PERSONAL INJURY: An Introduction to Scotland

Over the past year, several aspects of practice have been at the forefront of the minds of personal injury practitioners.

One of the most significant reforms in this area in recent years was the introduction of qualified one-way cost shifting (QOCS) in June 2021. The provisions apply only to personal injury actions and allow the pursuer (claimant) to benefit from QOCS, provided they conduct proceedings in “an appropriate manner”. This means that, if their claim is unsuccessful, they are protected from meeting the expenses (costs) of the other side. That protection can only be removed in limited circumstances, principally if the claimant or their legal representative makes a fraudulent representation, acts in a way that is “manifestly unreasonable” in connection with the claim or proceedings, or acts in a way that amounts to an abuse of process.

The Scottish courts have considered the QOCS provisions in several cases over the past year and it has been positive to see a body of case law developing in this area, particularly addressing how the exceptions should be interpreted. The decisions make it clear that QOCS will be disapplied only in exceptional circumstances and emphasise that if a claimant is unsuccessful following an evidential hearing, it will not necessarily follow that their behaviour, or that of their agents, in pursuing the claim will be considered manifestly unreasonable or an abuse of the court process. The nature of litigation means that one party will almost invariable “lose” and it does not automatically follow that they have behaved inappropriately in maintaining their position.

The decisions also confirm that the threshold for establishing “manifestly unreasonable” behaviour, fraudulent representation or abuse of process is high. The overall message is that defenders’ agents should think carefully before asking the court to disapply the protection of QOCS and that any suggestion that the claimant or their agents have behaved in a way that merits the removal of QOCS protection should not be made lightly. This is of some comfort to claimants’ agents who need to be able to pursue cases and represent their clients without fear that, if the case ultimately fails, their client will be exposed to the risk of having to meet the other side’s expenses.

There was a suggestion from the insurance industry and their legal representatives that the introduction of QOCS would lead to an increase in claims without merit being pursued. However, the latest civil justice statistics in Scotland published earlier this year indicate that the overall downward trend in personal injury actions continues. With the exception of 2020-21, there have been between 7,500 and 9,500 personal injury cases initiated each year in the past decade. In 2021-22, there were 7,598, up 12% from 2020-21, but still well below the levels seen before the pandemic.

Another aspect of personal injury practice that insurers and those representing them had suggested might lead to an increase in actions raised in Scotland is the difference in the discount rate in Scotland, compared to the rate in England and Wales.

The discount rate is a percentage used in the calculation of lump sum damages awards for future loss claims such as earnings or care costs. It is designed to reflect the fact that someone receiving a lump sum payment may invest this and would expect to get a return on that investment. Applying the discount rate is intended to make sure that the amount received reflects the return that would be earned if the lump sum received were to be invested, with the intention of avoiding over-compensation.

For well over a decade, the discount rate was the same in Scotland as in England and Wales at 2.5%. However, in 2019, following a review of the discount rate in both jurisdictions, the rate in England and Wales was adjusted to -0.25%, whereas in Scotland it is -0.75%. The reasons behind this variation are largely due to the different methods used to calculate the rate.

The difference in rates provoked speculation about the prospect that compensators would face paying higher levels of compensation in Scotland. It was also suggested that it would lead claimants who had sustained serious injuries to “forum shop” and choose to bring proceedings in Scotland rather than in England to take advantage of the lower discount rate. This has certainly not been reflected in our experience.

The discount rate provisions on both sides of the border include a requirement that the rate be reviewed after five years, so the reviews will take place in 2024. In preparation, the devolved administrations in Scotland and Northern Ireland issued a joint request for views on whether any changes should be made to the range of factors to be taken into account when calculating the discount rate. Of significance is the call for views on whether there should remain a single discount rate or whether, as is the case in some other jurisdictions, there should be dual or multiple rates.

The use of more than one discount rate is based on the assumption that the longer funds are invested, the more risk the investor can take, and that approach can lead to higher returns. One option under consideration is whether different rates could be applied based on the period that the award is supposed to cover, so a higher rate would be applied to damages for claimants with longer life expectancies.

Given the lack of certainty over inflation levels and with interest rates expected to rise, a review of the discount rate is welcome and timely, but we have reservations about the introduction of dual or multiple rates. Few other jurisdictions have experience with such rates, so there is little evidence of how these would work in practice. Our concern is that dual or multiple discount rates would place additional pressure on claimants who have suffered catastrophic injuries. Claimants already face a risk under the existing system because they are expected to invest their damages to try and ensure that they have sufficient funds to meet their needs for the rest of their lives. To expect them to become involved in investment practices that carry a higher risk in order to limit the possibility of under-compensation seems unjust.

The issue of recovery of English agents’ and counsel’s fees in Scottish litigation has been topical, with the Court of Session, Scotland’s highest civil court, providing decisions in a couple of cases which make it clear that whether those fees can be recovered from the unsuccessful party comes down to a question of reasonableness.

Solicitors from other jurisdictions, particularly England and Wales, sometimes conduct litigation in the Scottish courts, instructing Scottish solicitors to act as their agents. While there is no suggestion that English solicitors’ fees for particular pieces of work are not recoverable in Scottish litigation, those fees will only be allowed if they are reasonable for the proper conduct of the case. If the claimant could have instructed Scottish solicitors directly but chose instead to engage the services of solicitors elsewhere, those solicitors’ fees are likely to be open to challenge.