At this moment in time the Civil Litigation (Expenses and Group Proceedings) (Scotland) Bill is before the Scottish government’s justice committee. The proposed changes will impact the way that personal injury litigation is funded and managed throughout Scotland and could consequently attract controversial claims management companies. Many people may be surprised to learn that the regulations covering the Scottish personal injury market are different to those across the rest of the UK. The consequences of this proposed Bill appear to have been ill thought out and could have a detrimental impact upon future personal injury claims.
Funding Personal Injury Litigation
The Bill is supposed to “increase access to justice, provide equality of arms between claimant and defendant in litigation and protect the vulnerable” which on the surface seem fairly helpful aims. There are two main areas of the Bill which are:-
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Damage based agreements
Damage based agreements (DBA) are in effect an agreement between the alleged victim and their solicitor. The idea is that solicitors will only receive payment in the event of successful cases with around 25% of the awarded damages seen as a “fair” fee figure. This will obviously save the alleged victim from paying out potentially expensive legal fees, win or lose, and the idea is that only bona fide claims will make it through this vetting system. After all what claims management companies would pursue a weak case if it meant having to cover legal fees in defeat?
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Qualified one-way costs shifting
Qualified one-way costs shifting (QOCS) is the idea that a claimant would not be liable to the defence expenses even where they are unsuccessful with their prosecution. In theory this change was proposed to ensure that all potential claimants from any financial/ social background have fair access to legal redress. Again, on the surface this seems to be an interesting if controversial proposal but in practice there are potentially enormous consequences to consider.
Overview Of The System
It is interesting to see that DBAs are being proposed with this particular Bill when in fact claims management companies operating in Scotland can already enter into such arrangements. Unfortunately, despite demands from critics of the Bill, there will be no accompanying regulation of claims management companies. The English claims management industry has been regulated since 2006 which prompted a significant reduction in claims activity – much of which may have been fraudulent or “borderline”. The problem with Scotland is that because there are no specific regulations for claims management companies the proposed Bill may well see some of the more unscrupulous operators jump over the border and begin operating in Scotland.
You only need to look at the recent press regarding personal injury claims to see that the more controversial end of the market are extremely quick in jumping on new trends. We have seen a significant increase in foreign holiday personal injury claims, where legal aid restrictions do not apply, with many UK holidaymakers now banned from specific resorts. We have also seen an increase in business related personal injury claims which are often referred to as “victimless crimes”. So, the proposed changes to litigation funding and lack of specific regulations for claims management companies must make Scotland a magnet for some operators?
The True Cost Of DBAs
One of the most alarming elements of this Bill is the fact that solicitor’s costs of circa 25% for successful prosecutions will come from the damages awarded. It is worth taking a step back and considering the way in which these damages are calculated. We have seen a significant change to the Ogden Rate, which the industry is currently fighting, which offers a precise calculation for long-term care requirements. These damages are calculated to cover the cost of long term care requirements, as a consequence of personal injury, and nothing else. So, what impact might this have on the claimant’s future standard of living if a 25% charge was taken from the damages pot? Would they receive the standard of care which the courts had originally awarded for?
Under the current system a successful claimant would be able to lodge an appeal for expenses which would likely be agreed by the courts. This is how some controversial claims management companies made their money in the UK, prior to regulations in 2006, but this avenue would disappear if the new Scottish Bill comes into law. The suggestion that a claimant should not be liable to cover the expenses of the defence (QOCS), even if their case fails, works both ways. Again, the principal behind this idea is honorary but under scrutiny it seems to fall apart.
Reduced Risk Of Pursuing Damages
When you bear in mind that many claims management companies either went out of business or downsized their operations in light of the 2006 regulations in England, they must be rubbing their hands at the proposed changes to the Scottish system. If a claimant is not liable to the defence costs, even in a failed prosecution, this takes away one of the main barriers to pursing potentially fraudulent personal injury claims. Historically, failed prosecutions have led to further financial challenges in the shape of covering defence costs. If this is removed by the new Scotland Bill then claims management companies would surely be foolish not to increase their exposure north of the border.
The questionable practices of some claims management companies formerly operating in England could soon re-emerge in Scotland. The knock-on effect would likely result in increased insurance premiums north of the border – some of which are already amongst the most expensive in the UK, particularly for motor vehicles.
UK Wide Regulations
Prior to the 2006 English regulations covering claims management companies in some areas of the market were besieged by fraudulent claims. The regulations stopped many claims management companies in their tracks but the introduction of the proposed Scottish Bill could simply reintroduce this environment to Scotland. Even though many areas of Scottish law have been devolved from the UK Parliament to the Scottish parliament, surely in areas such as personal injury cases, and claims management companies, there should be a UK wide regulatory system?
If you look at this from a distance, what is the benefit of different regulations across different parts of the UK? The fact that Scotland does not have specific regulations covering claims management companies will shock many people. The unscrupulous operators in this industry are like vultures and once they spot a weakness they will exploit this for personal gain. If the English, Welsh, Scottish and Northern Ireland political parties work together to regulate the personal injury claims industry surely this would reduce the number of fraudulent claims?
Will Common Sense Prevail?
As we touched on above, while many of the changes proposed in the Scottish Bill are well-founded perhaps they have not been thought through in great detail. This is why such changes are regularly put out to consultation with the industry to provide feedback, partial and impartial, and make a note of perhaps unforeseen consequences. At a time when the UK government is looking to clamp down on excessive legal fees, fraudulent personal injury claims and regulation of the claims management industry it is surprising to see Scotland apparently moving in a different direction.
