Chapter 4: Further regulatory provision about success fee agreements
38. Section 7(1) of the 2018 Act stipulates that a success fee agreement must be in writing. Section 7(2) provides that a success fee agreement must specify the basis on which the amount of the success fee is to be determined.
39. Section 7(3) and (4) gives the Scottish Ministers power to make further provision about success fee agreements by regulations, including:
- their form and content;
- the manner in which they may be entered into;
- their modification and termination;
- the resolution of disputes in relation to such agreements;
- the consequences of failure to comply with the requirements of subsections (1) or (2) or the regulations; and
- the application of Part 1 of the 2018 Act or any provision made under it, where a recipient receives relevant services from more than one provider in connection with the same matter (such as where a recipient of such services receives them from both a solicitor and a claims management company in relation to the same claim).
40. The Scottish Government is mindful that a degree of regulation will be provided by the professional rules of the Law Society of Scotland (for solicitors) and of the Financial Conduct Authority (for claims management companies) and general consumer protection legislation will also apply, for example, a ‘cooling off period’ may apply under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. Sheriff Principal Taylor recommended that there should be a 14-day cooling off period after a client enters into a damages based agreement which would be mandatory, save in circumstances where a client’s interest would be prejudiced, for example, a claim being time-barred should it not be raised before the expiry of the 14-day period. Scottish Government regulations do not require to cover matters that are adequately provided for by other means. If, of course, it emerges for one reason or another that the initial affirmative regulations made by Scottish Ministers are not sufficiently prescriptive, then it is open to the Scottish Government to bring forward more robust affirmative regulations.
41. The Scottish Government believes that regulations should require that the following obligations must be included in a success fee agreement:
a) Success fee agreements must be probative, that is, self-proving under the Requirements of Writing (Scotland) Act 1995, as amended by the Land Registration etc. (Scotland) Act 2012, with particular reference to electronic documents.
b) Details of the claim or proceedings to which the agreement relates, including:
- the circumstances out of which the claim arises; and
- the anticipated damages and/or other civil remedy sought in the claim.
c) A statement of what is covered by the agreement. This will normally be the work carried out by the provider of the relevant services to the recipient of those services in relation to the recipient’s claim. This could relate to a personal injury action, but could be any kind of civil litigation other than those discussed in section 3 of this consultation.
d) A statement that the terms of the success fee agreement take precedence over the provider’s normal terms and conditions in situations where there is a conflict.
Success fee calculation
e) Details of how the success fee is to be calculated under either a damages based agreement or a speculative fee agreement, both of which are success fee agreements. In both cases, the success fee will be subject to the cap discussed in chapter 2 of this consultation.
f) In circumstances where there is more than one provider of the relevant services in relation to the same claim, only one success fee will be payable by the recipient and this will the equivalent of the sum payable under the regulations on success fee caps and as if there had only been one provider of relevant services.
g) In some commercial cases, where the agreement is for a lower fee to be paid (rather than no fee) in the event of the claim being unsuccessful, details of how the lower fee is to be calculated.
h) If the value of the claim should change as a result of further information from experts or other reliable sources, the provider of the relevant services must inform the recipient in writing.
Statement of indicative payments
i) Statement of indicative likely payments due by the recipient to the provider of the relevant services.
Obligations of recipient to provider
j) The obligations of the recipient to the provider to enable the provider to progress the claim.
Obligations of provider to recipient
k) The Scottish Government believes that the obligations of the provider to the recipient should include the following:
- Provision of regular updates to the recipient and consultation with them on any major developments including offers from the defender.
- In personal injury claims, a statement that the only cost to the recipient of the relevant services will be (1) the success fee and (2) insurance premiums payable for After the Event Legal Expenses Insurance (if any).
- In personal injury claims, a statement that the provider will be entitled to retain any judicial expenses recovered from the opponent, but will also be liable to pay all outlays incurred in the case.
- In personal injury claims, a statement that any damages for future loss (for example in relation to future income loss or the cost of personal care) obtained in connection with the claim will be included in the amount of damages if the future element is awarded as a lump sum of over £1 million, but only if the conditions in section 6(5) and (6) of the 2018 Act are met.
Complaints and dispute resolution
l) A statement of the complaints procedure to be followed in the event of the recipient considering that the provider of the relevant services is failing in their obligations.
m) Provision for the resolution of disputes between the provider of the relevant services and the recipient of those services. The Scottish Government believes that the use of a form of alternative dispute resolution such as arbitration or mediation by an independent arbitrator or mediator with experience of success fee agreements should be the default method of resolution, but would welcome views on how best to resolve disputes regarding success fee agreements should be resolved.
Failure to comply
n) In circumstances where there is failure by the provider of a success fee agreement to comply with section 7(1) or (2) of the 2018 Act or the regulations made by Scottish Ministers under section 7(3), regulations will provide for:
- The success fee agreement and any obligation to pay a fee or charge under the agreement being unenforceable or unenforceable to a specified extent;
- The recovery of any amounts paid under the agreement; and
- The payment of any compensation for any losses incurred as a result of paying amounts under the agreement.
o) Details of the circumstances in which a provider may terminate the agreement and charge the recipient.
p) The provider must provide in the agreement details of the rates to be charged in such an event and must provide details to the pursuer if those rates change.
q) Any other expenses due to be paid by the recipient, for example, expenses awarded by the court to the defender in the event of inappropriate conduct by the recipient in connection with the claim or proceedings as specified in section 8(4) of the 2018 Act, or premiums for after the event insurance.
r) Provision that the recipient may terminate the agreement and will not be responsible for any expenses awarded by the court to the defender in the event of inappropriate conduct by the provider of relevant services in connection with the claim or proceedings as specified in section 8(4) of the 2018 Act.
s) Details of when the recipient may otherwise terminate the agreement and not incur charges from the provider. This might include where the provider is judged to have provided an inadequate service or is found guilty of misconduct by its professional regulator or the Scottish Legal Complaints Commission.
Inappropriate arrangements for success fee agreements
42. The Scottish Government does not consider that it is appropriate for the following kind of arrangement to be included in a success fee agreement.
43. In circumstances where the provider has come to the conclusion that the recipient is unlikely to win, the provider may withdraw from the agreement. It is understood that under some existing success fee agreements, the recipient may be responsible for the original provider’s fees and outlays up to the point when the agreement is terminated by the provider, but only if the recipient does ultimately receive a financial benefit from the claim as a result of it being pursued by another provider.
44. The Scottish Government would welcome views on this, but it seems inappropriate that, in circumstances where one provider has taken a decision, based on their professional judgment, to withdraw from an agreement because they do not feel that the claim is going to be successful, they may still benefit financially as a result of the successful perseverance of another provider, but at the expense of the recipient of the relevant services. In other words, the client may receive less of his or her financial benefit because they may have to pay part of the damages received to a provider who withdrew from the agreement because they made a misjudgement that the claim would not be successful. This introduces the sort of uncertainty that the 2018 Act is trying to eliminate.
45. It is possible that arrangements may be put in place whereby the original provider may be paid an reasonable proportion of the expenses recovered by the successful agent from the defender if these relate to work done by the original provider.
46. As noted above, however, it is proposed that in circumstances where there is more than one provider of the relevant services in relation to the same claim, only one success fee will be payable by the recipient and this will the equivalent of the sum payable under the regulations on success fee caps and as if there had only been one provider of relevant services.
47. The Scottish Government wishes to make it clear that it does not believe that personal injury or any other kind of action should be funded by a combination of legal aid and a success fee agreement. In other words, it does not think that legal aid and a success fee agreement should co-exist in the same case.
48. The reason for this is quite simple. If an injured party who is seeking damages enters into a success fee agreement with a provider of relevant services, then, under section 6(2) of the 2018 Act, that party is not liable to make any payment, including the outlays incurred in providing the service, regardless of whether damages are obtained other than the success fee if the case is successful. The party therefore has no need to apply for legal aid as he or she will not have to pay anything to the provider of relevant services apart from the success fee under the success fee agreement and only then if the case is successful. There is therefore no reason for the provider to apply for legal aid funding.
49. A provider of relevant services will be entitled to receive both the success fee under a success fee agreement and expenses recovered from the opponent in the event of success. There is therefore no justification for that provider to receive funding from the Legal Aid Fund which the client does not actually require because of the provisions of section 6(2).
50. In other kinds of cases (that is, non-personal injury), the success fee payable will be up to 50% of the damages obtained if the case is successful. In view of this level of reward for the provider, it seems reasonable that the provider of the relevant services should fund the case themselves, with no state funding, potentially with the assistance of a commercial third party funder.
51. The Scottish Government is mindful in this regard that success fee agreements are not new, and in practice it has not been necessary for the beneficiaries of success fee agreements to have recourse to the Legal Aid Fund. Further, the Scottish Government takes the view that section 32(a) of the Legal Aid (Scotland) Act 1986 already has the effect of precluding a solicitor or counsel providing legal aid from taking a success fee during any period when legal aid was available.
52. The Scottish Government considers it desirable that professional and regulatory bodies make it clear that it is not appropriate for providers of relevant services to apply for legal aid when a success fee agreement is in prospect. The Government would welcome views on whether formal Government regulation is required: that possibility is still available in the light of experience even if it were to be decided that no formal Government regulation was required at least for the time being.
Change in the basis of funding
53. It is possible that a client may begin a claim or action with assistance from a solicitor who is able and willing to undertake the work under advice and assistance or civil legal aid, as appropriate. If the client, for whatever reason, moves to another solicitor or provider of relevant services, the second solicitor may enter into a success fee agreement with the client. It would be important for all parties, and the Scottish Legal Aid Board, to be sighted on the change and any applicable consequences. For example, a change in the basis of funding has potential consequences for the application of section 3(2) and 3(3) of the 2018 Act. It may also be useful for case-end responsibilities to be clearly designated.
54. It does not seem likely that a client would move from funding by success fee agreement to legal aid, but the Scottish Government would welcome any views on whether this ever occurs.
55. The Government would also welcome views on whether changes in funding requires formal Government regulation, whether in relation to notification and information requirements, or the mechanics of administration of case-end formalities, on the same basis as noted previously that this may not be required at present, but the possibility remains in the locker should it be deemed necessary.
Email: Michael Green