Justice Committee

Meeting date: Tuesday, November 14, 2017

Official Report 663KB pdf

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Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill: Stage 1

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.

MacGregor.

MacGregor. [Laughter.]

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?

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.

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.

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.

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—

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.

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.

Thank you. Are there any other comments?

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.

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?

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.

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.

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?

Are you talking specifically about success fees?

Yes.

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.

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?

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.

Can you give us an example of that?

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.

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.

Does anyone else have a view on that?

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.

We will pursue that line of questioning in more depth.

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?

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.

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?

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.

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.

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?

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.

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

10:45  

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.

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?

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.

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.

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?

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.

Would anybody else like to comment on that?

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.

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.

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?

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.

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.

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.

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.

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

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  

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.

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.

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.

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.

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.

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?

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.

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.

We will move on and develop the issue a bit.

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?

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.

“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.

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.

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?

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.

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?

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.

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  

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.

That is correct.

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

Absolutely.

Do the rest of the witnesses agree with that view?

Witnesses indicated agreement.

For the record, the panel uniformly nodded.

So does Sheriff Principal Taylor.

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.

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

Will you become a regulated body?

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.

What if that decision is not made?

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

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?

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

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?

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.

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.

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.

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.

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.

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.

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.

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?

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.

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

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.

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?

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.

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.

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.

Thank you. That is helpful.

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.

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  

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.

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?

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.

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

Yes, I think so.

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

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.

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?

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.

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

Yes, it would make a difference.

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.

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.

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.

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?

No.

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.

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.

Thank you for that clarification. We have overshot our estimated time, but I will allow a final comment.

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.

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—