England and Wales have operated pre-action protocols since the
Civil Justice reforms were introduced in 1996, on the
recommendation they would "build on and increase benefits of early
but well-informed settlement which genuinely satisfied both parties
in dispute." Until now, no equivalent provision has existed in
Scotland. With effect from 1 January, however, a pilot scheme will
be introduced north of the border, applicable on a voluntary basis
to accident claims up to a value of £10,000.
Background
The origin of this development lies in recent modifications to
the Scottish fee structure for claims settled before litigation.
Originally, such fees were quantified with reference to a scale
fixed by the Law Society of Scotland, representing a percentage of
the settlement figure. However, in January 2004 the Law Society of
Scotland - without consultation with the liability insurance market
operating there - sought to increase this by introducing an
'investigation fee'.
In effect this inflated the fee payable on a settlement over
£1500 by approximately £625. Perhaps not surprisingly, the
liability insurance market indicated that it was not prepared to
accept this substantial rise and stalemate ensued. The prospect of
litigation surrounding fee disputes prompted insurers to recognise
this as an opportunity to discuss the introduction of PAPs.
Over the last two years, a working party from the Law Society of
Scotland has been in discussion with the Forum of Scottish Claims
Managers, which represents virtually all of the principal insurers
writing liability business in the Scottish market. Insurers
indicated that they would be prepared to pay an increased fee in
return for the introduction of a voluntary PAP and the terms of
that protocol have now been agreed by both sides (See Appendix 1
"Key features"). (See Appendix 2 Hyperlink "Pre-action
Protocol:Joint Statement which reflects the philosophy behind the
PAP, and relevant fee structure on which it operates").
Procedure under the protocol
The PAP operating in England and Wales has provided the starting
point for the Scottish one but, as one would expect, a 'kilt' has
been put on it.
The process is initiated by a letter of claim from the
claimant's solicitor, with styles provided. Intimation can either
be directed to the insurer, where their identity is known, or to
the defendant but the timetable only starts to run from the date
upon which the insurer receives it. The letter incorporates
information required by insurers to enable them to initiate
handling an investigation, including: the date, place and
circumstances of the accident; details of any common law and/or
statutory breaches alleged; description of the injuries sustained;
and any loss of earnings suffered. Simultaneously, or at a later
stage, the claimant's solicitor can request documents regarded as
material under a Standard Disclosure list and relevant to the
claim.
The insurer is required to acknowledge the letter of claim
within 21 days and confirm the claim will be dealt with under the
protocol. They then have three months for investigations, at the
conclusion of which they must indicate whether liability is
admitted or denied and whether contributory negligence is alleged.
Reasons must be given for the latter two. If liability is denied,
the documents requested by the claimant must be provided, whereas
an admission of liability will bind in the event of subsequent
proceedings, unless it is alleged that the claim is fraudulent.
If liability is admitted the claimant instructs a medical report
within five weeks of the admission, and this report must be
disclosed to the insurer within five weeks of its receipt. The
insurers may ask supplementary questions of the examiner, via the
claimant's representative, and parties may agree that the insurer
will instruct the medical report. Either way the claimant's
representative agrees to disclosure of all relevant medical
records.
Where liability is admitted, the claimant's representative will
send the insurer a Statement of Valuation of Claim with supporting
documentation. The former is then obliged to delay issuing
proceedings for five weeks, starting from the date on which the
insurer receives the Valuation, with the intention of enabling
parties to consider whether the claim is capable of settlement. The
insurer has a corresponding five weeks within which to offer
settlement or serve a counter-schedule.
Assuming that settlement is reached then the principal sum and
the enhanced scale fee are payable within five weeks, failing which
interest runs at the judicial rate from the date of settlement
until payment.
Comment
This new protocol is open to be used by any claimant's solicitor
or insurer in relation to any accident claim - or indeed a claim of
any nature - if both sides sign up. The 'carrot' from the claimant
solicitors' perspective is the payment of an enhanced level of fee,
while the insurers stand to benefit from avoiding unnecessary
litigation. This is particularly significant where jurisdictional
limits in the Court of Session (the equivalent of the High Court)
are absurdly low - any claim of £1500 or more can be litigated
there. Furthermore, judicial scales of costs for litigated cases
both in the Court of Session and the Sheriff Court have
substantially increased in recent times.
As indicated already, the scheme is voluntary and intended to
operate on a 'pilot' basis for an initial two year period.
Consequently it will not immediately form part of formal Court
procedures. However, it is open to either party to lodge voluntary
protocol communications "for the sole purpose of assisting the
Court in any determination of expenses". Initially it is unlikely
that a Court will pay much heed to the protocol's existence, but
the extent of take up - coupled with any effect of reducing
litigation - is likely to be of considerable interest to the
Scottish Executive, and the Rules Council of both the Court of
Session and the Sheriff Court. These bodies have all expressed an
interest in the perceived 'compensation culture' and the fact that
the Better Regulation Task Force's report identified the existence
of PAPs as being helpful in avoiding such a culture's development.
No doubt insurers will also watch take up with considerable
interest, particularly in light of past confusion relating to the
application of such protocols in Scotland. From 1 January that
uncertainty could be extinguished if both sides choose to sign up
to this new development north of the border. Though the PAP is
based on discussions with the Forum of Scottish Claims Managers, it
is not restricted to use by Insurers who are members of that body.
It is to be anticipated that claimant's Solicitors will seek to
invoke the PAP with all insurers, and in our view there is no
reason why they should not proceed on this basis.
It is to be anticipated that where claims are intimated prior to
January 2006 claimant's Solicitors will seek the enhanced fee
following settlement. It is clear that this fee is only applicable
to claims intimated after 1st January 2006. It is a matter for the
Insurer whether payment of the enhanced fee is an attraction to
avoid litigation in a particular case, but they can argue against
liability for the costs of litigation occasioned soley by the
unwillingness of the claimant's solicitor to settle without payment
of the enhanced fee.
Appendix 1 Scottish Pre-Action Protocol: key features -
Only applicable to claims intimated after 1 January 2006.
Voluntary on both sides - neither a claimant's solicitor, nor an
insurer, can be forced to deal with a claim under the protocol.
Only applicable to accident claims involving a personal injury
element. Property damage claims are excluded except in so far as
damage to property forms part of a claim involving personal
injuries.
Primarily designed for "road traffic, tripping and slipping and
accident work cases where the value of the claim is up to £10,000."
However, "there is nothing to prevent parties by mutual agreement
dealing with any claim of a higher value under the protocol."
The increased scale fee (which will include an investigation fee
of £300 on settlements up to and including £1500 and £660 on
settlements over £1500) will only be payable in those cases which
are settled under the protocol.
Gordon Keyden