For some time now, English lawyers have been able to enter into damages based agreements or conditional fee agreements in terms of which they can share in their client's success in litigation. Until this year, the position has been quite different in Scotland.
In Scotland, speculative fee agreements have been permitted for centuries with the practice of "no win, no fee" cases being recognised by an Act of Sederunt of 19 December 1835 and the modern practice being regulated by section 36 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 and section 42 of the Rules of the Court of Session 1994. Speculative fees are based on either statutory scale fees or a solicitor's work in progress and can be increased by the court in appropriate cases. Crucially, however, speculative fees do not vary depending on the amount recovered by the client.
Traditionally, agreements which do vary depending on what has been recovered have been pactum de quota litis in Scotland. That principle covers any situation where there is an attempt by a lawyer to make an arrangement with their client whereby their remuneration is to vary in proportion to the amount recovered in the litigation. For the English lawyers reading this, it is a similar principle to champerty at common law which, although having very different legal foundations, has the same underlying policy considerations.
The rationale behind the prohibition has always been the proper administration of justice, with it being considered to be a potential conflict between the self-interest of the lawyer and their duties to the client and the court for a lawyer to enter into such an agreement (Quantum Claims Compensation Specialists Ltd v Powell 1998 SC 316). Very recently Lord Doherty reinforced the importance of the principle in A & E Investments Inc and Robert Kidd v Levy & MacRae Solicitors and Jonathan Brown [2020] CSOH 14 in which the court struck down an agreement between lawyers and their client on the basis that it was pactum de quota litis.
However, change has already arrived. The Taylor Review on expenses and funding of civil litigation in Scotland considered that it was time to permit contingent fee arrangements in this jurisdiction subject to appropriate controls and caps on the amount of the fee. These changes just mirrored, or at least were similar to, changes which had already occurred in other common law jurisdictions such as England or South Africa. So, on 27 April 2020, the relevant provisions of the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018 came into force which permits success fee agreements in Scotland to much the same extent as they are permitted in England. For commercial cases, any success fee is capped at 50 per cent of damages.
For commercial business, this may prove to be a significant and very welcome change. The pandemic has hit some sectors of the economy very hard. Even in good times, small and medium sized businesses write off tens of millions of pounds of bad debt every year because they are either unable or unwilling to incur the legal costs involved in recovering that debt. While there are a lot of government measures currently in place to protect businesses from the worst effects of the pandemic these will not last forever and when they do the risk is that there will be a lot of businesses in Scotland with good claims and little money to pursue recovery.
From that perspective the introduction of success fee agreements in Scotland is timely. It will allow businesses to pursue debts they would have otherwise written off and reduce risk. Moreover, with the advent of commercial litigation funding options such as success fee agreements has come an increasing willingness of legal funders and providers of ATE cover to offer products to clients in Scotland. The more competition, the more the cost of that sort of cover will come down and the more attractive it will be for businesses to take advantage of it. While it perhaps goes too far to say that litigation conducted on these arrangements will be risk free, the risk will be very significantly reduced and where the litigation is successful clients will have much more certainty about what they will be paying in legal fees.
This article formed part of our Litigation in Scotland Report 2021 - to view the complete report click here.
