How the court measures "Success"

The Court of Session has recently ruled that “success fees” charged by solicitors in Scottish litigation are not recoverable from the other party. This is a welcome judgment for defenders and their insurers given that a significant number of claims are funded using success fee arrangements in Scotland.

Introduction

The Court of Session has recently ruled that “success fees” charged by solicitors in Scottish litigation are not recoverable from the other party. This is a welcome judgment for defenders and their insurers given that a significant number of claims are funded using success fee arrangements in Scotland.

Background

Ms Weir defended an action brought by Cabot Financial (UK) Ltd ("Cabot") in which they sought payment of approximately £7,000. She entered into an arrangement with her solicitors meaning the solicitors would receive payment of their fees, as well as a success fee which was 70% of the solicitors' fees but not more than 25% of any settlement received.

By the time of the evidential hearing, Cabot abandoned their case and the court awarded expenses (costs) in favour of Ms Weir. The award contained two distinct parts. For part of the case, Ms Weir was awarded an ordinary level of costs (in Scotland, called fees on the party/party scale) and for part of the case on an indemnity basis which is an enhanced level of costs (in Scotland, called fees on the agent/client scale).

At the point of submitting the account of expenses for taxation (detailed assessment), Ms Weir’s solicitors sought reimbursement of the success fee. Initially, the auditor (costs judge) granted the 70% uplift because the success fee was an agreement “which other prudent or sensible clients would have agreed”.

When the matter came before the sheriff, that decision was reversed with the court finding that expenses were limited to the proper expenses of conducting the case. The success fee, by contrast, was not a fee relevant to the conduct of the case but was an incentive enabling the case to be brought in the first place.  The sheriff also found that the success fee had been miscalculated and it was capped at 25% of the sum Ms Weir had been sued for as opposed to 70% of their whole fees.

The Sheriff Appeal Court agreed with the sheriff. Ms Weir appealed to the Inner House of the Court of Session.

The appeal to the Inner House and submissions

It was argued for Ms Weir that indemnity costs required Cabot to pay the amount which Ms Weir was obliged to pay her solicitors, including the success fee. This was because indemnity costs "caused the paying party to step into the shoes of the client". The success fee was an expense "of process", meaning a step forward in the case, and was therefore recoverable.

Counsel for Cabot argued that the success fee was not an expense incurred as part of the court process. Cabot pointed to the Taylor Report (Review of Expenses and Funding of Civil Litigation in Scotland) which was also premised on success fees being irrecoverable. It was simply a "bonus for risk".

Decision

Delivering the lead judgment in the appeal, the Lord President was of the view that:

…the allowable expenses must relate directly to the litigation; i.e. the process…. the charges must be for work done as part of the judicial process and not for items which are incurred outside that process

Ultimately, the court sided with Cabot and agreed that the success fee was not an expense of process.

It was strictly a "private arrangement between solicitor and client which is outwith the boundaries of the process…it is not related to the work which the solicitor does in carrying out that task". In essence, the court found it was simply "an incentive" to allow Ms Weir's solicitors to represent her.

The argument that the solicitor's fee and the success fee were distinguished in the solicitor's terms of business, also found favour with the court.

Please contact Sarah or Bilaal if you would like to discuss.