As we enter 2023, it is interesting to speculate about which trends we will see emerging in the Scottish litigation market in the coming year. From insolvencies and class actions to changes to legal regulation and the availability of litigation funding, we anticipate these five trends in 2023.
1) Insolvency Litigation is Due to Rise
Starting with the most obvious, we are expecting to see a marked increase in insolvency litigation.
The ‘tsunami’ of insolvencies that was anticipated following the pandemic has not yet materialised, and while London is starting to see bigger waves in that practice area than it did last year, Scotland is yet to see as significant an increase in cases.
It is likely that this will change in the year ahead and there are signs that it is already starting to do so. This may be driven by larger insolvencies which cause ripple effects in the market, but the real uptick in cases may be in relation to the conduct of directors during the pandemic. Scotland is already seeing a rise in claims against directors either by insolvency practitioners, creditors or shareholders and it seems clear that this trend is likely to continue.
2) Directors May Be Liable to Claims
Beyond insolvency litigation, we predict that claims against directors are also likely to rise.
In 2022, we saw several petitions made by shareholders seeking relief from unfairly prejudicial conduct under section 994 of the Companies Act. Those sorts of claims, combined with derivative proceedings, are likely to be a feature of the legal landscape in 2023 as well.
While the pandemic may be responsible, it is interesting to reflect on the reasons for the increased claims in these areas. Financial pressure on businesses or the individuals in charge can lead to people behaving in a way that they otherwise would not, and occasionally the decisions taken when under that sort of pressure can be open to criticism. So, even beyond insolvency, company directors need to be mindful of the prospect of claims in the coming year and early advice will often be key to protecting their position.
3) Class Actions Have the Potential to Grow
In London and across much of Europe, class actions are becoming a big feature of the legal market and are the focus for some of the top litigation funding providers. In Scotland, group proceedings (our equivalent of class actions) have been slightly slower to take off.
While there are successful examples to point to, there is an opportunity for growth in this market in the coming year. Of course, being willing to pursue class actions for clients and being able to service them are different things; many firms will not have the size nor resources to properly service proceedings of this kind. Therefore, where an opportunity arises, it will likely be the bigger players in the Scottish market that are involved.
[ymal]
4) Litigation Funding
Recently, there has been an increase in the availability of litigation funding in Scotland, which has had knock-on effects in the type of claims that we see in this jurisdiction.
Professional negligence claims provide a good opportunity for funders where the defender is insured and, therefore, a return guaranteed in the event of success. These sorts of claims, against a broad range of professionals, have long been a feature of the funding market in England and Wales, but we may see it emerge in Scotland this year too.
Yet the challenge in Scotland is value. Generally, the litigation funding market still struggles to service the mid-market and the very high-value claims, which often arise south of the border, appear more infrequently in Scotland.
5) Changes to Legal Regulation in Scotland
Finally, there will be changes to legal regulation in Scotland in 2023, depending on how quickly the proposed changes are adopted. We anticipate that the majority of changes in the Roberton Report on the review of legal services in Scotland will not be implemented. However, two changes will be particularly important.
First, at the end of 2021, the Law Society was authorised as an approved regulator for Alternative Business Structures (ABSs) in Scotland. The Scottish Government is now determined to increase ABSs in Scotland, allowing solicitors and non-solicitors to set up in business together to increase competition and choice for consumers in the Scottish legal market.
Secondly, the reform of legal regulation will see the Scottish Legal Complaints Commission maintain its role in service complaints, with the Law Society and Faculty of Advocates continuing to deal with conduct issues. However, crucially, it appears that some of the criticisms of the current system have been taken on board and the hope is that the legislation will allow regulators to focus more on consumer experience and outcomes than on the process itself.
All in all, 2023 has the potential to be a very busy year for Scottish lawyers and for those quick to embrace the changing legal market there are real opportunities to be explored.
Richard McMeeken, Partner and Solicitor Advocate
Quartermile Two, 2 Lister Square, Edinburgh EH3 9GL
Tel: +44 0131 247 1035
Richard McMeeken is a partner and solicitor advocate in the commercial litigation team at independent Scottish law firm Morton Fraser.
