It is fascinating to speculate on which trends will emerge in the Scottish litigation market as we move into 2023. These five trends are expected to emerge in 2023, including insolvencies and class action, changes in legal regulation, and availability of funding for litigation.
1) The Insolvency Litigation is on the Rise
We expect to see an increase in the number of insolvency lawsuits, starting with the obvious.
The expected ‘tsunami of insolvencies’ that followed the pandemic is not yet manifested. While London is beginning to see larger waves than last year in this practice area, Scotland is still seeing a significant increase in cases.
This trend is expected to change over the next year, and there are already signs that it is. While larger insolvencies may cause ripple effects on the market, the true reason for the increase in cases could be due to the conduct and actions of directors during the pandemic. There is already a rise of claims against directors in Scotland, whether they are filed by creditors or shareholders. It seems likely that this trend will continue.
2) Directors may be liable for claims
We predict that insolvency litigation will continue to grow, as well as claims against directors.
We saw many shareholder petitions in 2022 seeking relief from unfairly prejudicial behavior under section 994 of The Companies Act. These types of claims, along with derivative proceedings, will likely be a part of the legal landscape by 2023.
The pandemic is certainly to blame, but it’s interesting to consider the causes of the increase in claims. People can behave in ways they would not otherwise, or under financial pressure from their bosses. Sometimes these decisions can be criticized. Directors of companies need to be aware of the possibility of claims over the next year. Early advice is often key to protecting their position.
3) Class Actions have the potential to grow
Class actions have become a major feature of the legal market in London and other parts of Europe. They are also the main focus of some of the leading litigation funding providers. Group proceedings, which are our equivalent to class actions in Scotland, have taken a little longer to get off the ground.
There are many examples of successful cases to be pointed to but there is still room for growth in the market. However, it is not enough to be willing to file class actions on behalf of clients. Many firms won’t have the resources or size to adequately service such proceedings. It is likely that the larger players in the Scottish market will be involved when there is an opportunity.
4) Litigation funding
Recent increases in litigation funding in Scotland have had a knock-on effect on the types of claims we see here.
Funders have a great opportunity to fund professional negligence claims if the defender is covered and there is a guaranteed return in the event that the case succeeds. This type of claim, which can be made against a wide range of professionals, has been a part of the funding market in England, Wales and other countries for a long time. But, it is possible that this trend will also emerge in Scotland.
The challenge in Scotland is the value. The market for litigation funding is still struggling to serve the middle-market and very high-value claims. These cases are more common in Scotland than elsewhere.
5) Scottish Legal Regulation Changes
Depending on the speed at which the changes are approved, there will be some changes in legal regulation in Scotland by 2023. We expect that most of the changes made in the Roberton Report regarding the review of Scottish legal services will not be implemented. Two changes are however crucial.
The Law Society was first authorized as an approved regulator of Alternative Business Structures in Scotland at the end 2021. To increase competition in the Scottish legal market and increase choice for consumers, the Scottish Government has decided to increase ABSs in Scotland. This will allow solicitors and non-solicitors alike to open a joint business.
The reform of legal regulation will ensure that the Scottish Legal Complaints Commission continues to be involved in service complaints. However, the Law Society of Advocates and Faculty of Advocates will continue to handle conduct issues. It appears that some criticisms of the current system were taken into consideration. The hope is that regulators will be able to concentrate more on consumers and outcomes and less on the process.
Overall, 2023 is likely to be a busy year for Scottish attorneys. There are real opportunities for those who embrace the new legal market.
Richard McMeeken – Partner and Solicitor Advocate
Quartermile Two, 2 Lister Square Edinburgh EH3 9GL
Tel: +44 0131 247 1035
Richard McMeeken, a partner and solicitor advocate in Morton Fraser’s commercial litigation team is an independent Scottish law firm.