Success Fee Agreements

The Gill review, in 2009, a review of the Civil Justice system in Scotland, recommended a further review of the expenses and funding of civil litigation, with a view to seeking ways to increase access to justice. Previously, traditional methods of funding litigation were either by paying privately for legal fees – an expense beyond the reach of the average man on the street – through Union backing, or by the grant of legal aid, subject to meeting the Scottish Legal Aid Board’s strict and restrictive financial requirements.

Over the last few decades, the speculative funding of actions has also seen a rise in popularity, whereby solicitors act on a ‘no win, no fee’ basis, charging an agreed percentage uplift on their fees, payable from damages recovered, in the event of success.

The Scottish Government saw a need to promote such alternative means of access to the courts, whilst also seeking to regulate their operation, and the result is the Civil Litigation (Expenses and Group Proceedings ) (Scotland) Act 2018. Its objective is to ‘increase access to justice by creating a more accessible, affordable and equitable justice system’, to make the costs of court action more predictable, to increase funding options and to introduce a greater level of equality to the funding relationship between pursuers and defenders. A consultation process is currently ongoing as regards the details.

Part 1 of the Act is largely concerned with Success Fee Agreements, which can either be speculative fee agreements as touched on above, or damages-based agreements, where the success fee is calculated as a percentage of the damages recovered. The latter concept is new to Scotland, as is the requirement under the legislation that outlays, such as court fees and the fees of expert witnesses, require to be borne by the provider of the service and not the client – in other words, a true ‘no win, no fee’ arrangement. The Scottish Government anticipates that damages-based agreements will become the most popular form of success-fee agreement going forward, given their simplicity and predictability in terms of damages likely to be achieved. It had previously been argued that the downside of damages-based agreements was that the client would not receive 100% of the damages achieved. However, if there are no other funding options available, then their access to justice would be denied - as pointed out by the Scottish Government in their consultation paper, if a claimant has no other means of litigating, then they may receive ‘100% of nothing since they may be unable to litigate at all.’

Success fees will be capped by the Government, whilst recognising that a ‘proper balance must be struck between sufficient remuneration for solicitors and justice for clients awarded damages.’ (Sheriff Principal Taylor.) The cap will reflect the risk that the case might not succeed and the solicitor ends up out of pocket, with no fees and having paid all outlays as the case progressed. The recommendation is for the cap to be on a sliding scale, of up to 20% of the first £100,000 of damages, with 10% for the next £400,000 and up to 2.5% of damages over £500,000, all inclusive of vat.

Whilst most commonly applicable to personal injury cases, it is envisaged that such agreements will also be available to fund Employment Tribunal cases and Commercial actions.

Success Fee Agreements represent a marked shift in the future funding of litigation in Scotland and the profession needs to be ready to embrace the challenge. Claimants should certainly benefit from the availability of such agreements, which will enable individuals to litigate at a cost known to them, in percentage terms, from the outset, and ‘risk-free’ financially, in that all costs and outlays will be borne by the provider in the event that the claim is unsuccessful.