In jokes, lawyers are never portrayed as the cream of society.
Musicians like to make jokes about each other. Drummers and viola players are a bit dim; accordionists and banjo players are downright annoying (because their instruments are ‘loud’ and drown out others nearby).
Here are a couple of cartoon-based jokes where lawyers and banjo players are on opposite sides.
(A) Lawyer (probably a lawyer rather just a “businessman” – because his discomfort is doubly delicious) in a lift (elevator), talking on his mobile phone: “I’m trapped in an elevator. Wait it gets worse…” (The other occupant of the lift is a banjo player). It works better in the original…
(B) Father to young child who is holding a banjo and standing on a chair to be high enough to see the music on their music stand: “Certainly a law degree is a worthwhile endeavour, son, but you need something to fall back on. Now practise your banjo.“ (Lawyers’ response: Ouch).
You wouldn’t necessarily expect to be comparing lawyers and banjo players. That seems a bit like “apples and oranges”. On the other hand, weighing up the funding systems for personal injury claims as between Scotland, on the one hand, and England and Wales, on the other, seems like a more normal comparison.
In this article, we’ll consider the development of no win-no fee personal injury claims in Scotland and look at 3 angles. Firstly, how things have developed in England and Wales. Secondly, how that has impacted on the experience in Scotland. And, finally, where we have got to today, in the light of significant legislative changes introduced in Scotland from mid-2021.
Are there some “apples and oranges” elements here too?
First of all, how have no win-no fee personal injury claims evolved in England and Wales over the recent past?
To understand the way personal injury claims services have developed in Scotland over the last 25 years – especially no win-no fee – it’s helpful to compare things as between England and Wales, on the one hand, and Scotland, on the other.
In legal terms, these are separate jurisdictions. Scotland is a different legal country from England and Wales.
We’ll begin with a look at the personal injury claims landscape in England and Wales from around the year 2000 onwards.
In the years after the turn of the century, in England and Wales, personal injury claimants were generally represented on a no win-no fee basis.
They would keep 100% of the compensation they were awarded. In other words, they kept all of their damages without deduction.
At that time, costs recovery (what Scottish lawyers call “judicial expenses”) was generous in England and Wales.
Under that regime, a successful claimant would recover not only their principal sum (i.e. the compensation payable to them personally) and the “judicial expenses” (the court costs payable to their solicitor) but also the following:
(a) Any ‘Success Fee’ which they had agreed with their solicitor at the outset of their claim would be recoverable by the solicitor if the claim was successful. A success fee is a sort of ‘bonus’ for the solicitor. The amount of the success fee will, in theory, reflect the level of risk the solicitor has undertaken that the case might be lost – which would prevent the solicitor from being paid anything under no win-no fee. So, the more risky the case, the higher the success fee.
(b) Any insurance premium they had paid. This would be “After the Event” insurance in a no win-no fee case. It insured against the risk that the case would be lost and – on the normal basis that “costs followed success” – costs (“judicial expenses”) would have to be paid to the other side.
This favourable landscape in England and Wales at that time – with plentiful fees for solicitors and claims companies – led to an active marketplace of personal injury claims processing. It was a lucrative market for those who assisted injured persons with their personal injury compensation claims.
It was the funds generated in that “boom time” which funded the heavy advertising of no win-no fee personal injury claims services.
The “mega advertising” of personal injury compensation claims services of the early noughties all impacted the bigger picture because it made personal injury claims appear to be a lucrative market to go into. The ubiquitousness of personal injury marketing meant that there was high public awareness of personal injury claims as an option for them in appropriate circumstances.
The picture this marketing generated in the minds of potential customers – across the UK – was one of ‘nothing to lose and everything to gain’.
In other words, if your claim failed, you would not be out of pocket; and if your claim succeeded, you would receive 100% of your compensation – and all possible’ deductions’ would be covered by someone other than you.
This “picture” has now become the norm, at least in terms of the public consciousness. (Though, as we’ll see, it was a false picture insofar as Scotland was concerned).
How does England and Wales’ experience compare with Scotland over the last 25 years or so?
In Scotland, in the early 2000s, it was a different picture for personal injury claims.
It was possible to act on a no-win no fee basis but After the Event (“ATE”) insurance was much less sophisticated in Scotland.
There had been a Law Society of Scotland-developed scheme – Compensure – which had not ultimately been a success. It ran from about 1997 to 2002.
With Compensure, the insurance premium for each case (latterly about £235) was payable up-front (i.e. not “deferred”) and it had to be paid whether the claim ultimately succeeded or not (i.e. not “contingent”). As we’ll see, this was a rather “crude” system, judged by more modern standards.
Legal aid was available but you had to be eligible on financial grounds. (Legal Aid is still available for personal injury claims in Scotland today).
Without ATE funding and an ability to recover Success Fees – and with less generous judicial expenses – Scottish litigants were in quite a weak position compared to South of the Border.
With the benefit of hindsight, we can say now that, when it came to personal injury litigation, many claimants were forced to settle for less than the full value of their claim because the financial risks of litigation were so high.
Let’s now look at how the situation in Scotland has changed so as to improve the position of personal injury compensation claimants.
Sheriff Principal Taylor undertook a review of costs and funding in Scotland between 2001 and 2013.
By that time, the ATE insurance industry in Scotland had introduced deferred, contingent premiums. Payment of the policy premium was “deferred” because it was payable only at the end of the case. It was not payable upfront when the policy was taken out. Payment of the premium was also “contingent” because it was only payable on a successful outcome. If the claim failed, the policy was still in force and valid to cover opponents’ costs, for example, but the premium was itself “insured”.
The result of the Taylor Review was the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018.
The Scottish Government’s Overview of the Bill which preceded the 2018 Act is still available online.
The proposed legislation aimed to increase access to justice in civil court actions by:
- making the costs of civil court action more predictable (at that time, according to them, these ranged from under £100 up to £10,000);
- increasing funding options, such as Legal Aid, for raising civil actions;
- making sure funding is available to both parties involved in civil actions.
In the above list, the range of court costs stated as “standard” is conservative, at best, and drastically underestimated, at worst.
For example, a personal injury claim generally requires medical evidence and unless – in a claim based on minor injuries only – an unrepresented, “party litigant” was bringing along their GP to give evidence and the GP had agreed to do that for free, £100 is an unrealistically low bottom-end cost estimate. £3,000 to £5,000 would be more true to life.
The complexity of a personal injury claim is not related to its value. For this reason, in recent times, it has never been possible for a personal injury claim to be raised as a Small Claim (or a Simple Procedure Claim) in Scotland.
At the other end of the scale, in the context of medical negligence/clinical negligence claims, £10,000 for estimated court costs could easily be too low by a factor of 10 (i.e. £100,000-plus would be more representative as the top end of the range).
As we’ve seen from the Government Overview, the Taylor Review sought to examine access to justice and whether there was “equality of arms”.
For personal injury actions, in the vast majority of cases, the opponent is insured.
This is the insurance which will fund any compensation payment to the injured person. For example, road traffic insurance (road accidents), employers’ liability insurance (accidents at work) or public liability insurance (e.g. a trip and fall on premises where the claim is against the occupier).
Though most opponents have insurance, not everyone does, unfortunately.
Claims may be intimated against opponents who are individuals or companies but, where there is no insurance in place from which compensation could be paid to the injured person, those claims tend not to be litigated.
That’s because there is too much uncertainty about actually recovering the compensation awarded from the opponent.
A court decree is not a guarantee of payment. You cannot get blood out of a stone.
If the opponent is not insured and personally does not have the financial means to pay your compensation, you won’t be able to get your money. This is why questions of “recovery” are so important to ask at the outset of a possible claim for personal injury compensation. Who going to pay out on this claim, if it succeeds?
ATE insurers will shy away from supporting claims against uninsured opponents. This is because they do not believe that it will be straightforward to recover any compensation which might be agreed or awarded.
But, returning to the “normal” case where the opponent is insured against having to pay compensation, what equality of arms issues arose pre-2018 Act?
The argument was that an insurance company has a stack of cases on the go in court at any one time.
They can therefore spread the risk and can afford to lose one or two cases every so often without it having any drastic effect on the future viability of their business.
On the other hand, for the average injured claimant, potentially being responsible for a 4- or 5-figure claim for expenses/costs would be a catastrophic outcome.
The claimant does not have a portfolio of simultaneous personal injury claims to balance out the risk. Indeed, in a great many cases, the judicial expenses/costs could be more than the value of the injured person’s compensation claim.
The problem for the injured person with a possible personal injury claim under the old system was that, in many cases, it seemed like you would have to take a big risk for a relatively small potential financial reward.
In addressing the various concerns, Sheriff Principal Taylor came up with a package of recommendations.
He introduced the concept of the Damages-Based Agreement (“DBA”). (Also sometimes referred to as a Success Fee Agreement).
The rules now provide that a DBA is the only way a personal injury claimant can be represented no win-no fee in Scotland.
Even before the introduction of regulations under the 2018 Act (in 2020) which put the meat on the bones for DBAs, members of the public probably believed “no win-no fee” meant that you were charged a percentage of your compensation.
That was not, strictly speaking, correct.
A solicitor could previously take on cases under no win-no fee, if they were simply going to accept judicial expenses as their means of getting paid. This is still permitted. Some solicitors still offer a personal injury compensation claims service which is founded on the idea that the client receiving 100% of their compensation is the norm.
Under the pre-2018 Act regime, if a solicitor wanted to charge their client a Success Fee (what the public would call “a percentage of your compensation”), the solicitor could do that but they had to tie it to the amount of time they spent on the case – i.e. it was based on an hourly rate/charge.
The solicitor could not do it by reference to taking a percentage of the damages/compensation. To get round this, some solicitor firms had quite complicated arrangements via non-solicitor firms/companies through which the client contracted with the solicitor.
The range of options available for injured claimants was wide. It was not a very transparent system. It was complicated and not easy to understand.
How do DBAs work in practice?
The rules now on damages-based agreements (DBAs) regulate the way Scottish solicitors can contract with their personal injury clients to take a Success Fee in a no win-no fee case.
As we have discussed above, the massive amount of advertising of the early 2000s has led to a public perception that speculative fee arrangements are how your solicitor’s personal injury claim work will be funded. Clients do not expect to pay for advice as the claim goes along; instead, they expect to pay a percentage of their compensation, on a successful outcome, at the end.
In a way, the new rules mean that the Scottish regulatory system has finally caught up with the public perception of how they always thought things operated, even though they were not exactly correct about that in the past.
The plan behind the style Success fee Agreement document from the Law Society of Scotland – and its accompanying explanatory note – was to make the form of agreement as understandable for clients as possible.
The new regulations cover all speculative work for personal injury (not for commercial matters).
In terms of the agreement, the claimant is the “Recipient” (of the service).
It’s important for the client to understand that even if, at that point of time, it all sounds as though it is “free”, they do nevertheless have some important obligations to fulfil.
A number of obligations are placed on the claimant (client) as a reflection of the fact that their solicitor is doing work for them and the client needs to cooperate in making sure that their case proceeds properly and efficiently. By definition, under no win-no fee, the solicitor is doing this work without a guarantee of getting a fee for it.
The sorts of obligations placed on the client include the following:
- giving instructions to allow work to be done properly;
- not deliberately misleading the solicitor;
- cooperating with their solicitor;
- going to any medical examinations which are required, whether instructed by your own solicitor or the solicitor on the other side of the case;
- accepting a professional opinion given in good faith if, for example, you are told objectively that your claim is not going to be successful; and
- accepting a professional opinion given in good faith about settling the claim with the other side, if there are no reasonable prospects of bettering what is on offer.
What are the obligations of the “Provider” (solicitor) under a DBA?
A “cap” has been put on what can be deducted from compensation by way of a Success Fee and that is “all-inclusive”.
In the majority of cases – compensation value up to £100,000 – the maximum success fee deduction which can be made is 20%.
How is the 20% all-inclusive?
This percentage is inclusive of VAT (currently also 20%). (It means the “pure” fee maximum is 16.67% and the VAT is 3.33% (16.67 + 3.33 = 20); 3.33 is 20% of 16.67).
So, the VAT “risk” sits with the solicitor. If the rate of VAT goes up, the solicitor cannot charge their client more than 20% as a Success Fee. (For example, if VAT went up from 20% to 25%, the pure fee element to the solicitor would decrease from 16.67% to £16%).
The 20% is inclusive of any unrecovered outlays. (Outlays are sometimes also referred to as “disbursements”).
An example might be where the solicitor agrees with the client to get a second opinion on a medical matter.
Before the rule changes resulting from the 2018 Act, if the client felt strongly that a medical opinion which had been received was incorrect, it would have been perfectly proper for the solicitor to agree to the client funding another medical report (a second opinion) from another medical expert.
Whichever report was more favourable in terms of the value it justified for the claim would be the one used and the cost of which would recouped from the opponent as part of the expenses/costs.
But it would not be possible to recover the cost of both expert reports from the opponent.
Under the old system, at the end of the claim, even in the event of success, the client have to meet that cost themselves. As long as the client understood and agreed that, it was perfectly in order. The solicitor was allowed to charge their client for unrecovered outlays provided the client had agreed to that.
However, under the new regime, solicitors cannot do that, if claiming a Success Fee. If a solicitor is acting for a personal injury client speculatively, the solicitor cannot deduct from the compensation any “extra”, unrecovered outlays.
The same applies to outlays for any work by counsel (i.e. by an Advocate, in Scotland; equivalent to a barrister in England and Wales). The client cannot be on risk for counsel’s fees which are not ultimately recovered from the opponent and solicitors may be more wary of instructing counsel for work which may turn out not to be recoverable from the other side.
The maximum percentage of Success Fee changes for higher value cases.
Between £100,000 and £500,000, the maximum success fee is 10% on that portion.
On the excess above £500,000, the cap is 2.5%.
The reasoning behind that smallest percentage was that, once you get to damages of £500,000 or more, in a typical case, much of the compensation beyond that level will be for future care costs. In other words, for cost of the injured person getting the professional care services they will need as a result of the ongoing consequences of their injuries, probably for the rest of their life. Accordingly, it is less “fair” for a significant proportion of those damages potentially to be taken as a Success Fee for the solicitor.
The DBA has to come to the client along with a Cooling-Off Notice.
This is important because it gives the client the opportunity to reflect on their decision to “sign up”.
They need to be given the right to cancel within 14 days.
Often, queries from the client at this time can be helpful to both client and solicitor. No win-no fee is not intuitive, in many respects. Any questions which come up at this stage may more likely be due to the client not having properly understood how no win-no fee works (probably the solicitor’s fault) rather than any fundamental issues with wanting to proceed or not.
So the cooling-off period provides a good opportunity for both sides to make sure that there is clear understanding and agreement to the work that is proposed to be done.
“Equality of Arms”: Qualified One-Way Costs Shifting.
Prior to the introduction of Qualified One-Way Costs Shifting (“QOCS”), in the 2018 Act, the general rule was that “expenses follow success” in court actions.
In other words, if you succeeded in your claim for personal injury compensation, you were entitled, in addition, to your expenses/costs from the opponent. But, if your claim failed, your opponent had succeeded in their defence and they were entitled to their expenses from you.
This principle could apply to a whole court action or to parts of a court action.
Court solicitors were familiar with the concept that if you were unsuccessful with a particular request to the court as part of the court action (for example, a request that your opponent should be ordained to produce certain documentation), the expenses of that part of the case would be awarded against you and there would be a “final reckoning” of expenses on both sides on final conclusion of the claim.
Accordingly, while you might have been “overall” successful in the claim for compensation, there may be a set-off of some expenses because you were not successful in all parts of the court procedure as the case went through its timetable.
The rules around QOCS change the fundamental principle of expenses following success.
It’s worth breaking down the term “qualified one-way costs shifting” into its parts for analysis.
From the use of the word “costs”, you can tell that the term originated in England and Wales (the Scottish equivalent term is “expenses”).
“Cost shifting” confirms the alteration to the previous rule of expenses following success.
“One-way” means that it applies to pursuers (injured claimants) only.
“Qualified” is the part of QOCS where all the controversy arises.
The costs shifting is not an absolute concept.
There are some exceptions where the injured claimant may still find themselves responsible for some costs/expenses. It is not a blanket rule that QOCS will apply.
There was huge concern in the insurance industry that the introduction of QOCS would lead to a lot of spurious claims but there doesn’t seem to be any real evidence of this in England and Wales.
As we’ve seen, for “equality of arms”, if the claimant has a possible liability for expenses, the odds are stacked against them.
The position with QOCS is that, for court actions raised after 30 June 2021, regardless of the date of the accident, and for personal injury cases only, the pursuer will generally not be responsible for payment of expenses in the event that their claim is unsuccessful (subject to some qualifications).
There is not a Simple Procedure element to QOCS because personal injury cases do not get run under Simple Procedure.
The general rule is that QOCS applies, subject to a few exceptions.
The exceptions to where QOCS applies to protect the claimant are in 2 sets of 3.
There is no real Scottish reported-case authority on this so far but we have a lot of English case law to consider.
One qualification to one-way cost shifting would be if the litigation has not been conducted “in an appropriate manner”. What does that mean?
- making a fraudulent misrepresentation or otherwise acting fraudulently in connection with the claim;
- behaving in a manifestly unreasonable manner; or
- otherwise conducting the proceedings in a manner which the court considers amounts to an abuse of process.
In England the crux issue is “fundamental dishonesty”, rather than “fraudulent misrepresentation”.
It remains to be seen how Scottish courts will interpret the Scottish exceptions and it will be a question of the individual circumstances of each case. The different test in England and Wales might mean there’s an “apples and oranges” problem for Scottish solicitors trying to advise clients based on the experience South of the Border to date.
But one thing we can probably say with confidence is that, just because there may be inconsistencies in the claimant’s case, that will not necessarily amount to something at the level of “fraudulent misrepresentation”. In one English case, “a degree of embellishment” by the claimant “to convince rather than deceive” was not enough to remove QOCS protection from the claimant.
A second set of exceptions relates to when you can lose the protection of QOCS. Firstly, failing to beat a Minute of Tender or delaying in accepting a Tender. This is one of the reasons why ATE insurance remains relevant even in a post-QOCS landscape. Secondly, abandonment of an action. If the pursuer (claimant) abandons the claim, the defender (opponent) can put in a request to the court for the pursuer to be found liable for expenses and lose QOCS protection. In other words, it will end up as an opposed “motion” in a case of abandonment.
If you don’t beat a Tender, you can be found liable for expenses. But the opponent’s contra-account cannot exceed 75% of the compensation awarded. The opponent is not entitled to offset their contra-account against the judicial expenses payable to the pursuer for the pre-Tender part of the action.
A party seeking to disapply QOCS must make the application by written motion at any time prior to the final court order in the action.
The big problem for personal injury claimants is “equality of arms”. If you don’t have sufficient protections in place – e.g. insulation from possibly-disastrous costs awards against you – you’re going to be more timid in pursuing your rightful claim for compensation or you might not even bother to start.
The introduction of Qualified One-Way Costs Shifting for personal injury claims in Scotland from 30 June 2021 has levelled the playing field for injured people with compensation claims in Scotland who need to raise a court action.
The previous court action rule that “expenses follow success” has been modified to become something like “expenses follow success if the claimant is successful but not if the opponent is successful” (one-way costs shifting). Neither rule – whether old or new version – applied or applies in all cases. That’s why the new rule is qualified one-way costs shifting.
The introduction of Damages-Based Agreements means that no win-no fee arrangements now work like the public always thought they did (a straight percentage off your compensation if your claim succeeds), even though that was not previously the way “percentages” worked under the old system.
The newly-introduced caps on the percentage deductions (Success Fees) that can be made, depending on the value of the claim, allow for greater certainty and clarity for claimants. The maximum deduction for fees/costs your solicitor can make from your compensation is 20% “all-in”.
It’s worth doing your homework on the most favourable arrangement from different personal injury claims services providers for you, within the regulatory parameters for Success Fees. Not every solicitor will be looking to charge a Success Fee, in any case. Make sure you’re not comparing apples with oranges, lawyers with banjo players, and so on.
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If you have any questions about funding a possible personal injury claim or any aspect of personal injury claims, please feel free to get in touch with us.
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