, it will not deal with the cases to which Professor Paterson referred. There might be a relatively small amount of damage for an individual if there was an opt-in mechanism rather than an opt-out one, but the cumulative damage to a group would be significant in that case.

George Clark (Quantum Claims)

I am here just to air a couple of concerns about the bill. I have two brief points on part 1, section 4 and part 2, section 10.

First, I will give you some background information about Quantum Claims. The company was formed in 1988 and was one of the first no-win, no-fee organisations in the UK. We have a very mature funding product that has evolved over time as the law has changed and evolved. Our pricing structure has evolved carefully to match the requirements of the public and meet its expectations, and to market ourselves in the best way.

The bill as it stands gives me two concerns, which are about access to justice and a potential funding gap for individual cases. My concern is not about group litigation, which is a subject that I will pass on to those who have looked at it in more detail. I will deal first with part 1, section 4 of the bill, on “Power to cap success fees”. That obviously comes from Sheriff Principal Taylor’s report, which made various recommendations about capping the degree of the success fee, generally at about 20 per cent. I should say that that figure is roughly in line with Quantum Claims’s product. We gave evidence to Sheriff Principal Taylor, so perhaps he derived the idea of a 20 per cent cap from our experience of it.

However, I have a word of warning about that proposed cap. The law is evolving, but it seems to me that Sheriff Principal Taylor seeks to apply a cap across all categories of cases. From our experience, we believe that that would be extremely dangerous, particularly with regard to areas such as medical negligence, breach of contract and professional negligence. Cases in those areas are extraordinarily complex and, by definition, long running, and they are expensive to fund. The capping of the success fee at a level that might not be sustainable would discourage funding organisations from participating in the process and therefore, in my view, deny access to justice to a certain category of pursuer.

10:30  

I have a similar point about part 2, section 10, on “Third party funding of civil litigation”. It proposes the introduction of one-way cost shifting—which I think is a good thing and is generally approved—but with an exception whereby third-party funders can be made liable for expenses in an action. It would clearly be difficult for a company such as ours to provide funding if we were looking at a risk that we did not know before we entered into a funding arrangement. It would also be difficult for pursuers, as they could suddenly find themselves in a position where there was a funding aspect to their case that they had not been aware of when they started.

I will give an example of my concern—

The Convener

We will cover the issue in more detail, but at present we would just like rough guidance on the areas of the bill that you have concerns with. There will be an opportunity to come back with more detail when we go into the line of questioning on third-party funding.

George Clark

Just to cover it very briefly and to finish, my final point is that, in the funding of a small case—such as the £5,000 to £10,000 category of case—the funder is exposed to the coverage of outlays, which average about £2,000 minimum for even the smallest of cases. If, in the event of the case not being won, they are also exposed to civil expenses of, for example, £30,000 to £40,000, that would discourage the funding of any action. There is a large category of parties who would be discouraged from pursuing an action for which they have to find £2,000 to £3,000 of funding.

My only point is that such provisions have to be looked at extremely carefully to see whether they defeat the point of the bill, which is to improve access to justice. That is my submission, if you like.

The Convener

Thank you. Are there any other comments?

Martin Haggarty (Accident Claims Scotland)

Basically I echo what Mr Clark has said. In general, the principle of a cap on damages or success fees is fair thinking, but there has to be a distinct reassessment of the amount at which it is set because of the type of cases that are involved and to reflect the complexity of the case. Otherwise, anything that improves access to justice for innocent victims has to be a good thing.

Apart from that, I think that Mr Clark has covered the funding side of things in brief, and I understand that we will talk about that in more detail.

Rona Mackay (Strathkelvin and Bearsden) (SNP)

The panellists have talked a bit about what I was going to ask. Will damages-based agreements and qualified one-way cost shifting improve access to justice for the customer?

George Clark

Yes, I think so. They are the way forward, and we have in effect been operating that way for 30 years. To bring the rest of the law in line with that approach must be sensible and a step forward in terms of access to justice—with the qualifications that I have put in place about some of the details in the bill.

Professor Paterson

I should declare an interest in that I was on the reference group for Sheriff Principal Taylor. I agreed that there was an argument for damages-based awards, but I very much agreed also with Sheriff Principal Taylor that it has to be subject to appropriate protections. Perhaps we will discuss the protections later.

Rona Mackay

Can I ask whether, hypothetically, it is possible for two fees to be paid under a success fee agreement—one to the claims management company and one to the solicitor? Does the system allow for that, or does a loophole exist that allows it?

Martin Haggarty

Are you talking specifically about success fees?

Rona Mackay

Yes.

Martin Haggarty

From my experience and from my company’s point of view, no. We charge success fees only in the instance of cases that we settle without the need for court proceedings. We have a mechanism whereby the solicitor can thereafter take over the litigation aspect of the case, and in recognition of the additional work that the solicitor will have to put in, they take the success fee rather than our keeping it.

Rona Mackay

I see. That has clarified things. Thank you.

Are there any other measures that you would like to see in the bill that would improve access to justice? Do you feel that anything has been missed?

Paul Brown

You will have seen the submission concerning environmental law, which did not come from me. The proposal that the restriction on a pursuer’s liability for expenses should be expanded to include environmental issues sounds like a reform that would improve access to justice. Even in cases where there is not much likelihood of a pursuer paying a defender’s expenses, that control is a big disincentive to litigation. I support the proposal that the disqualification be applied to cases involving environmental issues.

Rona Mackay

Can you give us an example of that?

Paul Brown

The example that I would give is the almost complete absence of people taking up these issues. We have seen a large amount of publicity about air quality and so forth. In some circumstances air quality would be a nuisance, but that issue does not seem to have been taken up. The traditional controls over litigation that derive from other ages provide a barrier and there is a need to remove them. That is simply to do with the rule of law; it is not just about access to justice generally. The Unison case made it clear that providing access to justice is a way of ensuring that Parliament’s decisions are applied. That needs to be taken seriously—I know that the committee does so.

Thomas Docherty

As the committee has discussed with the Scottish Government, claims management companies need to be regulated. I suspect that that is part of the reason why some of the witnesses are here today. It is absolutely crucial, particularly given that the Financial Guidance and Claims Bill is just about at the stage of getting its third reading in the House of Lords—it is at the half-way point. It would be odd if there was a gap in regulation between Scotland and England and Wales.

Rona Mackay

Does anyone else have a view on that?

Paul Brown

I support that, based on my experience. I do a fair amount of criminal injuries compensation claims and sometimes people phone up and say that they have someone else dealing with it; they are getting purely telephone-based advice, based on a percentage fee. I share the concern that people do not understand what they are getting involved with. There is a hard sell, which is not necessarily remotely in the best interests of the applicant. Sometimes, it defeats the objective of the arrangement, which is that people get compensation. If they are paying 20 per cent of that compensation to someone else for very little work, that does not seem to achieve the objective that the arrangement was set up to achieve.

The Convener

We will pursue that line of questioning in more depth.

Liam Kerr

Rona Mackay talked about fees. I think that Mr Haggarty said that when a matter is escalated to a solicitor, the solicitor takes the success fee. Your firm needs to get paid, so do you get a referral fee from the solicitor?

Martin Haggarty

Yes, in principle, there is a referral fee. However, I qualify that by saying that we do a substantial amount of work in preparing the case and getting background information. Unlike many claims management firms, particularly down south, we engage with the client and offer them other services, such as getting replacement vehicles or finding vehicle repairers after a car accident. After the case is under way we are involved in such aspects as taking statements from witnesses and preparing locus reports. We provide a value-for-money service, which is distinct from my colleague Mr Brown’s statement that in many instances claims management companies are purely a telephone-based marketing device. We receive some payment from solicitors, partly for finding the case and partly for the work that we do.

Liam Kerr

Paul Brown talks about acting in the best interests of the client, but if your firm gets a fee from the solicitor, who is your firm’s client? Is not it the solicitor?

Martin Haggarty

That is not necessarily the case, because we do not act purely for or deal with one firm of solicitors; we might deal with several firms. It depends on the type of case. For example, for a road traffic accident, we might deal with one or two firms. We might deal with other firms that specialise in industrial disease, accidents at work or medical negligence. We act for the client in the first instance and we offer to find them a range of services, including expert legal advice from people who specialise in the relevant area of law.

Professor Paterson

I will pick up on that last issue. My comment does not relate directly to claims management companies, although there are companies that are encouraging payment protection insurance claims, and when solicitors have been involved, questions have arisen about for whom the solicitors are acting. Is it the claims company or the claims company and the client? That makes a big difference: it affects fiduciary duty and remedies, depending on whether the lawyer is acting for the client or only for the claims company. It is therefore very important that, in such contracts, there is a clear explanation. That extends to claims management companies.

There is not only a duty on solicitors to act in the best interests of their client; there is also an ethical duty on them to communicate effectively and to get the client’s informed consent to certain contracts. That means that the solicitor has to tell the client everything material that they are aware of that relates to the case.

All those things have to be carried through. I am sure that Quantum Claims carries them through, but we are talking about all kinds of other claims management companies coming through, and those issues have to be addressed. The Law Society of Scotland is aware of that and a working party is being set up to consider the ethical issues that might arise. We have to be aware of them.

John Finnie

The bill will enable solicitors to enter damages-based agreements. Will you outline the pros and cons of that form of payment? Is there a need for additional protections for consumers? Is there the perception of a conflict of interests for solicitors?

Professor Paterson

I will just follow on from what I just said. Yes, there is. If the solicitor enters into a contract with a client, that contract has to be fair and reasonable, has to have informed consent and must be something that an independent person would advise. As a matter of ethics, in addition to the fiduciary duties, independent advice is required.

That is impractical when it comes to the contract of retainer between lawyers and clients—the general contracts of borrowing and lending between a client and a solicitor or getting gifts and wills. However, when we get into unusual retainers—suppose that the fee was an equity fee or a publicity fee—there is a need for informed consent and proper communication and, I would argue, there is in some cases a need for independent advice. Some of the claims management fees and speculative fee agreements that we have heard about could be viewed as being quite unusual.

For example, Sheriff Principal Taylor is of the view that 2.5 per cent of future loss is not, in the grand scheme of things, a problem. However, in some cases, it might be a problem so people need to be advised about that. That is why section 6(6) mentions the need for advice from an independent actuary. In some cases—not all cases—there may be need for advice from an independent lawyer.

John Finnie

Do any other panel members care to comment on that point?

10:45  

George Clark

I cannot comment on solicitors’ duties to advise their clients. I welcome regulation: it is absolutely essential. There are what one might call cowboy organisations out there that would take advantage of situations. That has been prevalent; it is less so now, but it still exists.

Quantum Claims has never engaged in telephone marketing and sales or anything like that; we have advertised traditionally, and we have written contracts in which clients have cooling-off periods, and they have advice available to them. I endorse what Professor Paterson said: it is entirely right and should be brought in for every contract that a client enters into.

John Finnie

I would like clarification from Professor Paterson. Do you see that independent advice as a protection not only for the client but for the solicitor as well?

Professor Paterson

Yes. Underlying all this is the potential for conflict. Independent advice protects both clients and solicitors. I do not suggest that it is needed for every speculative fee agreement and every damages-based award, but there may be an argument for it for some situations.

Martin Haggarty

In principle, I agree. My company removes itself from the process at the stage of litigation and, for impartiality, hands over to the solicitor control of the case and any success fee thereafter. We do not engage in any activity other than accident claims: we do not get involved in the less reputable—in my opinion—side of the business, such as PPI or holiday sickness claims.

Until recently, I would have said that Scotland did not need regulation because there are very few claims management companies here. The problem stems from the amount of England-based companies that advertise nationwide and proffer advice to people here without any regard for the laws of Scotland or our system of damages. They perhaps sell that case on to the highest bidder—sometimes even England-based solicitors firms ostensibly take cases forward and try to resolve them without any need for litigation. With the recent increase that we have seen in such cases, I now welcome some form of regulation here.

Mairi Gougeon (Angus North and Mearns) (SNP)

In previous evidence concern has been raised, in particular by defender representatives, that the bill, as drafted, will lead to a compensation culture in Scotland, such that additional measures would be needed, such as fixed fees and strengthened pre-action protocols, to militate against that. What are your thoughts on that concern? Do you believe that the bill will give rise to a compensation culture?

Martin Haggarty

I have been involved in claims since 1979. Accident Claims Scotland was formed in 2003, and we have, over the years, done a lot of research into the behaviour of claimants and potential claimants. Over the past 10 or 15 years, I have not seen a particularly large uptake in claims or a rise in compensation culture in Scotland, despite the rise in advertising through the press, TV and radio for accident claims companies or lawyers. We have always been fairly conservative with a small “c”, if I may say so. Roughly one in three claims has sought compensation for minor injuries—most claims are for minor injuries.

I do not think that the bill will fuel a sudden rise in compensation claims. All that it will really do is offer to members of the public a fair means by which to seek recompense to which they are legally entitled. The majority of people who are entitled to make a claim for personal injury do not do so—the reasons for that are varied—and the claims are mostly for minor injuries. I do not think that we will have a huge rush towards the whiplash culture that has been experienced in particular parts of the south of Great Britain.

Mairi Gougeon

Would anybody else like to comment on that?

Professor Paterson

There is a lot of press publicity about compensation cultures. However, the research evidence does not bear out its existence in England and Wales, apart from in the pockets of the whiplash culture to which Martin Haggarty referred. There is a beautiful article that was produced by an academic that shows a direct correlation between the number of claims going down and the number of media stories about compensation going up.

In Scotland, the evidence is that civil litigation rates have been gradually falling over the past five or six years. I know that there was a spike in personal injury claims, but I do not think that there is evidence that there is huge interest in raising personal injury claims. I would be quite interested if there were, because when I was doing the original research for “Paths to Justice Scotland: What people in Scotland do and think about going to law” with Hazel Genn, which was the start of the needs assessment literature that has gone around the world, we found large areas where people either did nothing when faced with a significant possible claim, or tried to help themselves and failed. One might think that people know to go to a solicitor or claims management company with personal injury cases, but we found that people are likely to do nothing about personal injury claims. Admittedly, that research was done 15 years ago.

There is room for the claims management companies to help us to take cases, provided that we have appropriate safeguards and that we monitor what is happening. I do not think that a compensation culture is likely to take off in Scotland.

Paul Brown

My experience is that, in some areas, there has been a big decline in claims. People hear publicity about cutbacks in legal aid that do not apply to Scotland, and they think that that is the end of legal aid for them. They hear about cutbacks in, say, criminal injuries compensation, and think that compensation will not apply for them, but do not realise that compensation for their particular injury has not been abolished. People hear that wage loss has been removed from criminal injuries compensation claims, although it still exists for some situations. They hear about time limits, but do not realise that, in some situations, time limits are for guidance—they are not absolute and can be argued around. There are all sorts of impediments.

There is a need for greater publicity. Some publicity results in overshooting, but there are some areas—such as Equality Act 2010 claims and rafts of employment-related matters—that are rarely pursued, so I do not see a compensation culture becoming a problem.

However, we have to look at the form of words that is used: in our world, compensation is a way of achieving accountability, so appropriate compensation needs to be encouraged. Lying and exaggerating need to be discouraged, if that is what the problem is, rather than saying that people who claim are lying, exaggerating and making fraudulent claims. The bill has sanctions built into it for lying and exaggerating and people need to know about them, too.

Mairi Gougeon

You said that the bill will tackle some of that, but will it be effective in preventing fraudulent claims? We have also heard evidence on spurious claims from representatives of pursuers and from Sheriff Principal Taylor. They seem to think that there would not necessarily be a rise in spurious claims because it would not be in a solicitor’s interest to take on a claim that will not go anywhere and has nothing behind it. Do you think that there would be a rise in spurious claims as a result of the bill?

Paul Brown

Solicitors have to appropriately and clearly analyse cases and tell people when they do not have a claim. Sometimes they have difficulty doing that because they want to help people, but that is a professional issue, because misleading someone and being overoptimistic is just as bad as telling someone that they do not have a claim when they do.

At one level, that is about ensuring that publicity is clear so that people understand what they are getting compensation for—people need to know the basics of the law. We also need to keep on telling people about those basics because it is not something that they are necessarily fascinated by. The other thing is to encourage the right sort of soaps on telly to explain such things, because people pick up a lot through those. As I said, I do not see spurious claims as a major problem: I have not come across that.

Martin Haggarty

As a representative of the claims management side, I add that we have not seen a great increase in spurious claims over the last few years. However—I am sure that Mr Clark will concur—as a responsible company, we discover and weed out the less desirable or more spurious cases. We prevent many such cases from getting as far as a solicitor. It is not in our interests to deal with spurious claims because if such a claim were to find its way to a solicitor and potentially to litigation, any work that we have done or any referral fee that we charge the solicitor would be clawed back in the event that the case turned out to be fraudulent or the client was misrepresenting the situation unreasonably. There is an onus on us to ensure that we perform our part and weed out undesirable claims.

Professor Paterson

The bill contains protections such that a legal representative who raises a spurious action may be found personally liable for expenses. I happen to think that that is already the law anyway, but I am glad to see it being reinforced in statute. Now, no one can say that they do not agree with that bit of case law—it is clear in statute.

On qualified one-way costs shifting, the benefit of that is lost if the claim proves to be fraudulent, as with legal aid. One of the protections of legal aid is that if you lose, you can get your liability to pay the other side’s expenses modified to nothing, but that applies only if the court takes the view that you have behaved reasonably. The bill also requires that. There are protections against spurious claims.

Thomas Docherty

This goes back to the question that Mr MacGregor asked about access to justice. We see claims management companies as being a symptom of the problem that companies and institutions too often do not pay back to consumers money that they owe them. A simple statistic that the National Audit Office estimated is that, between 2011 and 2015, claims management companies received £4 billion to £5 billion in management fees for PPI claims. That is because the financial institutions did not in the first place come forward to say to customers that they had got it wrong and therefore owed them money, even though they knew who their customers were.

I will give you an example that we use a lot. Which? runs on our website a free service for PPI claims, and we have engaged with a lot of the financial institutions. One Which? member got £15,000 just by going on to our website and putting in his details. I will not say which financial institution was involved. That cut out the CMCs and was a great result. However, it can be argued that if not for those CMCs chipping away and raising the issue in the first place, the financial institutions would not have paid out £18 billion to £20 billion over the last few years. I hope that that answers your question.

Mairi Gougeon

Yes, it does. I look forward to the TV dramatisation of civil litigation. [Laughter.]

The Convener

I want to ask about ambulance chasers. You are talking about legitimate claims from consumers that have not been followed, but there is also the other side of the coin. The three representatives of the claims companies have explained that they would behave with absolute propriety, but is ambulance chasing still an issue?

11:00  

George Clark

I return to Martin Haggarty’s point that there is still an issue in England. There is a telemarketing culture. We will all have received anonymous telephone calls or texts asking whether we have had an accident in the past three years, for example. That is still an issue, but it is a country-wide issue and not just a Scottish one. However, I genuinely think that the issue is not generated in Scotland and that it comes from afar. I am not aware of anyone in our industry in Scotland who actively practises that approach, and I certainly do not. Nevertheless, it is an issue and it needs to be looked at. As I said, there is still a danger in that field.

Martin Haggarty

I agree that the issue is very much driven from afar. In my day-to-day work, I am constantly bombarded by data marketing companies from other parts of not just the United Kingdom but the world, offering data on people who have had accidents, PPI or whatever. I deal only with accident claims, but I do not engage in buying data and nor do my colleagues who I know of in the industry. That approach is a very shoddy way to do business. Something should be done to protect the public from those mass data-gathering exercises and the constant exchange of details. In many cases, the data that I am offered, whether or not it is genuine, is said to originate from insurance companies, which are the very people who cry wolf at the first sign of a potential personal injury claim. However companies are getting the data, there is no doubt that some less than savoury practices are involved.

Thomas Docherty

We completely disagree that Scotland does not have a problem; indeed, Scotland has more of a problem with nuisance calls than any other part of the United Kingdom. We have done research on that. In September, there was a debate on the issue in the Scottish Parliament, which some members of the committee took part in. As we say in our written submission, our studies show that 80 per cent of Scots reported receiving nuisance calls on their land lines in the month of August alone and that almost half of people—44 per cent—receive accident and PPI calls. It is not true that Scotland does not have a problem; Scotland has more of a problem than anywhere else.

I will give you one more statistic. In the past year, 16 claims management companies based in Scotland have registered with Companies House. The problem is not getting smaller; it is getting bigger.

Martin Haggarty

As I said, I do not deny that members of the public are receiving unsolicited communications by text or telephone on issues such as PPI and personal injury. My point is that, in my experience, the vast majority of those calls or texts originate from outwith Scotland. The opportunities to buy that data or to acquire those potential customers or clients generally do not originate in Scotland. It may be that several claims companies have registered at Companies House, and I understand that there might be many PPI-based companies of that nature, but I have not seen any great increase in relation to the personal injury side of the business in Scotland.

I take Thomas Docherty’s point that we are plagued by such communications, but I do not think that there is a big problem with the data originating here. The issue is with national companies marketing to the country as a whole and trying to pass clients on to us up here in some way, shape or form.

The Convener

Mr Docherty’s written submission certainly contains useful information about the number of calls, even just in the Glasgow area. We might cover that later.

Maurice Corry (West Scotland) (Con)

I have a general question for the panel. There is a feeling of reticence among people who genuinely believe that they have a claim but are put off by the fact that they might incur a black mark against their name on the industry’s notepad when they come to ask for insurance cover for a house, for example. Can you comment on that general trend?

Martin Haggarty

That is very much the case for motor accidents, which the majority of personal injury claims will emanate from. People think that, if they make a claim for their vehicle or their person, that will somehow affect their insurance premium, which it very often does. As a result, people often seek the assistance of a claims management company or just decide that the matter is more bother than it is worth, swallow their policy excess for the damage to their car and get on with their daily lives.

In the past, we have tried, through our advertising, to educate members of the public who have genuinely suffered an injury through no fault of their own that they have rights and that there is something that they can do. Unfortunately, however, there is a perception that they will end up on a database somewhere and that the issue will end up costing them more money. It is worth pointing out that, if insurance companies acted honourably, the claims management industry for personal injuries or vehicle damage would not exist. I say that as someone with an insurance company background who has seen that industry rise from nowhere. People used to be left without any assistance.

There is another useful observation to make. Even now, as we approach 2018, a great many members of the public are reticent about directly approaching solicitors about a claim, because they think that that will cost them money, and that is off-putting. They will go to a claims management company or an accident management company that advertises a no-win, no-fee approach, because they realise that the process will not cost them money if the case is unsuccessful and, at the end of the day, we are in some way more approachable than solicitors.

There is still a perception that, in many areas of the law, solicitors are somehow slightly otherworldly or intimidating. Obviously, that is not the case, but to many ordinary members of the public there is still a bit of reticence about approaching them. I still have clients who put on a shirt and tie when they go to see a solicitor. That is possibly the only time that they do so other than when they go to weddings and funerals. Over the years, clients have been worried about the process and reticent about dealing directly with solicitors for a variety of reasons.

Paul Brown

I agree. That is why there is a need for law centres and, indeed, trade unions to help to provide a bridge. Solicitors could do a lot, as well. We continually hear stories—I know that some of them are accurate—about people who have been told that, if they want to see a solicitor, it will cost them £250 an hour and they will have to pay in advance. There is a real need for a better interface between the legal profession and people in need.

The situation has improved in some areas, and some people make a really big effort. Nonetheless, that has put us back. I have been in a solicitor’s waiting room when a client has been asked to put in his card to pay £250 before he could see his solicitor for just a one-hour interview about a complex employment law matter. I am sure that the advice was very good, but such costs are completely impossible to meet for 95 per cent of the population. If people think that that is the level of costs, they will make a sensible calculation and realise that the money is irrecoverable, even though there are ways around such things. I share the concern about that.

The Convener

We will move on and develop the issue a bit.

Liam Kerr

Maurice Corry’s question and the answers to it have asserted various things about perceptions and reticence. Mr Brown said that 95 per cent of the population would find meeting such costs impossible, but there is a danger that we are drawing universal conclusions from anecdotal evidence. Is there any objective evidence for any of the points that Martin Haggarty or Paul Brown have just made?

George Clark

If you mean statistical surveys, I am sure that those exist. This is probably Alan Paterson’s field rather than mine, but we have considerable experience of people being hesitant. I take your point, though, that that is anecdotal. Those fields were reviewed in “Paths to Justice Scotland”. Alan Paterson probably remembers more about that than I do.

Professor Paterson

“Paths to Justice Scotland” was based on a large-scale national random sample of people’s experience of what we called justiciable problems. We gave people a list of 60-plus possible problems, none of which mentioned the word “law”. We asked them, for instance, whether they had had a problem with sick pay or holiday pay after they had fallen down stairs or had some other accident—a driving accident, for example—and what they had done about it. Who, if anybody, had they turned to? Why had they done this rather than that? You will not be surprised to hear that we received evidence that people were being put off by the fear of costs. Although such a fear is not necessarily realistic, sometimes it is. The fact is that litigation is very expensive for an ordinary person. Most lawyers would not advise individuals to embark on it, because the outcome is not always predictable and the process can be very expensive. People are therefore right to have that fear.

The research in “Paths to Justice Scotland” has been followed by 35 studies in 26 countries around the world, all of which have produced similar results. The “Paths to Justice” work in England has been developed to show the distribution of justiciable problems, we have done a little more work in Scotland and there is some evidence to be had in the crime and justice survey. We have no reason to believe that people are not put off by a fear of costs, and they should be.

Thomas Docherty

We are regularly asked whether we have done research on the legal experience of consumers in Scotland. Indeed, I have had that conversation as part of Esther Roberton’s review, and we would very strongly suggest that research on the consumer experience be commissioned for that review. Frankly, I find it a bit odd that the review’s starting point has not been the undertaking of proper, thorough research. The committee might take up that issue with Ms Roberton.

Liam Kerr

Time is short, so I am going to fire a number of questions at you about regulation, which I am interested in, and I would appreciate it if you could keep your answers short. Do the claims management companies that are represented on the panel have to meet any regulatory standards? If so, what is the regulating body?

Martin Haggarty

The answer is no. England and Wales have had claims management regulation for some time now; indeed, my own company registered under it even though we did not necessarily have to. We had had the odd English case, so we thought that we should stay well inside the areas of law that had been touched on, even though the volumes were not sufficient to meet the requirements. At the time, I figured that that was morally right and that it gave the client some reassurance about the professionalism and integrity of the company that they were dealing with. Other than that, there is, at present, no regulation of claims management activities in Scotland.

Liam Kerr

If no one else has anything to add, I will move on.

Sheriff Principal Taylor said that most claims management companies are “fictions”, as they are actually subsidiaries of law firms. Do you share that view? Are most claims management companies in Scotland subsidiaries of law firms, or do they often stand alone?

Martin Haggarty

I do not think that that is the case in numerical terms, but it might well be the case if you are talking about the number of claims that are being processed. A couple of higher-profile law firms have their own claims management activities instead of being, in effect, independent of the process. I might be wrong about that, but that is my understanding.

Thomas Docherty

That is not our view, and I know that it is not the view of the Association of British Insurers. We think that Sheriff Principal Taylor misspoke the week before last. As I said, 16 CMCs have registered with Companies House in the past year alone.

The key point is that, regardless of whether a CMC is attached to a law firm, the regulation should apply in exactly the same way. That is why we strongly support the correspondence that the committee has been having with the Scottish Government about whether the Financial Guidance and Claims Bill should be extended to Scotland to ensure not only that the same rules operate for claims management companies that are attached to law firms and those that are not but that the same rules operate in England, Scotland and Wales. To be frank, that would go a huge way towards solving the problem.

11:15  

Liam Kerr

I want to explore that. I think that you are telling me that, in the past year, 16 claims management companies have registered at Companies House but they are not required to be regulated in any way.

Thomas Docherty

That is correct.

Liam Kerr

If I reflect your opinion correctly, Mr Docherty, you would say that claims management companies should be regulated in Scotland.

Thomas Docherty

Absolutely.

Liam Kerr

Do the rest of the witnesses agree with that view?

Witnesses indicated agreement.

Liam Kerr

For the record, the panel uniformly nodded.

Professor Paterson

So does Sheriff Principal Taylor.

Liam Kerr

Sheriff Principal Taylor also talked about only regulated bodies being able to charge referral fees. Mr Haggarty spoke about such fees earlier. I presume that he agrees that only regulated bodies should charge them and, therefore, that his company should be a regulated body.

Martin Haggarty

Yes. I would not have a problem with that at all.

Liam Kerr

Will you become a regulated body?

Martin Haggarty

Yes, absolutely. If the decision is made that claims management activities should be regulated in Scotland, we will be up at the front of the queue.

Liam Kerr

What if that decision is not made?

Martin Haggarty

With whom would we register? If there is no regulation, there is nothing to sign up to.

Liam Kerr

That relates to my final question, which I put to Mr Docherty but which you should all feel free to answer. If I engage a claims management company and something goes wrong in whatever way, to whom do I have recourse for my complaints at the moment? Where can I go?

Thomas Docherty

I am the one member of the panel who is not a lawyer, so I defer to the lawyers on that.

George Clark

We recognise that we are unregulated, but our firm was formed by a solicitor on the same basis as all law firms, with the same accounting process and professional indemnity requirements. We mirrored those. In 30 years, we have had, I think, two complaints, which we agreed to let the Law Society adjudicate, and we were found to be not guilty of anything of which we were accused.

We let the Law Society regulate us. It has a regulatory body that resolves conflicts and disputes. From giving evidence to Sheriff Principal Taylor, I know that he did not think that that was a suitable way forward, but it is legal services by another name, so why not let the Law Society regulate claims management activity?

Liam Kerr

I know Quantum Claims pretty well from my previous career, so I know that it runs itself reputably and well. However, there are 16 other firms that we do not know and, if I have a problem with them, I have no recourse. Your suggestion, Mr Clark, is that the Law Society should be named as a regulatory body for claims management companies.

George Clark

I see no reason why not. Claims management companies should adopt the same professional standards as solicitors. I am not afraid of that. There is a body already constituted to deal with that. Okay, it is a self-regulatory body; nonetheless, it is and has been the custodian of legal services in Scotland for many years, so why not let it do that? It is not a huge arena. If there are 16 companies, that is not a huge number. There are hundreds of solicitors firms, so it would be a relatively small part of the Law Society’s remit.

Paul Brown

If the same regulatory environment were to be introduced for claims management companies as for solicitors, the Scottish Legal Complaints Commission, which was set up by statute, would have to be brought in as well. I presume that that process would be fairly complicated, although I am sure that it could be done. However, we need to remember that solicitors are regulated for different purposes by two bodies. The Scottish Legal Complaints Commission has fairly substantial teeth to deal with inadequate professional service.

Thomas Docherty

There is a reason why the Financial Guidance and Claims Bill is moving the regulation of claims management companies in England and Wales from the Ministry of Justice to the Treasury. We just touched on some of it.

We are not opposed to claims management companies being regulated through legal regulation, but we are a bit sceptical about how close the relationship is between some of them and the law firms of which they purport to be part. The key principle is that, regardless of the regulator, every claims management company should operate to the same standard. If some are regulated by the Law Society and some are regulated by the Financial Conduct Authority, we will not die in a ditch over that. The principles of regulation are more important.

Martin Haggarty

I agree with that. To touch on Mr Kerr’s initial point, at the moment, claims management activity is a service industry and, as for any other service industry, there is a means to complain about service. In the case of my company and others that I know of, if somebody makes a complaint, it is dealt with by a director of the company. If they still cannot receive satisfaction, customers will find a way of going to a solicitor—ironically—the Legal Services Agency or a citizens advice bureau to take advice on it.

In all the years that we have been operating, I have seen very few genuine complaints. We have had a couple of instances in which people have even gone to the papers and their complaints have been found to be groundless. Nevertheless, people find ways of making their voices heard.

It does not make a great deal of difference whether regulation becomes a Law Society matter or sits with the Ministry of Justice, as was the case when we registered with the English side of regulation. As long as we are all judged by the same standards, anybody who operates properly and reputably has nothing to fear.

Professor Paterson

The short answer to Liam Kerr’s question—who regulates claims management companies at the moment?—is that it is trading standards services, if anybody. I will not comment on whether the Law Society should do it.

If you are going to regulate claims management companies, which you should—I agree with Sheriff Principal Taylor about that—there is an argument that it should be done on a UK-wide basis because the problem that we have now is companies moving up to Scotland. We do not want a situation in which one lot of companies is regulated by one set of regulators and rules and the other lot is regulated by another. The argument for UK-wide regulation sounds quite strong. You should remember that the reason why claims management companies were set up in the first place is that there were problems in the regulatory environment, from their perspective, in that damages-based awards were not allowed.

Referral fees are also a problem. On the Taylor review, there was a huge fight about them. England has swapped. There were places where it allowed referral fees and then it banned them. In the end, Sheriff Principal Taylor came to the conclusion that there would be ways around referral fees. That is, ultimately, why we came to the situation that we arrived at. A solicitor has to do something if they are going to get a referral fee. It is not a reward for giving something away; they must have prepared and done some real administrative work. The client must also fully understand what the referral fee is about and why it is being paid. Referral fees remained contested in Sheriff Principal Taylor’s report.

Mary Fee

Good morning. Much of what I was going to ask about regulation has been covered. It is clear that the witnesses agree that claims management companies need some form of regulation. Is the bill a missed opportunity to explicitly name claims management companies?

Thomas Docherty indicated agreement.

Mary Fee

Mr Docherty is nodding. Does the rest of the panel agree? The witnesses will be aware of the Scottish Government’s view that it could piggyback on the Westminster regulation. Do they agree that the bill is a missed opportunity that could have been taken here?

Thomas Docherty

We are not wedded to that being done through the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill or the bill that is currently going through Westminster—although the clock is ticking, and I think that that bill is about to have its third reading in the House of Lords; I suspect that it will go to the House of Commons in the new year. We are not saying that it has to be done that way, but it would be astonishing if, in the new year, we found that we did not have a mechanism in process to regulate.

Mary Fee

Do any other panel members have a view on that, or is everyone in agreement?

Martin Haggarty

We have mentioned that, during the past year, 16 claims management companies have registered at Companies House. When my firm was registered with the Ministry of Justice for English and Welsh-related activities, we were one of roughly 2,800 registered UK claims management companies at that time. Bear in mind that few Scottish firms bothered registering, as there was no requirement to do so. To keep a sense of proportion, 16 claims management companies in Scotland is a very small number.

I agree that we should be regulated, but I do not think that that is anything to panic about. I do not know the current number of claims management companies in England and Wales—I do not receive the memos any more—but, as I said, there were approaching 2,800 registered UK claims management companies when we registered. If we assume that Scotland has roughly 10 per cent of the UK population, we could expect there to be around 280 such firms in Scotland. We are talking about 16 newly registered firms, and there were very few existing firms before that, so a sense of perspective should be retained.

Mary Fee

The Scottish Government has argued that claims management companies are covered by the definition of a provider of “relevant legal services” in the bill. If all of you agree that claims management companies should be regulated, am I to suppose that you do not agree with the Scottish Government’s view?

Martin Haggarty

I do not think that you can say that we provide legal services per se. We provide access to legal services. We provide assistance in finding the right path to justice, but we do not provide legal services, so that catch-all does not really apply.

Mary Fee

If there is a delay in the regulation of claims management companies, however long that might be, is there the potential for problems to occur for people who are looking for services and do not know where to go? Earlier, we spoke about cowboy companies. Is there the potential for cowboy companies to slip into a gap that is provided before regulation happens? I see that Mr Docherty is furiously nodding.

Thomas Docherty

Absolutely. That is why both Which? and the ABI are in exactly the same place on that issue. It is common sense that, if England and Wales have a tighter regulatory framework, less scrupulous firms will see that Scotland does not have the same regulatory framework. If we wait for Esther Roberton’s review to be published and then for a bill to come forward and be enacted, there could be a significant period of time in which there is a vacuum in regulation. That is why that needs to be done through either the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill or the Financial Guidance and Claims Bill.

Mary Fee

Thank you. That is helpful.

The Convener

A couple of panel members have referred to Esther Roberton’s review of the regulation of legal services, which will certainly touch on aspects of the bill that have been of concern to us. Given that there seems to be a lack of progress with that review, I think that the committee should write to ask for an update of exactly where things stand, and perhaps make specific reference to the aspects of the review that are pertinent to the bill.

Ben Macpherson

I want to return to an issue that was raised at the beginning of the evidence session by Paul Brown and Thomas Docherty and in the written submission from Which? It concerns part 4 of the bill, on group proceedings. There was some discussion about this earlier, but I would like to probe further the alternatives of an opt-in system and an opt-out system. Mr Docherty, I know that you argued in your written evidence and your earlier contribution that you would prefer an opt-out system. Will you explain why you see that as more advantageous?

11:30  

Thomas Docherty

We are talking specifically about claims in which the detriment to an individual is relatively small but there is a large number of claimants. If we have an opt-in mechanism, Which?, a law firm or anyone else who wishes to act on behalf of the claimants would have to bear all the up-front costs and resource commitment in reaching out and trying to find everybody who might be affected by the class action. They would have to advertise widely and then demonstrate to the courts that they were suitable to represent those people. That would be fine if the individual claim was worth a huge amount of redress or compensation but, if it was a relatively small amount of money, with the best will in the world, Which?, law firms or anybody else would really struggle to justify that.

We have had some interaction with the Scottish Government on the issue, and we are puzzled by its argument that it is too difficult to come up with an opt-out system. We have such a system under the Consumer Rights Act 2015. It operates effectively for two reasons: because people understand the mechanisms that they have to go through to demonstrate that they are acting on behalf of a class of people and because the bar has not been set at a point that means that vexatious claims have been made.

We will not see “Boston Legal” or “LA Law”-style mass class actions; we are talking about a relatively small number of cases. As we said in our written submission, we have brought cases, such as the JJB Sports football shirts case, in which we were not able to represent everybody who was affected because they were under the old opt-in system. In the past couple of years, we have had the opt-out system, under which there have been only two cases so far at UK level—the MasterCard case and the mobility scooter case—both of which are currently not being proceeded with because the judge involved said that the threshold had not been met.

An opt-in system will not do anything to help the consumer on individual small amounts of money. Therefore, we have to have an opt-out system, and that approach works at UK level under the Consumer Rights Act 2015.

Ben Macpherson

It is interesting to hear that from the consumer perspective.

Mr Brown, you touched earlier on the community perspective on the difference between an opt-in system and an opt-out system. That interests me as a constituency MSP as well as a member of the committee. Will you elaborate on that?

Paul Brown

The petition procedure under the Public Health (Scotland) Act 1897 was definitely an opt-in procedure, and it worked well for a group of people concerned about disrepair in a block of housing. However, I take the point that, in any case that is more diffuse, the people who are leading it will have big expenses. In a community situation in which people know one another and possibly know the social media to look at, things will take off but, if a case has a national basis or small amounts of money are involved, I can certainly see that there would be problems. The New York case of which I was a beneficiary was an opt-out case. That worked well.

It has taken an inordinate amount of time to get to where we are, and it is a significant step that we are discussing group proceedings. It would be a pity if one went for the most ambitious arrangement and that resulted in further delay. Therefore, although I am entirely in favour of an opt-out system, I am principally in favour of there being some form of group proceedings, which I am sure will help some people. I can envisage people taking up quite major issues.

The other issue is that the Court of Session will have exclusive jurisdiction. That might be an impediment. I am not sure that anybody has ever suggested that group proceedings should be available in the sheriff court as well. I cannot see any reason why. However, that Court of Session jurisdiction will be an impediment. The need to have Edinburgh agents and counsel or a solicitor advocate will mean that the costs will be a lot higher. That is another issue that could be considered but, as I said, my principal concern is that the system happens.

Ben Macpherson

So the opt-in system could be of benefit to communities.

Paul Brown

Yes, I think so.

Ben Macpherson

However, you are principally in favour of an opt-out system.

Paul Brown

I could see communities taking up group actions almost immediately. Communications are cheaper than they were but, nonetheless, there is an issue. Therefore, if someone were to ask me, I would be in favour of going for the most ambitious arrangement but not if it took five years for the rules to be produced.

Ben Macpherson

I am glad that you said that, because my next point concerns the fact that it is envisaged that the detailed court rules will be developed in consultation with stakeholders. Are you happy with that approach?

Paul Brown

In principle, I suppose that the more that is in the bill, the better. However, that is okay as long as there is consultation. One possibly needs to encourage as open consultation as possible. It will be fairly complex. There also needs to be consultation on asking the Lord President to say which charities get pro bono legal expenses.

It is not part of the Scottish legal tradition to consult widely about rules but, with encouragement, I do not see why it should not be done. People will think, “Ah, rules. Just technical stuff,” but there will be substantive and major issues to do with implementing such remedies that need to be discussed in as open a way as possible.

Ben Macpherson

So you are generally satisfied with that approach and that an opt-in system would make a difference.

Paul Brown

Yes, it would make a difference.

Thomas Docherty

It is interesting that, in the policy memorandum, the Scottish Government admits that all that the consumer stakeholders argued for an opt-out system and they have been ignored. If you asked me whether I had a great deal of confidence in the Scottish Government’s promise on stakeholder consultation, I would say that, latterly, I am slightly sceptical. We have talked to the Scottish Government, and it has said that it would be surprised if we were not asked for our views as part of the working group. That is not the same as a cast-iron guarantee that consumers will be listened to.

Do not get me wrong: we do not oppose an opt-in system. It is better than nothing, but it will do nothing for your constituents, Mr Macpherson, if they are in a big case with a low individual value, such as the dairy case or the JJB Sports case. My glass is about one third full on the matter, to be honest.

Ben Macpherson

Thanks very much for both of your answers. That was really helpful. It is important that we focus on that part of the bill as well as the other parts of it because that is a major step forward in Scots law.

Professor Paterson

I endorse what Mr Docherty said. An opt-in system would be helpful, but an opt-out system has much more impact, as the Americans have shown. In the pre-Uber days, it was found that New York yellow taxi cabs were overcharging across the board. The Americans did not decide to get everybody who had ever used a New York taxi in the past five years to opt into an action; they included them all and brought the action. Damages could not be paid to 5 million people, so they forced the New York taxi companies to lower their fees for the next two years or something. Going for an opt-out system has a much bigger impact for consumers.

The Convener

At the beginning of our evidence-taking session, a number of witnesses referred to class actions, but the bill refers to “group proceedings”. Is there a difference?

Professor Paterson

No.

The Convener

We take on board the point that, in looking at the regulation, the referral fee issue is a little grey. I again highlight Mr Docherty’s written submission, which has some pretty eye-watering figures for some of the fees charged by CMCs—£3 billion to £5 billion between April 2011 and November 2015. The point was made that that money

“could have gone directly to consumers”.

That is another aspect that is in the written evidence, but we do not necessarily have to take any oral evidence on it now.

Professor Paterson

I apologise if we are going to come on to this, but one of the key points about group actions is how they are funded. Paul Brown and I would like to say something about that.

Group actions are important, but they will work only if we can find a way of funding them. Legal aid might be one way, but it is set up for individuals. There are examples in England and Wales, where there is a kind of group action procedure. There was a big litigation on behalf of old-age pensioners after it was alleged that a drug had gone wrong. Half of the thousands of people who were affected were eligible for legal aid and half were not. For a while, it looked as though the half who were eligible were going to get their claim dealt with because legal aid would cover them and the half who were not eligible were going to lose out and would have to be excluded from the action. In the end, a millionaire came out of wherever and paid for the fees of the ones who were not eligible for legal aid.

That is no way to run a system. We have to allow legal aid to operate in group proceedings, but that will require the regulations to be changed to allow groups to be assessed.

The Convener

Thank you for that clarification. We have overshot our estimated time, but I will allow a final comment.

Paul Brown

Group legal aid has always been a major problem. That is not only to do with civil litigation; it is also to do with environmental matters. There is a problem with one person representing a group of people and the Scottish Legal Aid Board saying that the circumstances of the group need to be assessed, as well. There is a need to think outside the box on that issue.

The Convener

That concludes our line of questioning. I thank the panel of witnesses for a worthwhile evidence-taking session.

I suspend the meeting briefly to allow for the changeover of witnesses and a comfort break.

11:42 Meeting suspended.  

11:47 On resuming—  

The Convener

Agenda item 5 is our sixth and final evidence-taking session on the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill. I refer members to paper 3, which is a note by the clerk, and paper 4, which is a private paper.

I welcome to the meeting Annabelle Ewing, Minister for Community Safety and Legal Affairs, and the following Scottish Government officials: Hamish Goodall, civil law and legal system division; and Greig Walker, solicitor, directorate for legal services. I believe that the minister wishes to make an opening statement.

The Minister for Community Safety and Legal Affairs (Annabelle Ewing)

Good morning, convener and committee members. I am grateful for the opportunity to make some opening remarks. Before doing so, though, I felt it appropriate on this occasion to remind members of my entry in the register of members’ interests. It shows that I am a member of the Law Society of Scotland in that I hold a current practising certificate, although I am not currently practising.

We know from Sheriff Principal Taylor’s review of the expenses and funding of civil litigation in Scotland that the potential costs involved in civil court action can deter many people from pursuing legal action even if they have a meritorious claim. There is therefore a need for more certainty as to the cost of exercising their rights. Three major reforms proposed in the bill will make the cost of civil litigation in Scotland more predictable and therefore increase access to justice: sliding caps on success fees; allowing solicitors to offer damages-based agreements; and qualified one-way costs shifting.

The first major reform, the introduction of sliding caps on success fees, has generally been welcomed, and I am minded initially to set the levels at those suggested by Sheriff Principal Taylor in his report. The second major reform will allow solicitors to offer damages-based agreements directly rather than through claims management companies. Damages-based agreements are very popular as they are simple to understand; basically, the client pays nothing up front. Instead, they pay a percentage of the damages awarded or agreed to the provider of the legal services, with the solicitor responsible for all outlays in personal injury actions. As Sheriff Principal Taylor stated in his evidence, one solicitor-owned claims management company has entered into 17,600 new damages-based agreements in the past three years and 23,800 in the past five. That might go some way to explaining the rise in the number of claims in Scotland over the past five years, which others giving evidence have flagged up.

On the subject of claims management companies, I appreciate that concern has been expressed that the bill makes no provision for their regulation. I am therefore pleased to be able to tell the committee that appropriate amendments to the Financial Guidance and Claims Bill have been tabled at Westminster and are expected to be voted on later today at the bill’s third reading in the House of Lords. Claims management companies will therefore be regulated in Scotland more quickly than was first anticipated.

The third major reform is the introduction of qualified one-way costs shifting for personal injury cases, which will level the playing field as the vast majority of defenders are well resourced and the majority of pursuers are of limited means. Although very few claimants are pursued for expenses by successful defenders, there is always a risk that a pursuer might be liable for considerable expenses and possibly bankruptcy if they lose. Sheriff Principal Taylor confirmed that that is a real fear that stops too many meritorious claims from getting off the ground.

Qualified one-way costs shifting removes the risk as long as the pursuer and his or her legal team have conducted the case appropriately. The test of when the benefit of qualified one-way costs shifting can be lost has been the subject of varying views, as can be seen in the evidence that has been given. Defender groups have suggested that the bar is too high and pursuer groups have contended that the bar is too low. Both groups have expressed concerns that the provisions as drafted in section 8(4) will lead to satellite legislation. We will therefore consider amendments at stage 2 to make it clear that it is the tests envisaged by Sheriff Principal Taylor that are to be applied.

The bill also makes provision for third-party funding. Sheriff Principal Taylor recommended that all third-party funding be disclosed; however, only venture capitalists who have only a commercial interest in the case will be liable for awards of expenses. There have been concerns that awards will be made against trade unions and legal service providers. Trade unions do not have a financial interest in the proceedings, so they will not be subject to awards for expenses under the bill as drafted. We are considering whether an amendment is necessary to make it clear that providers of success fee agreements will not be subject to the provision.

Finally, I want to briefly mention the issue of group proceedings. As the committee will have seen, the proposal to introduce class actions to the Scottish courts has found broad support. I am convinced that the way forward is to introduce an opt-in system given that when introducing a new procedure in the Scottish courts it is prudent to select the option that will be easier and quicker to implement. However, that does not rule out introducing the opt-out procedure at a later date, and we will keep the issue under review.

That concludes my opening remarks. I look forward to the committee’s questions.

The Convener

Thank you, minister. We will move straight to questions, starting with John Finnie.

John Finnie

Good morning, minister, and thank you for your opening statement. We are told that the bill’s objective is to increase access to justice, but a number of witnesses have suggested to us that such access is not a problem. Why is the bill necessary, and how will it improve access to justice?

Annabelle Ewing

It is important to go back to the bill’s first principles and reiterate what happens when someone tries to bring a personal injury action. The pursuer will want to know first of all what their solicitor will charge them, but it is also important for the pursuer to know their potential liability for the defender’s expenses if they lose. Such a situation introduces considerable unpredictability with regard to the bill for the pursuer in trying to assert what they view as their legal rights. The bill is designed to deal with each of those areas of unpredictability in turn and to increase the funding options available to a pursuer seeking to take a claim through the courts.

In terms of greater predictability and certainty as to what a pursuer’s solicitor could charge the pursuer, we have taken Sheriff Principal Taylor’s approach and proposed a sliding cap on the percentage that can be taken by way of a success fee from any award received. That will be done on the basis set out by Sheriff Principal Taylor in his report, which is a maximum cap of 20 per cent for the first £100,000, although the solicitor would not be required to charge the maximum; a proposed cap of 10 per cent for the next £400,000; and a proposed cap of 2.5 per cent for sums above £500,000. That gives clarity to the matter.

With regard to outlays in personal injury actions, we propose in the bill that they be met by the pursuer’s solicitor, which also provides clarity. As for the issue of liability for a defender’s expenses and what has been called the David versus Goliath asymmetric relationship between the pursuer and the defender in personal injury actions, our proposal, which again takes up Sheriff Principal Taylor’s recommendation, is for what is called qualified one-way costs shifting in personal injury actions. I know that the committee is now expert on that term of art, so I do not need to belabour the point.

12:00  

That is what we propose for personal injury actions, with the important word here being “qualified”. It is not an absolute but, assuming that the pursuer and their legal team have acted appropriately, the benefit of qualified one-way costs shifting should not be lost. It therefore gives predictability and certainty, and it removes the fear that by seeking to raise a court action the individual could be sequestrated if found liable for the defender’s expenses.

As for the desire to create some equity in funding between the pursuer and the defender, the vast majority of cases are, as I have mentioned, seen as a David and Goliath battle involving a defender, who is either an insurance company or backed by an insurance company, and we expect the key principles underpinning the legislation to reflect that fact.

Another issue that I should mention is that the solicitor profession will be allowed to enter into damages-based agreements for the first time. All in all, we feel that the proposals allow potential pursuers to consider carefully whether they wish to pursue their rights in the courts by way of a civil claim instead of not pursuing a case simply because of worries about the cost and potential sequestration.

John Finnie

Thank you for that detailed answer. I think that there will be specific questions from my now fellow experts on the subject, but I want to stick with the generalities. We have had a lot of anecdotal evidence about the much-used phrase “access to justice”, but there seems to be a dearth of up-to-date research on that. Will you commit to doing such research?

Annabelle Ewing

I have read the committee evidence carefully. The issue of statistics has come out in evidence; the number of claims recorded has certainly risen, but the number of cases being litigated has actually remained more or less the same since 2009-10. It is important to bear in mind that the civil justice statistics show a slight drop in the number of personal injury cases raised in 2015-16 compared with the figure in 2009-10. The number of personal injury cases before the court has remained more or less constant, although there has been an increase in claims, because many claims do not go anywhere or are settled long before they get to the courts.

On that basis, I am not necessarily convinced that the world is very different now from how it was when Sheriff Principal Taylor was conducting his two-and-a-half-year review; his review was long and thorough and he had an impressive reference group who assisted him in his work. We also proceeded with a consultation on the bill, as we are required to do, in the first half of 2015; that was more recent, and at the time, more responses favoured proceeding with our key proposals than opposed them. We therefore feel that we have as reasonable a picture as we can get. At the end of the day, raising a civil action is a permissive choice on the part of the pursuer, and it is not something that we can anticipate in any great numbers.

When discussing in evidence whether there should be a delay to wait for the regulation of claims management companies through some vehicle—which is an issue that we will probably get on to—a representative of the Law Society of Scotland said that she would rather get on with the bill. I think that there is a feeling among key stakeholders that we just want to make some progress.

The Convener

I would be grateful, minister, if you could answer specific questions quite briefly, as we will get into more detail in later questions.

John Finnie

Finally—and I shall make this brief—trade union respondents highlighted the fact that court fees would remain a barrier for members pursuing personal injury claims. They proposed a QOCS-like solution, in which court fees would be paid only at the end of a case that the defender lost. Will the Scottish Government commit to investigating that?

Annabelle Ewing

You might be aware of the on-going consultation on court fees, which started in October and is due to close on 12 January. Those who wish to look at that issue have the opportunity to do so.

If court fees are not on a pay-as-you-go basis, somebody else—the Scottish Courts and Tribunals Service and the Scottish taxpayer—will have to pay them. That is something to bear in mind. Sheriff Principal Taylor’s report quoted Lord Justice Jackson in England in making the point that 100 per cent cost recovery was never an accepted principle in the law of costs. It was felt that some discipline should be instituted in the system as a deterrent against frivolous claims and to keep costs to a minimum. As I have said, a consultation on court fees is on-going, and I imagine that some of those points will be raised in that context.

Rona Mackay

In your opening statement, you said that you were minded to approve the caps on success fees recommended by Sheriff Principal Taylor. Would that be done through secondary legislation?

Annabelle Ewing

We feel that that would be the better course than putting them in primary legislation, as it would give us the flexibility to keep them under review and to amend them in due course where appropriate. As I have indicated, we intend to proceed by way of secondary legislation, at the levels proposed by Sheriff Principal Taylor. Any such instrument would be affirmative, so there would be consultation on it.

Rona Mackay

Moving on to damages-based agreements and solicitors’ conflict of interest, I note that Sheriff Principal Taylor recommended that a solicitor be required to write to a client, outlining all the funding options and giving reasons for their particular recommendation. However, it is unclear how those matters will be taken forward. What additional steps is the Scottish Government taking to address the issue of conflict of interest in damages-based agreements? Would that happen through secondary legislation or with the Law Society of Scotland?

Annabelle Ewing

Damages-based agreements would be a matter for the Law Society, which would need to look at the practice rules that are applicable to members of the solicitor profession. I understand that, according to Professor Alan Paterson, the Law Society has set up a working group to look at the issue.

I know that your question was about damages-based agreements, but it is worth pointing out that with speculative fee agreements, which have been in place for 25 years now, it has been accepted that a theoretical conflict is possible and that that has not precluded the operation of such agreements in practice. I think, therefore, that it will be fairly straightforward to come up with practice rules that secure the objective that is being sought.

Rona Mackay

At a general level, what influence does the Scottish Government have over the Law Society in this area? Can you direct or influence it?

Annabelle Ewing

As the Law Society is a representative body, it would not be appropriate for me as minister to direct it on practice rules, but I regularly meet its representatives—its chief executive and president—for wide-ranging discussions. I am always happy to raise issues, but I do not think that it is for the Scottish Government to direct the Law Society on particular practice rules that it might be considering.

Fulton MacGregor

I want to ask about compensation for future loss, which we know can be important in meeting pursuers’ future care needs. Does the bill strike the right balance in allowing part of the award to be taken as a success fee?

Annabelle Ewing

I read that part of the Taylor review and the bill very carefully, and it is important to recall why Sheriff Principal Taylor felt that that would be a sensible way forward. It was considered that there was the potential to incentivise delay—in other words, people might seek to delay settling or bringing the case to a conclusion as more loss would be attributable to the past than to the future. It was felt that the proposed approach would make civil litigation more predictable, simplify the process and ensure greater access to justice. It was also felt that a lot of time could be spent trying to attribute past and future loss in the many cases, particularly those with settlements, that would not reach the £2 million mark to which Sheriff Principal Taylor referred, where the issue is very clearly about future loss.

It is important to point out that safeguards in this respect have been written into the bill. You talked about striking a balance, and such a balance has been recognised as necessary here. In the event that the future loss element of damages in a case exceeded £1 million, the safeguard would be that the court’s approval would be required to treat that as a lump sum from which the success fee could be taken. Alternatively, with settlements, the safeguard could be to require an independent actuary to conclude that the payment should be made by way of a lump sum.

Lord Justice Jackson, who took an equivalent look at the costs and funding of litigation in England and Wales, concluded that the future loss element should be ring fenced. I understand from his evidence to the committee and his report that Sheriff Principal Taylor thinks that Lord Justice Jackson might have got cold feet after making that decision and felt that he might have responded to particular lobbying. I think that we have struck the right balance between two imperatives, and that is how we have drafted the bill.

Fulton MacGregor

Do you see any merit in the solution suggested by the Faculty for Advocates of a taper in the amount that can be taken as a success fee?

Annabelle Ewing

We have a quite straightforward taper. In claims of more than £500,000 up to £1 million, which will—quite rightly—not require court approval or independent actuarial approval, the rate will be 2.5 per cent. That is quite a good safeguard, and our approach is more straightforward than that suggested by the Faculty of Advocates.

Mairi Gougeon

My questions are on qualified one-way costs shifting. Your response on that to John Finnie’s earlier question was interesting because we heard in evidence about one of my fears. We hear about the David and Goliath scenario, but in personal injury cases the pursuer may not always be up against a larger body. Evidence from the Faculty of Advocates suggests limiting QOCS to cases in which the defender is insured or is a public body. How do you respond to that? Have you taken cognisance of it?

Annabelle Ewing

I noted with interest that debate and what Sheriff Principal Taylor said in his evidence at the end of October. He made the important point that if there is a straw man—a defender who is not the insurance company or is not backed by an insurance company—what is the point of raising the action? No money will be recovered. That is a factor to bear in mind.

The fundamental objective of introducing qualified one-way costs shifting is to introduce predictability to the cost equation for a person who is considering taking an action and enforcing their rights. The predictability element for a person who has a no-win, no-fee and damages-based agreement is that if they lose, they do not pay anything. If they win, the arrangements are—as we know from the provisions of the bill—that the pursuer would meet the outlays. For the predictability objective of the bill, it is important that we maintain that position.

It was suggested by Sheriff Principal Taylor that, if we were to seek to make any qualification, that may not preclude circumvention by the defender, such as a defender who should get insurance but who has chosen not to, or who seeks a much bigger excess than in the normal commercial approach.

It is important to remember the evidence that was cited in Sheriff Principal Taylor’s report, which referred to work that had been done for Lord Justice Jackson’s report: of the sample of tens of thousands of cases, only 0.1 per cent involved cases in which the defender had recovered expenses. It is important to bear that in mind.

12:15  

Finally, there is qualified one-way cost shifting in England and Wales, which was introduced in legislation in 2012. The UK Government tabled post-legislative scrutiny of that legislation at the end of October, during which no significant concerns were raised about QOCS. Taking all those factors into account, we have struck the right balance in the bill.

Mairi Gougeon

I thank you for highlighting the post-legislative scrutiny in England and Wales because I was not aware of that.

We also heard from witnesses about their concern that the tests for losing the QOCS protection lacked clarity and may lead to further litigation. What are the minister’s thoughts on that? There was a particular concern that the tests do not implement the Taylor recommendation on Wednesbury unreasonableness.

Annabelle Ewing

We have listened to the evidence that was presented in the recent submissions, and we intend to reflect further on the matter for stage 2. We want the bill to be as clear as possible, and we accept that clarity could be improved. Regarding the general thrust of amendments, which have still to be framed, our commitment was to introduce the test as it was envisaged by Sheriff Principal Taylor, which would have regard to the Wednesbury case. Suggestions have been made in evidence to the committee about phraseology; I am not in a position to say exactly what it will be. We are definitely seeking to implement what Sheriff Principal Taylor had in mind, in that regard.

Mairi Gougeon

That was helpful. Thank you.

Sheriff Principal Taylor recommended that QOCS protection should be lost in an additional scenario—when a case is summarily dismissed. He sees that as a protection against spurious claims. Is that something that you have taken into consideration and will you look at that?

Annabelle Ewing

Yes, we will look at that. Sheriff Principal Taylor made a fair point and we will reflect on how best the suggestion can be implemented.

Liam Kerr

I would like to carry on along the same lines as Mairi Gougeon. The bill does not deal with tenders. When he appeared before the committee, Sheriff Principal Taylor suggested that the bill should make it clear that failure to beat a tender would mean an exemption from QOCS. Does the minister accept that recommendation? If so, will she lodge amendments to deal with it?

Annabelle Ewing

Tenders are normally dealt with as a matter of court rules. I understand that the costs and funding committee of the Scottish Civil Justice Council has been reflecting on the matter and will have a meeting on 4 December. We will get a better idea of what its thinking is on potential court rules to deal with tenders in relation to QOCS after that meeting.

Liam Kerr

Can I take that as meaning that there will potentially be an amendment?

Annabelle Ewing

It is clear there is a desire for a clearer picture of what would happen when a tender is not beaten and the impact vis-à-vis QOCS. Thus far, the issue of tenders has been dealt with by way of court rules; the relevant court rules body is examining the matter, and we will be interested to see what it proposes further to the work that it is doing.

Liam Kerr

Defender representatives who appeared before the committee suggested that QOCS would encourage a compensation culture. They highlighted additional steps that could be taken to protect against that, including fixed costs and pre-action protocols. The situation is different in England and Wales, according to the review to which the minister alluded. Can she outline whether the Scottish Government will take action? Did she consider such steps in drafting the bill? If so, why were they not included?

Annabelle Ewing

Sheriff Principal Taylor’s report refers to fixed costs and recommends that they be introduced for the new simple procedure—the amalgamation of summary cause procedure and small claims procedure. He also feels that that should be given time to bed down to see whether it will work in practice.

There is a mandatory pre-action protocol in place for claims up to £25,000 in the sheriff court. Pre-action protocols are a matter for court rules—the Scottish Civil Justice Council is the body that is designated to deal with such matters under the Scottish Civil Justice Council and Criminal Legal Assistance Act 2013. It is open to the council and its subcommittees to consider extending the mandatory pre-action protocol to different levels of claim threshold.

On compensation culture, it is fair to say that not all witnesses suggested that there is such a culture in England and Wales, and they do not feel that the bill will lead to such a culture. It is important to reflect that part of the evidence, too.

Liam Kerr

I will remain on the subject of compensation culture. Witnesses from several NHS boards suggested that there could be an increase in claims—which is, in some ways, the point of the legislation. Some boards have suggested that they do not have insurance to cover such claims and some have suggested that the increase in costs for clinical negligence claims would be very difficult to cover. Ultimately, an increase in budgets as a result of an increase in claims could have an impact on healthcare delivery. Do you have anything to say to those NHS boards about what I suggest are their legitimate concerns?

Annabelle Ewing

I am not aware of any NHS boards that do not have insurance. That would be quite worrying. I will check that with my colleagues, but I had thought that all boards would have insurance in place.

There are many factors. The committee is aware of the damages bill that was referred to in the programme for government, which we intend to introduce early in 2018. One of the elements of that bill will be to address mandatory periodical payment orders—that is where there is a catastrophic case in which it is necessary to make an arrangement for future caring arrangements and loss. Periodical payment orders allow that to happen, and the provision in the forthcoming bill will make that mandatory—in other words it will override the views of the parties to the case. At the moment, both parties need to consent to a PPO being granted.

Members will recall that the bill already provides for the fact that where there is a future-loss element and a PPO is recommended, the damages cannot be taken from that element of the future loss. That is an important safeguard.

To go back to some of the points to which I alluded in my opening remarks, if a client goes to see a lawyer and there is no prospect of recovering any money, the lawyer will not take on the case. A lawyer is also an officer of the court and is subject to various rules and regulations, including on not clogging up court time with vexatious cases. The mandatory pre-action protocol will also help in that regard. Finally, the benefit of cost shifting can be lost, although only in certain circumstances—it is not an absolute. We should bear all those factors in mind.

Liam Kerr

Perhaps my question was not sufficiently clear. I am saying that NHS witnesses have told us that there will be more clinical negligence claims, greater cost to the NHS and more pressure on budgets. Do you have a response to that?

Annabelle Ewing

Starting from first principles, if someone has a right to bring a claim, they have a right to bring a claim: it will be for the parties to settle in advance or for the courts to determine the rights and wrongs of the case. I am sure that Liam Kerr would not suggest that if there has been a wrong and a failure to act, there should be no remedy for the citizens of Scotland. If one has a right, one should be entitled to seek enforcement of that right through the courts and so have access to justice.

As I said, the periodical payment element in the proposed damages bill will have a role to play in that the success fee cannot be taken from the PPO. That will help matters.

Maurice Corry (West Scotland) (Con)

Good morning, minister. In respect of regulation of claims management companies, will you make a commitment that there will be no gap between the bill’s provisions coming into force and a regulatory regime for claims management companies being put in place?

Annabelle Ewing

I am not in a position to do that. As I said at the outset, we have tabled amendments to the UK Financial Guidance and Claims Bill that will be considered in the House of Lords today. If they are agreed to and the legislation is passed, an arrangement will be set up by way of secondary legislation. I am not in charge of UK Government secondary legislation and have no control over its timing, but I expect that, if there is a gap, it will not be unduly long. However, it is important to note that when it becomes clear that regulation is imminent, that will have a significant impact on the pretensions of claims management companies, in that regard.

The Convener

I think that the point, minister, is that you have control over secondary legislation here.

Annabelle Ewing

Absolutely—I have control over that. What I am saying is that there are two pieces of the picture: what happens with secondary legislation in London and what happens with it here. However, I also make the point that even if there were to be a short gap, there would nonetheless be a clear signal that regulation was coming down the line, which I think would be a big game changer.

Maurice Corry

Claims management companies have been recognised as a significant source of nuisance calls. We should bear it in mind that it has been determined that there is a significantly greater number of them in Scotland than in the rest of the UK. The Taylor review made recommendations including banning cold calling and having a requirement that only regulated bodies can receive referral fees. What steps are you taking to implement those recommendations?

Annabelle Ewing

I imagine that the Law Society of Scotland’s working group would wish to look at referral fees. The regulated bodies that are claims management companies will be a matter for the regulatory system under the Financial Conduct Authority, assuming that the regulations in question are passed and the legislation as a whole is passed at Westminster.

On Scottish Government action, jurisdiction over cold calls and texts is still reserved to Westminster, but the Scottish Government has been active in the area: we have set up a nuisance calls commission and we have been considering a number of pragmatic measures that can perhaps help. I believe that the Scottish Government has also set aside some funding to assist with call-blocking units for vulnerable groups.

There has therefore been activity on the issue on the part of the Scottish Government, but referral fees are a matter for the Law Society and, I presume, the FCA.

Mary Fee

I want to explore third-party funding in more detail. I am grateful for the comments on that in the minister’s opening remarks. You will know from our evidence sessions that trade unions in particular have expressed concern that they will be caught by the provisions on third-party funding. If I understood your previous remarks correctly, you intend to lodge amendments on the matter. Can you give us more detail on how the amendments will be framed so that there is absolute clarity on who will be caught by the legislation on third-party funding?

Annabelle Ewing

I am afraid that I cannot give you chapter and verse on what the amendments will say, because they are still to be drafted, as far as I am aware. However, we will seek to lodge amendments on third-party funding at stage 2 to address the concerns that Mary Fee has referred to, because we accept that we need to provide more clarity in that regard.

As far as trade unions are concerned, the current language of the bill’s provisions on third-party funders would not catch them. However, we will reflect on all the points that have been made about third-party funding in order that we are 100 per cent sure that our reading of the matter is correct. We feel that there is also an obvious lack of clarity in the bill in respect of legal services providers, so we will look at that, too. However, we understand the points that have been made: it is absolutely not the Government’s intention to catch trade unions or legal service providers in the third-party funding provisions. We want to ensure that the provisions will apply only to venture capitalists and commercial third-party funders.

Mary Fee

There will be a clear definition of who you are meant to be catching and not catching. Will you also make it clear what the requirements on third-party funders are compared to those for general funders?

12:30  

Annabelle Ewing

On your first point, as I say, the drafting is still to be done. I fully understand the concerns that exist, which will be reflected in the drafting.

On your second point, transparency was to be an obligation on all third-party funders, so that the court and the other side would know what was going on in relation to the funding, but there was a concern that the issue had been conflated a bit with the liability issue. We will look again at that matter and hope to make it absolutely clear that transparency is an erga omnes obligation, whereas the liability issue is for the commercial funders of the venture capitalists.

Maurice Corry

Why does the Scottish Government consider the employment of court auditors by the Scottish Courts and Tribunals Service to be a better guarantor of independence than the use of self-employed auditors?

Annabelle Ewing

Is it a better guarantor? It would at least provide the same guarantee of independence.

My reading is that the issues tend to be about accountability. For example, the freedom of information process is not available at the moment, so there are issues of transparency to consider as well as the need to ensure better consistency. A number of practitioners are concerned that the situation can be a bit of a lottery and say that clear guidance would be helpful.

On the status of the auditors, we advocate that there should be salaried positions in the Scottish Courts and Tribunals Service. Auditors should not make a private profit out of a public service, which is the position at the moment.

The provisions that we have introduced will ensure greater transparency and consistency in this very important part of the court process.

Maurice Corry

Can you offer us an assurance that the current sheriff court auditors will be able to work under their present regulations and arrangements until they choose to retire or until they reach a specific age?

Annabelle Ewing

I am not sure whether the member’s point is to do with the security of tenure, because the auditor of the Court of Session has security of tenure and that has been explained in the documents that we have submitted. The auditor of the Court of Session will remain in tenure until he reaches 65—which I think will be in 2022—or earlier if he decides to go sooner. The position is not the same for the sheriff court auditors, but they would be perfectly able to apply to be a salaried auditor in the Scottish courts and tribunals system. That option would be open to them. We will not be able to get new auditors in place, trained up and operating overnight, so there will be a bit of breathing space. As I say, they will be entitled to apply to become salaried auditors.

Maurice Corry

There will be some overlap until the new system is in place.

Annabelle Ewing

Yes, there will be transitional provisions. We are dealing with existing situations, and we must reflect that in the work that we are doing here.

Ben Macpherson

As the minister did, I remind the committee that I am a registered Scottish solicitor.

Good morning, minister. I have a number of questions about part 4 of the bill, which is on group proceedings. We have heard a variety of evidence, including last week, on the matter. You mentioned that an opt-in system would be easier to implement and more efficient in the short to medium term. You also said that you would be open to looking at an opt-out system in the future. Will you explain why the Scottish Government has chosen to reject the option of an opt-out procedure at this stage?

Annabelle Ewing

The debate on group proceedings has gone on for many decades. I had not appreciated that until I did all my homework—I think that the figure of 30 years was mentioned in that regard. We are keen to make progress, and it was considered that it would be more straightforward to start with an opt-in system.

It is a new procedure for the courts in Scotland, because we do not have group proceedings as such at the moment. We felt that the prudent and more pragmatic course of action would be to start with an opt-in system, which is more straightforward as there is a defined group of claimants—that is not the case with an opt-out system—so we will proceed on that basis. I think that it was Paul Burns of the Legal Services Agency who remarked that, although his preference would be an opt-out system, if it was going to take five years he would rather start with an opt-in system so that we could make some progress. The fact that it is more straightforward to start with an opt-in system is driving our pragmatic approach.

Scotland is a smaller jurisdiction than some of the others that, by way of comparison, have been mentioned in reference to the issue. Court rules will need to be drawn up, which is not an overnight process. However, it will be more straightforward, over a shorter period of time, to come up with a package of court rules that deal with opting in than it would be to try to come up with a package of rules for opting in and opting out. That would take much longer given how long it has taken for a final conclusion to be arrived at for various court rules. There will be a consultation on the court rules, so there will be an opportunity for people to comment.

That is our thinking behind putting in the opt-in procedure at this point. As the member said, we will keep the opt-out approach under review, but it is important to start somewhere and to make progress on that basis.

Ben Macpherson

That pragmatic management approach is important. What is striking in the evidence is that the opt-in procedure is more accessible for communities but there might be an administrative burden when it comes to consumer and environmental cases, so it is reassuring that the Government will keep an open mind on that. I agree that the opt-in procedure was welcomed last week. There was also a sense that an opt-out system would be preferable in the longer term.

Witnesses also highlighted that funding group proceedings could be a problem and that, historically, it has been a problem. Does the Scottish Government plan to develop any support mechanisms to tackle that, perhaps with a specific fund?

Annabelle Ewing

The funding arrangements would be legal aid or success fees; that is the general approach. There would be a requirement to amend the current legal aid rules, and the on-going legal aid review might have certain views on that.

Going back to the general view of opt-in and opt-out approaches, it seems to me, from reading the evidence, that every stakeholder supports an opt-in system. That includes the Law Society of Scotland, which changed its mind on the issue. The one stakeholder that has not supported opting in and prefers opting out is the Which? organisation. It is important that the weight of stakeholder agreement suggests that, for pragmatic reasons, stakeholders would accept proceeding with an opt-in system in the first instance, although that is not how they would wish to proceed in the long term.

Ben Macpherson

You mentioned that the detailed rules on group proceedings will be developed by the Scottish Civil Justice Council. Will the Scottish Government have any control over that process?

Annabelle Ewing

It will not have control as such, because there is separation from the courts. However, we will have input to that process. We have representation on the Scottish Civil Justice Council and its various sub-committees, and there is wider representation on the Scottish Civil Justice Council of consumers and various other stakeholders. We will have input into the process, but we will not control it, as it is not appropriate for us to control the courts because of the separation of powers.

Ben Macpherson

Nevertheless, in the interests of access to justice, it is important to provide some reassurance to us and to stakeholders. There have been calls to develop a group proceedings element in Scots law for over 35 years, but it is happening only now. Although we welcome that, if the Government will not have—rightly, due to separation of powers, as you say—direct control over the process, are you confident that the latest initiative will not be bogged down in detail or kicked into the long grass?

Annabelle Ewing

I do not believe that it will be kicked into the long grass. People want it to happen, and now is seen as the moment for us to really get a shiftie on—sorry, that is perhaps not appropriate language for the Official Report.

As we have done before, we will issue a policy note that will give a clear idea of the Government’s general sense of direction and its thinking on the matter. I am happy to reflect on whether there might need to be some other language to that effect in the bill to give a clearer steer. The matter will definitely not be kicked into the long grass; we want it to happen and the stakeholders want it, too.

The Convener

Liam, do you have a declaration to make?

Liam Kerr

Yes. Forgive me, minister. Before I put my questions to you, I intended to declare an interest as a solicitor with a current practising certificate with the Law Society of England and Wales and with the Law Society of Scotland.

The Convener

There is one final question. The Delegated Powers and Law Reform Committee raised concerns about the unusually wide scope of section 7(4), which will enable amendments to be made to part 1 through secondary legislation. Can you provide specific examples to explain why the modification of part 1 under that delegated power is necessary and proportionate?

Annabelle Ewing

I know that officials are aware of those issues. I do not know whether Hamish Goodall would like to say something now or whether we could write to the committee on the matter. [Interruption.] I am getting advice that it is quite a technical issue, so perhaps we could write to the committee.

The Convener

The unusually wide scope of that section is certainly of concern.

Annabelle Ewing

We are happy to write to the committee, which we will do in short order.

The Convener

We will be happy to receive that advice.

As there are no further questions, that concludes our consideration of the bill. I thank the minister and her officials for attending.

Our next meeting will be on Tuesday 5 December, when we will take closing evidence from the minister on the Offensive Behaviour at Football and Threatening Communications (Repeal) (Scotland) Bill and consider a draft report on stage 1 of the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill. As we did not complete the stage 2 amendments on the Domestic Abuse (Scotland) Bill, we will complete those on 5 December, too.

Meeting closed at 12:42.