Range of success fee agreements open up to Scottish solicitors as damages-based arrangements begin

The Civil Litigation (Expenses and Group Proceedings)(Scotland) Act 2018 (Success Fee Arrangements) Regulations 2020 (the Regulations) open up damages-based arrangements (DBAs) to Scottish solicitors from today (27 April 2020). This will create more flexibility in the way that litigation is funded and allow solicitors to operate success fees on a flexible basis.

The new Scottish rules differ from those currently available in England and Wales in permitting partial damages-based agreements. Unlike the current all-or-nothing approach in England and Wales, a hybrid “no win, lower fee” damages-based model will be allowed in Scottish commercial courts.

Success fee arrangements in Scotland

Until now, success fee agreements, also known as conditional fee arrangements or contingency fee agreements, offered by solicitors in Scotland have been limited to speculative fee agreements where an enhanced fee is charged in the event of success. These additional fees are typically calculated by reference to the fee element of the judicial expenses, or charged as an uplift to the solicitor’s hourly rate in the event of success, not as a percentage of the damages awarded in the case.

Following implementation of the Regulations, these speculative fee arrangements will continue to be available but there will also be the option of a pure “no win, no fee” DBA, where the whole legal fee is calculated as a percentage of the damages awarded, or, more attractively, a “no win, lower fee” hybrid DBA where only the additional success element of the fee is determined by reference to the amount of compensation awarded. It is this hybrid DBA which has the greatest potential to transform the funding of Scottish litigation, as well as add a distinct attraction (in addition to the relatively modest costs) for litigants with a choice of jurisdictional forum for resolving disputes.

Restrictions and success fee caps

The use of Scottish DBAs is completely prohibited in family proceedings and only “no win, no fee” DBAs, where the litigant pays nothing up front, are available in personal injury actions.

Where DBAs are permitted, they are subject to maximum percentage caps:

The caps which are applied relate to the total amount payable by a recipient of damages even where there is more than one service provider and more than one DBA, however providers are entitled to retain agreed or awarded judicial expenses provided that the express provision is made within the terms of the DBA reflecting the importance of a joined up approach amongst service providers.

These caps differ slight from the position in England and Wales, where the cap is currently set at 25% for personal injury cases and 50% for commercial actions albeit there are proposals to reduce these caps to 20% and 40% respectively. The ongoing English DBA reform project is, of course, also considering the treatment of expenses where DBAs are in place, more robust termination provisions and the possibility of introducing hybrid DBAs because of the difficulty for solicitors in funding long running commercial disputes.

Terms of DBAs

The Regulations impose strict requirements on solicitors and those seeking to rely upon DBAs to ensure that the terms of the agreements themselves contain crucial information ensuring transparency for potential litigants. In the event that an agreement fails to comply with the requirements it can become unenforceable.

Comment

The introduction of DBAs to Scotland represents a significant and long-overdue change in the way that success fee agreements will operate and provides a flexible approach to litigation funding that Scottish solicitors have not previously enjoyed.

Scottish solicitors have not traditionally been renowned for their risk appetite and it remains to be seen how widely used these funding arrangements will be. It is nonetheless a welcome development that they are finally here and we look forward to exploring the enhanced opportunities for bringing high quality litigation in the Scottish courts that we hope will result from the new funding models.

If  you would like to find out more about DBAs, or how they could be applied to your own litigations, please get in touch with a member of our team.