Success fee agreements: analysis of consultation responses

Question 3: We are seeking your views on further regulatory provision about success fee agreements.

a. Do you agree with the proposed content of regulations to make further regulatory provision about success fee agreements in Scotland?

b. Do you think that any of the material need not be included?

c. Do you think that there are other areas which should be covered?

25. Section 7(3) and (4) of the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 gives the Scottish Ministers power to make further provision about success fee agreements by regulations, including:

• their form and content;
• the manner in which they may be entered into;
• their modification and termination;
• the resolution of disputes in relation to such agreements;
• the consequences of failure to comply with the requirements of sections (1) or (2) or the regulations; and
• the application of Part 1 of the 2018 Act or any provision made under it, where a recipient receives relevant services from more than one provider in connection with the same matter (such as where a recipient of such services receives them from both a solicitor and a claims management company in relation to the same claim).

26. Fifteen respondents answered question 3a. Fourteen were from the legal sector, the other being the claims management company. There was no particular pattern to the responses depending on whether they represented pursuers or defenders. Ten thought the Scottish Government should make further regulatory provision in Scotland and five thought not. The same fifteen respondents answered question 3B. Four thought that some of the material proposed by the Scottish Government need not be included and the other eleven were content with the content of success fee agreements suggested by the Government. With one exception, each respondent which answered “yes” to question 3a answered “no” to 3b and vice versa. Fourteen respondents answered question 3c. Ten thought other areas should be covered and four thought otherwise.

27. The Faculty was content with regulations proposed by the Scottish Government, the former stating that it “agrees with the proposed scope and content of regulations in this regard”. Kennedys was also mainly content simply adding that there must be scrutiny of providers and robust sanctions against those who do not comply with the rules and that “additional provisions are in place for vulnerable pursuers and the most seriously injured”.

Self-proving form (paragraph 41(a))

28. Dentons was not convinced that a success fee agreement should be in self-proving form. Firstly, it considers that a success fee agreement is similar to the vast majority of other agreements that are entered into in Scotland. Secondly, it suggests that a success fee agreement could be entered into before the litigating parties have reached a final decision on choice of forum to resolve the dispute. It went on to state: “In a complex action, it is possible that parties could have in mind litigating before the English courts, or a tribunal such as the Competition Appeal Tribunal, or simply be undecided at the time the success fee agreement is entered into. As such, the success fee agreement could well be entered into without reference to the Scottish self-proving requirements. It would [be] preferable if any such agreement was enforceable should the parties subsequently decide to litigate before the Scottish Courts.” On the other hand three respondents, including the Law Society stated that they agreed with paragraph 41(a) and that a success fee should be “probative”.

Valuation of claim at the outset (paragraph 41(b))

29. There was considerable concern amongst those who responded to the question about the proposal that the success fee agreement should state the value of the claim at the outset. Nine of the respondents made the point that it was impractical to assess the value of a claim at such an early stage. The problem with an estimation of the claim at the beginning is that there are too many unknowns. Iain Nicol stated: “The calculation can only be done once all quantum information is ingathered.” Lanarkshire Accident Law said: “The proposal to state ‘anticipated damages’ in a success fee agreement is fundamentally flawed.” APIL wrote: “There is no objective basis on which an accurate predictive value can be made, and no information is better than the wrong information.”

30. As regards the provider keeping the recipient appraised of any changes to the value of the claim, there were some who saw difficulties arising from this. For example, the Law Society wrote: “It leaves scope for the recipient to either attempt to hold the contract unenforceable or avoid paying a success fee if they claim that they were not updated as often as they would have liked.” It was submitted that there was a professional duty on solicitors to keep their clients appraised of any developments and that often this was done by face-to-face meetings or by telephone.

General provision (paragraph 41(c) and (d))

31. These provisions would require a statement of what is covered by the agreement and a statement that the terms of the success fee agreement take precedence over the provider’s normal terms and conditions in situations where there is a conflict. Few respondents commented, but the Law Society and the Faculty both agreed with the suggested requirement.

Success fee calculation (paragraph 41(e) to (g))

32. Paragraph 41(e) to (h) was concerned with success fee calculation; subparagraph (h) is dealt with in paragraph 24 below. The other provisions relating to how the success fee is to be calculated and circumstances where there is more than one provider of the relevant services in relation to the same claim attracted very little comment. Once again, the Law Society and the Faculty agreed with the suggested provision.

Updates on the claim (paragraph 41(h) and (k))

33. Paragraph 41(h) provides that the provider must inform the recipient in writing if the value of the claim should change. The first bullet point in paragraph 41(k) places obligations on the provider to give regular updates and consult with them on any major developments including offers from the defender. Alan Paterson argued that although it is widely accepted that these encapsulate the current ethical obligation of a personal injury, they should be retained. The Glasgow Bar Association considered the obligations to provide regular updates and to consult with clients on any major developments including offers from the defenders as set out in 41(k) to be very important.

34. APIL took a different view arguing in relation to 41(h) that there “is no definition of ‘value’ and no qualification of materiality here. In a large and complex claim, information in the form of expert reports, wages information etc. can come in frequently and may potentially alter the value of a client’s claim. The defenders will also produce information and their own reports and version of value. Those may be discussed at meetings or on the telephone but having to report any potential change, however small, in writing, is not helpful”. Digby Brown agreed with this stance.

35. Iain Nicol and the Law Society both argued that these requirements are unnecessary as contractual requirements as they form part of a solicitor’s duty under the Society’s Practice Rules. Iain Nicol wrote: “The Law Society Practice rules impose a duty on solicitors to provide adequate information to their clients and keep them updated. There is no need to impose a contractual duty to do so and indeed it may prove extremely contentious if the client's perception is that the solicitor has not kept them sufficiently up to date and they try to avoid paying the success fee or otherwise hold the contract to be unenforceable.”

Statement of indicative payments (paragraph 41(i))

36. The Scottish Government considered that the success fee agreement should contain a statement of likely payments due by the recipient to the provider. This was intended to be a statement of what payments would be required above the success fee, for example, after the event insurance premiums. Alan Paterson and the Law Society agreed that this should be in the agreement. Others took the view that this would include the likely amount due at settlement, that is the calculation of the actual figure as a percentage of damages expected. It was not the Government’s intention that this would be required.

Obligations of recipient to provider (paragraph 41(j))

37. Paragraph 41(j) was concerned with a statement of the obligations of the recipient to the provider to enable the provider to progress the claim. None of the respondents commented on this.

Complaints and disputes (paragraph 41(l) and (m))

38. There were seven respondents who commented on the Scottish Government suggestion that alternative dispute resolution should be the default method of resolving disputes relating to success fee agreements (paragraph 41(m)). Professor Alan Paterson said: “This is difficult. The [Scottish Legal Complaints Commission] uses mediation in complaints but this is limited to £20,000 and the mediators may lack the necessary expertise. There may be scope for mediation/arbitration in some disputes, provided it’s not too expensive.” Dentons was supportive of the idea as long as it did not exclude an action for payment.

39. The others who commented thought it unnecessary as there are already complaints procedures in place through the Scottish Legal Complaints Commission and the Financial Ombudsman Service. Arbitration or mediation were seen as expensive alternatives. There were also questions about whether mediators had sufficient expertise and experience to deal with such disputes. For example FOIL wrote: “We do not agree that these types of case are special cases only suited to mediation/arbitration. There is a cost associated with that which should not be imposed over and above the normal complaints procedure for legal services which is quite suitable for this type of case. There is not to our knowledge any other area in which mediation/arbitration is imposed for complaints and claims. There is nothing in this work type which makes it inherently suitable for mediation/arbitration.”

Failure by the provider to comply with success fee agreement (41(n))

40. Paragraph 41(n) provided that the success fee agreement should contain reference to the regulations made by the Scottish Ministers under section 7(3) of the 2018 Act where there is failure by the provider of a success fee agreement to comply with section 7(1) or (2). Six respondents commented that the failure should be a material breach. For example APIL stated: “This should be qualified as being for material breaches only, not minor or inconsequential breaches.”

Termination (paragraph 41(o) to (q))

41. Paragraph 41(o) to (s) of the consultation provided for termination situations. The responses to subparagraphs (r) and (s) are considered in paragraph 43 below.

42. Subparagraphs (o) to (q) attracted very little comment. Three respondents, including the Law Society of Scotland, agreed with all three suggested provisions. Dentons commented on (q) stating: “Any requirement being placed on providers to specify the expenses due to be paid by the recipient (para 41(q)) will have to take account of the unpredictable nature of litigation. Expenses may arise, particularly in complex cases, that could not have been foreseen at the early stages of preparing for court action (for example, the cost of sending a dispute or part of a dispute to expert determination). In some types of action, providers will need to able to include wide wording in order to accommodate unforeseen circumstances.”

Unilateral withdrawal from DBA (paragraph 41(r) and (s))

43. Iain Nicol, the Law Society, and Thompsons considered that there was an omission in paragraphs 41(r) and (s) of the consultation; there was no consideration in the consultation document concerning situations where the recipient terminates the agreement unilaterally. The Law Society wrote that the Scottish Government’s provisions “do not recognise the Recipient terminating the agreement unilaterally without just cause”. Thompsons expanded on this: “We are concerned particularly about circumstances … where a client simply chooses to exercise their right of consumer choice to switch provider of legal services because the level of service that they receive falls short of what they would expect. In those circumstances, we think that it is important that regulations provide that the original provider of legal service is entitled to some share of the legal fees ultimately achieved at the successful conclusion of the case but only a level of fees that is proportionate to the amount of work that that original legal service provider contributed to the overall work undertaken to bring the matter to a successful conclusion.”

Other comments

44. There was concern expressed by defenders and defender solicitors about solicitor remuneration. It was noted that it was possible for solicitors to be paid three times in a successful action. They would be in receipt of judicial expenses, the success fee, and, in some cases, additional fees which might be awarded by the court on application in complex and difficult cases. For example, FOIL noted that Sheriff Principal Taylor had suggested reform of additional fees was needed. “FOIL agrees and submits that reformed rules on additional fees should be in place before the success fee provisions of the Act are brought into force.” The Cost and Funding Committee of the Scottish Civil Justice Council has considered the suggested reforms of additional fees.

45. FOIL also suggested that there should be a duty of disclosure by the provider of the success fee agreement. “It would not be enough for that duty to be limited to disclosure to the court. The duty of disclosure should be to both the court and the opponent.” FOIL had in mind a similar disclosure arrangement to that used in legal aid cases. Such disclosure is provided for in section 10 of the 2018 Act.

46. Four of the respondents suggested that there should be a standard form for quotations related to a success fee agreement. FOIL noted that Sheriff Principal Taylor recommended this: “It is in my opinion necessary for such comparison that the quotations are in a standard form.” The respondents’ point was that a standard form would be desirable, both for the recipient to enable meaningful comparison and, separately, for the court and defender. It was considered that such a standard form would help generate competition in the legal services market.

47. Four respondents considered that regulations should address how conflicts of interest are dealt with and consider that this was an omission in the consultation. For example, FOIL wrote: “Taylor concludes ‘How conflicts of interest are to be managed should they arise must also be specified’. FOIL agrees. The proposed regulations do not expressly deal with conflicts of interest.”

48. The ABI made various other comments:

• It considered that providers should undertake risk assessments in every claim to justify the success fee charged, that the success fee must reflect the true risk borne by the provider, and that the provider must obtain the pursuer’s informed consent to the proposed deductions.
• It suggested that if a success fee agreement replaces legal aid, the provider should explain why legal aid was no longer appropriate and what prompted the move to a success fee agreement and any funding discussions with the SLAB.
• It suggested that providers should be given recommended wording which they can tailor to their specific needs.>

49. Compass Chambers was concerned about the introduction of DBAs from the point of view of advocates. Advocates are not providers as defined in the 2018 Act. They are instructed by solicitors either on a speculative basis or, more commonly, a speculative/judicial expenses only” basis. They do not have a contract with the pursuer and do not have details of any success fee agreement entered into. Their fee is therefore part of the “outlays” for which the solicitor is responsible. If the case is unsuccessful, they are not paid. If the case is successful in court, they are paid on the basis of the judicial expenses awarded by the auditor of court. This often means that they are not remunerated for all the work they do, just for the work that the auditor awards expenses on. It argues that this system can act as a deterrent to advocates being instructed in personal injury cases and it is not in the best interests of access to justice.

50. Compass Chambers asked the Scottish Government to bring regulations to the effect that:

• “where a solicitor has entered into a success fee arrangement with a client, the existence and terms of that arrangement should be disclosed to counsel in any case where counsel is instructed”;
• “in any case where counsel is instructed, the fees of counsel must either constitute an outlay to be paid by the solicitor whether the case is successful or not or, alternatively, if counsel is to be instructed upon a speculative basis, instructions to counsel could not be upon the existing basis of speculative/judicial recovery fees”; and
• “where a solicitor enters into a success fee arrangement with a client, and chooses to instruct counsel on a speculative basis, the Scottish Government should consider passing Regulations providing that counsel must be afforded the opportunity of, likewise, entering into a success fee arrangement with the solicitor”. In any such case, the pursuer would only be liable to pay the success fee to the solicitor.