Read all about it

Qualified one way costs shifting (“QOCS”)

October 17, 2016
  1. QOCS fully retrospective except where additional liability claimed.
  2. Costs orders NOT limited to amount of damages.
  3. Claimant’s pre-Part 36 costs may be eaten into.
  4. Court NOT limited to making orders only when defendant’s Part 36 not beaten, even when no dishonesty.
  5. No costs payable by a claimant who accepts defendant’s Part 36 offer out of time.
  6. “Fundamentally dishonest” test replaces “Fraud”.
  7. New CPR 44.13 to 44.17 set to be the most contentious legislation in funding and costs history.

Qualified One Way Costs Shifting has been introduced by the Civil Procedure (Amendment) Rules 2013 and the scheme is set out in CPR 44.13 to CPR 44.17 and the relevant Practice Direction is the 60th Update Practice Direction Amendments and QOCS is dealt with in Section II, subsection 12 at pages 33-35 of the update.

Scope

It applies only to personal injury cases, including clinical negligence matters, but it is the Government’s stated intention to introduce it for all areas of civil litigation. At present QOCS applies to claims for damages:

(a) for personal injuries;

(b) under the Fatal Accidents Act 1976;

(c) which arise out of death or personal injury and survive for the benefit of an estate by virtue of section 1(1) of the Law Reform (Miscellaneous) Provisions Act 1934.

All relevant cases, irrespective of the parties’ financial circumstances, are covered.

The idea

The basic concept is that the claimant will not be required to pay the defendant’s costs if the claim fails, but the defendant must pay the claimant’s costs in the usual way if the claim succeeds.

On the face of it this avoids the need for claimant after-the-event insurance and thus dovetails with the abolition of recoverability of the premium from the losing party achieved by section 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and which came in to force in relation to insurance policies taken out after 31 March 2013. The theory is that the disadvantage to corporate defence insurers of not recovering costs in the event of victory is outweighed by not having to pay recoverable after-the-event insurance premiums in the event of defeat.

Claimants in personal injury cases could proceed in the certain knowledge that they would never be liable for the defendants’ costs; consequently there was no need to take out after-the-event (ATE) insurance; worthless claims would be filtered out by the claimants’ solicitors who would not take on useless, and therefore non-fee earning, cases.

In theory this is an excellent idea. We already have no-costs regimes in employment and family work and the Small Claims track is a no-costs zone whatever the type of work. Part 36 is not applicable to any of those areas and is specifically stated not to apply to Small Claims matters.

The reality

However, the continued existence of the full force of Part 36 of the Civil Procedure Rules in QOCS cases, makes QOCS almost pointless.

True it is that, subject to certain exceptions dealt with below, a claimant whose claim fails completely will not have to pay the successful defendant’s costs, although a full, but generally unenforceable, costs order will be made. This has led Judge Michael Cook to ask

“…under QOCS might even the weakest case now have a nuisance value? Will this be a blackmailer’s charter?”

The coach and horses driven through QOCS is the fact that a claimant who succeeds, but fails to beat a defendant’s Part 36 offer will be ordered to pay all of the defendant’s costs from the date of expiry of the time for accepting the offer, although such order is only enforceable without leave of the court up to the level of damages actually awarded by the court.

This is the “damages wipe-out” option, or as Judge Michael Cook puts it

“So, they may lose all their damages in paying costs but will not actually be out of pocket.”

The position is simple: no QOCS system can possibly work alongside the continuing existence of Part 36 in such proceedings. The current system in England and Wales implicitly recognizes this; that is why by virtue of CPR 27.2(1)(g) Part 36 specifically does not apply to the non-costs bearing Small Claims Track. Neither is there anything similar to Part 36 in other non-costs bearing areas of law such as family law and Employment Tribunal cases.

One Way Costs Shifting has considerable merit. Interestingly the NHS Litigation Authority draft pilot for claims of £25,000 or less is avowedly a One Way Cost Shifting scheme and NOT a Qualified One Way Costs Shifting scheme. Qualified One Way Costs Shifting, with Part 36 remaining in full force, is an unworkable disaster, with claimants being forced to settle for a fraction of what the claim is worth, or having to fund expensive after-the-event insurance, which avoids the Part 36 problem, but again leads to the claimant losing much of their damages.

Thus an entirely reasonable and honest claimant who wins his or her case but just fails to beat the defendant’s Part 36 offer is liable for all of the defendant’s costs from the expiry of the date for accepting the Part 36 offer in the usual way.

The only change from the pre-1 April 2013 regime is that the sum of costs paid to the successful defendant cannot generally exceed the amount of damages awarded, although even that is subject to numerous exceptions.

Thus a claimant faces loss of all damages but nothing more, as far as liability to the successful defendant is concerned.

However, the claimant will also have his or her own legal costs, or more likely disbursements, to deal with in the absence of any ATE insurance. If a claimant does have such insurance he will have to pay for it himself, as of course the case will have been “won”, albeit that it may be a Pyrrhic victory.

Thus in a QOCS case a defendant makes a Part 36 offer. The claimant can accept it or proceed and risk losing all damages AND paying all of his own disbursements from thereon, including Counsel’s fees, court fees and experts’ fees.

It is true that all of these problems exist in all civil work and it could be argued that at least personal injury claimants are off the costs’ hook to a certain, albeit limited, extent.

The difficulty is that in virtually all personal injury cases the defendant is an insurance company, and thus has deep pockets. This problem had largely been averted by the widespread availability of after-the-event insurance, whereby the losing claimant never paid the after-the-event insurance premium and the winning claimant recovered the premium from the defendant insurance company.

It is the combination of the abolition of recoverability of the premium, which itself might lead to the collapse of the ATE market, and the continuation of the full rigour of Part 36 which causes the problem.

What goes round comes round.

I am old enough to remember anguished news reports of victims who had won their cases in relation to terrible injuries but received nothing because of an earlier payment in to court – the forerunner of Part 36.

Generally the Part 36 dice remain firmly loaded against claimants; a claimant only gets an enhancement if judgment is given at a hearing and thus a defendant is free to accept a claimant’s Part 36 offer years out of time with no penalty, whereas a claimant who accepts a defendant’s Part 36 offer out of time pays every penny of costs of both sides from the minute after the expiry date for accepting the offer.

This bias appears time and again in judgments. Take this statement by Mr Justice Henderson in AB v CD[2011] EWHC 602 (Ch):-

“The concept of an “offer to settle” is nowhere defined in Part 36. I think it clear, however, that a request to a defendant to submit to judgment for the entirety of the relief sought by the claimant cannot be an “offer to settle” within the meaning of Part 36…In my judgment the offer must contain some genuine element of concession on the part of the claimant, to which a significant value can be attached in the context of the litigation. The basic policy of Part 36 is to encourage the sensible settlement of claims before trial, or even the issue of proceedings…The concept of a settlement must, by its very nature, involve an element of give and take. A so-called “settlement” which was all take and no give would in my view be a contradiction in terms.

Therefore, a claimant cannot make a Part 36 offer to settle his claim in full and then, if he succeeds in full, seek the benefits of obtaining a judgment as advantageous as his offer.”

Thus a claimant must lose out, must sacrifice part of their damages. The logic of this, if applied to defendant’s Part 36 offer, is that they should EXCEED the value of the claim, otherwise what concession is thedefendant making?

Of course for a defendant to get costs at trial, having lost, it must have made an offer that matches the sum awarded by the court, but for the reasoning set out above, the claimant’s risk is far greater than that of the defendant, and the prospective benefit almost nil. Thus a claimant, in effect, has to accept a substantial discount against the true value of the claim but a defendant does not need to make any such concession.

This all greatly exacerbated by the combination of QOCS and no recoverable after-the-event insurance premiums.

The detail

Qualified One Way Costs Shifting is dealt with very shortly in the Civil Procedure (Amendment) Rules 2013 at new CPR 44.13 to 44.17, and this appears at the end of this piece.

Exceptions

Pre-action disclosure applications are not protected by QOCS, nor are proceedings where a claimant has entered into a pre-commencement funding arrangement before 1 April 2013.

Put simply if, prior to 1 April 2013, there is in place a conditional fee agreement or collective conditional fee agreement or ATE or membership organisation indemnity, then QOCS protection will not apply.

I can understand why, if ATE insurance or membership organisation protection is in place, QOCS should not apply as it would be unfair for a defendant to pay the recoverable ATE premium to a clamant who, on the face of it, is at no risk of paying costs.

However the success fee is to reward the lawyer for taking the chance of getting no fee because the case is lost. What on earth has that got to do with the risk of the defendant’s costs being payable?

Why should a claimant with a CFA with a success fee, but no ATE, lose QOCS protection? Surely it is in the defendant’s interest as well, as they would be off the hook for the ATE premium, the whole point being that it is cheaper for the insurance industry to recover no costs but pay no ATE.

This thinking is as woolly as a mammoth.

A pre-commencement funding arrangement is a creature “as defined in rule 48.2” (new CPR44.17). So, naturally, one looks at new CPR48.2, where at CPR 48.2(1)(a)(i) one will find the following:

“48.2(1) A pre-commencement funding arrangement is-

………..

(i) a funding arrangement as defined by rule 43.2(1)(k)(i) where……”

CPR 43.2(1)(k)(i) defines a funding arrangement as “an arrangement where a person has –

(i) entered into a conditional fee agreement or a collective conditional fee agreement which provides for a success fee…..”

A first day trainee can do better than that.

So QOCS applies to all personal injury proceedings where there is no pre-1 April 2013 recoverable success fee or ATE or membership organisation premium in place.

Retrospection

Thus it is fully retrospective in all other cases, covering cases that have been going on for years, which may come as a shock to insurers.

The transitional provision is new CPR 44.17.

“44.17 This Section does not apply to proceedings where the claimant has entered into a pre-commencement funding arrangement (as defined in rule 48.2)”.

See above for my analysis of this definition, but, as a pre-commencement funding arrangement can, under new CPR 48.2 ONLY be pre-1 April 2013, it follows that any other pre-1 April 2013 arrangement is covered by QOCS.

On the face of it a claimant without a CFA or ATE with, say, a £200,000 costs order against them prior to 1stApril 2013 does not now have to pay. A costs order where the defendant won on liability is worthless. Where the defendant won on a Part 36 offer, then generally the order is only as good as the level of damages recovered by the claimant.

This also highlights one of the odd aspects of the Court of Appeal’s decision in Simmons v Castle [2012] EWCA Civ 1288 re the 10% general damages uplift to all claimants who prior to 1 April 2013 did not have a Conditional Fee Agreement with recoverable success fee in place.

Such a claimant, for example funded by a before-the-event insurance (BTE) policy, will get 10% extra general damages to compensate them for the non recovery of a non-existent success fee AND will benefit from QOCS to avoid them having to buy adverse costs insurance which in fact they already have through their BTE policy.

Furthermore a defendant gets no Part 36 costs protection until a costs order is made, so late acceptance of a defendant’s Part 36 offer does not trigger costs, whereas it did prior to 1 April 2013. So acceptance post 1 April 2013, out of time and the last one, two, three years’ costs liability goes, unless you have a CFA with recoverable success fee or you have recoverable ATE.

However I suspect that the defendant will refuse to pay costs unless a set-off for post-Part 36 costs is made, forcing the claimant to go to detailed assessment, except that if the bill is for £75,000 or less it will be a paper-only provisional assessment in the first instance. I hope that no-one in the Court of Appeal is planning any holiday any time soon.

Retrospective retrospection

Are you free to tear up any agreement providing for the recoverability of an additional liability and thus gain QOCS protection?

The relevant rule is CPR 44.17 which reads:

“This Section does not apply to proceedings where the claimant has entered into a pre-commencement funding arrangement (as defined in rule 48.2).”
New CPR 48.2 is long, complicated, and to use the current common idiom amongst lawyers, drafted by aliens, but CPR 48.2(1)(a)(i)(aa) – I have not made that up – defines a funding arrangement as itself defined by CPR 43.2(1)(k)(i) – I have not made that up either – as where “the agreement was entered into before 1 April 2013 specifically for the purposes of the provision to the person by whom the success fee is payable of advocacy or litigation services in relation to the matter that is the subject of the proceedings in which the costs order is to be made;
or
……..”

This deals with CFAs, (bb) deals with CCFAs, 48.2(1)(ii) deals with ATE and 48.2(1)(iii) with membership organisation self-insurance.

Any one of these disapplies QOCS. By ending any relevant agreement can you disapply the disapplication and retrospectively achieve retrospective QOCS protection?

Thus it depends upon the meaning of “has entered into”. Clearly the better wording would have been “had entered into” or “has ever entered into” which would have put it beyond doubt. “Has” is not tense specific. “Has my client got a CFA ?” is present tense.

It is clearly arguable either way, but equally clearly the intention of Parliament was to disapply QOCS where recoverability of an additional liability was in place, so on the basis that courts should adopt a purposive construction of legislation, my view is that anyone who has ever had a recoverable liability does not get QOCS protection.

Don’t get me started on CPR 48.2(1)(a)(i)(aa) and its reference to the claimant paying the success fee in a pre 1 April 2013 when the whole point of it all is the abolition of recoverability – the client was not allowed to pay the success fee!

With thousands of pages of Jackson related material, this is currently winning the “worst-drafted provision” award, and as the old joke goes, that is with some pretty stiff competition!

Provisional Assessment

What happens in a provisional assessment, where the penalty for failing to do a least 20% better at an oral assessment is an order against you for costs of assessment? Does this, or does this not apply in QOCS cases?

Fixed costs

Likewise fixed costs.

Extent of protection

New CPR 44.14 does indeed limit costs enforcement by the defendant to damages recovered without the permission of the court. (My italics)

CPR 44.14(2) provides that a costs order against a QOCS claimant may only be enforced after proceedings have been concluded and after the costs have been assessed or agreed.

Thus a defendant who has obtained an interim order for costs cannot use it to put pressure on a QOCS claimant prior to all matters being resolved.

Thus a court can make any costs order that it thinks fit, within what is accepted as a very wide discretion in costs matters, and the only restriction is that such a costs order cannot be enforced if it exceeds the amount of damages, unless one of the exceptions in CPR 44.15 or CPR 44.16 is satisfied.

Thus a costs order can be made against a winning claimant who has beaten a Part 36 offer, but is found to have unreasonably refused to mediate, or has exaggerated, or whatever.

Thus CPR 44.15 allows a defendant to enforce “to the full extent of such orders” – that is exceeding damages,without permission of the court, where the proceedings have been struck out on the ground that –

(a) the claimant has disclosed no reasonable grounds for bringing the proceedings;

(b) the proceedings are an abuse of the court’s process; or

(c) the conduct of –

(i) the claimant; or

(ii) a person acting on the claimant’s behalf and with the claimant’s knowledge of such conduct,

is likely to obstruct the just disposal of the proceedings.

Note that the proceedings must be struck out to trigger the costs liability. It is not sufficient that summary judgment has been entered against the claimant.

Often an application to strike out and an application for summary judgment are issued and heard together.

Prior to 1 April 2013 this may have seemed a distinction without a difference. Now it is hugely important. If a judge awards summary judgment against a claimant as compared with striking out the claim, then the claimant will be protected from an adverse costs order.

Note also that a claimant who is the subject of a striking out application may jump the gun and discontinue the proceedings and avoid liability for costs.

In such circumstances the court has no power to re-open the matter to consider any of the striking out grounds that could have triggered a costs liability.

The position is different if the claimant has discontinued in order to avoid a finding of fundamental dishonesty and a consequent costs order. There the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to CPR 38.4 – see Practice Direction 12.4 below.

CPR 44.16(1) allows full recovery, that is over and above damages, with the permission of the court “where the claim is found on the balance of probabilities to be fundamentally dishonest”.

As far as I am aware “fundamentally dishonest” is a new concept in English law. Throughout all reports, recommendations and consultations the term was the much more familiar one of fraud.

Are you OK if the claim is “fairly dishonest”, “quite dishonest”? I was not aware until now that there were degrees of dishonesty.

CPR 44.16(2) also allows full recovery with the permission of the court, but now only “to the extent that it considers just”.

Forgive me but I thought that the general idea was that courts only made costs orders to the extent that they consider just. On the face of it this sanctions unjust orders in all other instances. Remember that in both instances the court has had to consider whether to give permission. One sort of hoped that the court would not exercise its discretion to allow enforcement of an unjust order.

So CPR 44.16(2) allows full recovery with the permission of the court, to the extent that it considers just, where.

(a) the proceedings include a claim which is made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 (other than a claim in respect of the gratuitous provision of care, earnings, paid by an employee or medical expenses);

or

(b) a claim is made for the benefit of the claimant other than a claim to which this section applies.

CPR 44.16(3) allows the court to make an order against a third party in a 44.16(2)(a) case.

The claimant who loses completely and gets no damages at all and who does not fall within the CPR 44.15 and CPR 44.16 exceptions cannot have any costs order enforced against them. This is the effect of CPR 44.14. This is the only new protection and it protects only complete losers (cases not the people!)

Note that a full costs order will be made against a losing claimant; it simply cannot be enforced with or without the court’s permission.

This is why CPR 44.14(3) exists and provides:

“(3) An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record”.

This does not prevent a credit-rating agency taking it in to account; it does stop solicitors and barristers from being struck off or disbarred as there will not be an outstanding or unsatisfied judgment against them.

Discontinuance

The general rule is that a discontinuing claimant is automatically liable for the defendant’s costs. That role is disapplied in QOCS cases for the simple reason that a claimant with a weak case would be better off proceeding to trial and losing rather than discontinuing and being automatically liable for cost.

However there is still a potential liability on discontinuance, as QOCS protection does not apply in various situations, eg credit hire claims, gratuitous care claims etc – see below; so I set out the normal rule on discontinuance.

CPR 38.6

“Liability for costs

(1) Unless the court orders otherwise, a claimant who discontinues is liable for the costs which a defendant against whom the claimant discontinues incurred on or before the date on which notice of discontinuance was served on the defendant.

(2) If proceedings are only partly discontinued –

(a) the claimant is liable under paragraph (1) for costs relating only to part of the proceedings which he is discontinuing; and

(b) unless the court orders otherwise, the costs which the claimant is liable to pay must not be assessed until the conclusion of the rest of the proceedings

(3) This rule does not apply to claims allocated to the Small Claims track.

(Rule 44.12 provides for the basis of assessment where the right to costs arises on discontinuance and contains provisions where a costs order is deemed to have been made and applying for an order under section 194(3) of the Legal Services Act 2007.)”

The court will always make an order for the full extent of the costs and in that sense the name Qualified One Way Costs Shifting is misleading. It suggests that costs orders will not be made against Claimants and that is entirely untrue. All that the new rule does is to limit enforceability of those orders without leave of the court.

Thus a full costs order will be made exactly the same way as before Qualified One Way Costs Shifting was introduced.

Thus the only limitation is that contained in CPR 44.14 which reads as follows:-

(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate of the amount in money terms in any orders for damages and interest made in favour of the claimant.”

Thus it is correct that leave of the court is needed to enforce an order over and above the amount of damages awarded to the claimant.

Thus if a claimant loses entirely, then obviously there are no damages and therefore nothing can be enforced without leave of the court.

If a Part 36 offer is not beaten by the claimant then the order in favour of the defendant in relation to post Part 36 costs may be enforced up to the total amount of the damages without leave of the court.

Set-off

CPR 44.12 reads:

(1) Where a party entitled to costs is also liable to pay costs, the court may assess the costs which that party is liable to pay and either –

(a) set off the amount assessed against the amount the party is entitled to be paid and direct that party to pat the balance; or

(b) delay the issue of a certificate for the costs to which the party is entitled until the party has paid the amount which that party is liable to pay.”

The Practice Direction is silent as to the effect of this rule.

This raises the question as to whether even the claimant’s pre Part 36 costs are at risk of being eaten in to to satisfy the unsatisfied element of a costs order in favour of a defendant when a defendant’s Part 36 offer has not been beaten.

Thus the claimant is awarded £30,000 at court and an order is made in the defendant’s favour for £40,000, leaving an unsatisfied balance of £10,000.

May the defendant set this off against the claimant’s pre Part 36 costs?

Yes, seems to be the clear answer. That situation appears to fall fairly and squarely with CPR 44.12(1)(a).

CPR 44.15 then deals with matters where a full extent of the order may be enforced without leave of the court, and those circumstances are set out there. Again this is not the whole story as by definition a court will have needed to have made an order on one of those grounds, thus effectively triggering full costs enforcement without further leave.

CPR 44.16 provides exceptions whereby the full order may be enforced, over and above the damages awarded, but now only with specific permission of the court.

Fundamental Dishonesty

CPR 44.16(1) deals with fundamental dishonesty; the court has to find that, on the balance of probabilities, the claim was fundamentally dishonest before allowing enforcement of the full order.

It is not clear what constitutes fundamental dishonesty. Does the whole claim have to be fundamentally dishonest, or does it suffice that one claim in one head of damage is false? Can gross exaggeration cause the fundamental dishonesty line to be crossed?

Where there is an allegation of fundamental dishonesty the court will normally direct that issues arising out of such an allegation be determined at trial (Practice Direction 12.4(a)) and where the proceedings have been settled the court will not, save in exceptional circumstances, order that issues arising out of an allegation of fundamental dishonesty be determined. (Practice Direction 12.4(b)).

Where the claimant has served a notice of discontinuance the court may nevertheless direct that issues arising out of an allegation of fundamental dishonesty be determined even though the notice has not been set aside pursuant to CPR 38.4. (Practice Direction 12.4(c)).

Financial Benefit

CPR 44.16(2) provides that orders for costs may be enforced up to the full extent of such orders with the permission of the court, and to the extent that it considers just, where –

(a) the proceedings include a claim which is made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 (other than a claim in respect of the gratuitous provision of care, earnings paid by an employer or medical expenses); or

(b) a claim is made for the benefit of the claimant other than a claim to which this Section applies.”

The Practice Direction in relation to this new rule is the 60th update – Practice Direction Amendments and is contained in section II , subsection 12 which appears at pages 33 to 35 of the Practice Direction, and I have set this out at the end of this piece.

Paragraph 12.2 the Practice Directions states:-

“Examples of claims made for the financial benefit of a person other than the claimant or a dependant within the meaning section 1(3) of the Fatal Accidents Act 1976 within the meaning of rule 44.16(2) are subrogated claims and claims for credit hire.”

I am satisfied that a claim in relation to a minor is not a claim made for the financial benefit of a person other than the claimant. The minor is the claimant, but simply acts through a Litigation Friend, and I am satisfied that QOCS applies to minor claims and that such a claim is not one made on behalf of someone else.

The position is treated as being the same in relation to gratuitous care claims.

Practice Direction paragraph 12.3 states:-

“Gratuitous provision of care” within the meaning of rule 44.16(2)(a) includes the provision of personal services rendered gratuitously by persons such as relatives and friends for things such as personal care, domestic assistance, chid minding, home maintenance and decorating, gardening and chauffeuring.”

Thus in relation to gratuitous care claims, QOCS protection DOES apply, even though the claim is for the financial benefit of another. The position is the same in relation to earnings paid by an employer and medical expenses.

Practice Direction 12.5 reads :-

“The court has power to make an order for costs against a person other than the claimant under section 51(3) of the Senior Courts Act 1981 and rule 46.2. In a case to which rule 44.16(2)(a) applies (claims for the benefit of others) –

(a) the court will usually order any person other than the claimant for whose financial benefit such a claim was made to pay all the costs of the proceedings or the costs attributable to the issues to which rule 44.16(2)(a) applies, or may exceptionally make such an order permitting the enforcement of such an order for costs against the claimant.

(b) the court may, as it thinks fair and just, determine the costs attributable to claims for the financial benefit of persons other than the claimant.”

Rule 44.16(3) confirms that Rule 46.2 applies to QOCS, that is that before a non-party costs order is made that non party must be added to the proceedings and be given an opportunity to be heard by the court.

Paragraph 12.6 of the Practice Direction makes it clear that such orders can exceed the value of damages awarded.

This is confusing, to put it mildly, in that generally it would be difficult to pick out what costs are attributable to the non-protected heads of special damages, as compared with other heads of special damages, and in any event if the claim is won then it is only the claimant’s failure to beat a Part 36 offer which triggers a liability for costs it will be unusual for a defendant to have made an offer in relation to just some aspects of special damages.

This is yet another example of the very poorly thought out provisions in relation to Qualified One Way Costs Shifting.

Exercise

You act for a claimant in a case where you are reasonably confident, but by no means certain, of winning. You value the damages at £100,000.

(A) Under the current regime, with ATE insurance in place to cover own disbursements and adverse costs, including in relation to Part 36, what is the minimum Part 36 offer you would advise the claimant to accept?

(B) Does that figure change, and if so what to, in the new regime, with no insurance in place and no Counsel on board under a CFA and a claimant who will be unable to pay Counsel’s fees, court fees and experts’ fees in the event of failing to beat the Part 36 offer?

If you act for defendants then state what figure you would expect to be accepted (A) now and (B) under the new regime.

Defendant insurers have made it clear that they expect to be able to settle for much lower figures under QOCS if the claimant does not have ATE insurance.

One of the points being missed is the solicitor’s risk of being left with a liability for post-Part 36 disbursements that a client who has failed to beat a Part 36 offer cannot, or will not, pay. This is bound to influence solicitor behaviour. There is no point in a client spending a substantial sum on after-the-event insurance to cover this Part 36 risk unless they are likely to recover a sum that exceeds the Part 36 offer by at least as much as the premium, in which case why take out the insurance at all?

Thus the client who beats the Part 36 offer will always question why such expensive ATE insurance was necessary and the client who fails to beat the Part 36 offer will always think that the solicitor should have taken out such insurance.

The initial consideration as to whether to take out unrecoverable ATE insurance essentially to cover the Part 36 risk is not easy.

True One Way Costs Shifting has considerable merit and operates in some states of the United States of America in relation to discrimination claims. Qualified One Way Costs Shifting with Part 36 remaining fully in force in unworkable, forcing claimants, to undersettle grossly or to fund expensive after-the-event insurance.

Either way claimants will be left severely out of pocket, and that is without taking in to account the fact that they will now have to pay some of their own costs, generally a sum equal to 25% of general damages and past special damages, net of Compensation Recovery Unity payments.

Case law

The Court of Appeal has already considered one of the potential problems arising under QOCS.

In Flatman and Germany v Weddall and Barchester Health Care Limited [2013] EWCA Civ 278

the Court of Appeal held that solicitors who help their clients by funding the cost of disbursements should not be liable for costs if the case fails even if no After-the-Event insurance is in place.

Although both appeals related to pre-Jackson cases the Court of Appeal recognized that the situation is likely to become much more common post-Jackson with the abolition of legal aid for all but a small number of clinical negligence cases and with the abolition of the recoverability of the After-the-Event insurance premium.

The issue of solicitors being able to fund disbursements without being at risk of an adverse costs order is regarded as one of access to justice and the Court of Appeal allowed the Law Society to intervene.

The Court of Appeal specifically approved the funding of disbursements generally with the client repaying the solicitor at the end and also the solicitor paying disbursements on a contingency basis, that is without recovering them from the client if the case is lost.

Although not necessary for the judgment in these two cases by extension it allows solicitors to agree to only charge the client for disbursements actually recovered from the other side.

The Court of Appeal also recognized the importance of the decision in relation to Qualified One Way Costs Shifting:

“Defendant’s insurers can undermine the principle of qualified one way costs shifting (which will limit recovery of costs by insurers in failed personal injury actions) by pursuing the solicitors acting for the claimant who fails.”

The point here is that, contrary to popular belief, costs orders against claimants are made for the full sum, but may only be enforced beyond the level of damages with permission of the court.

Under CPR 44.16(3) where the claim is for the benefit of another, the court will usually order that beneficiary to pay costs. Thus if the solicitors had been held to be beneficiaries, then they could be ordered to pay the excess of costs awarded over the damages sum.

The Court of Appeal conducted an exhaustive analysis of case law, stating at Paragraph 45:

“…the legislation does visualise the possibility that a solicitor might fund disbursements and, in that event, it would not be right to conclude that such a solicitor was ‘the real party’ or even ‘a real party’ to the litigation.”

and at paragraph 47:

“…payment of disbursements, without more, does not incur any potential liability to an adverse costs order. “

The Civil Procedure Rules

Parts 44.13 – 44.17

“44.13

(1) This Section applies to proceedings which include a claim for damages –

(a) for personal injuries;

(b) under the Fatal Accidents Act 1976; or

(c) which arises out of death or personal injury and survives for the benefit of an estate by virtue of section 1(1) of the Law Reform (Miscellaneous Provisions) Act 1934,

but does not apply to applications pursuant to section 33 of the Senior Courts Act 19819 or section 52 of the County Courts Act 198410 (applications for pre-action disclosure), or where rule 44.17 applies.

(2) In this Section, ‘claimant’ means a person bringing a claim to which this Section applies or an estate on behalf of which such a claim is brought, and includes a person making a counterclaim or an additional claim.

Effect of qualified one-way costs shifting

44.14

(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.

(2) Orders for costs made against a claimant may only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.

(3) An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record.

Exceptions to qualified one-way costs shifting where permission not required

44.15

Orders for costs made against the claimant may be enforced to the full extent of such orders without the permission of the court where the proceedings have been struck out on the grounds that –

(a) the claimant has disclosed no reasonable grounds for bringing the proceedings;

(b) the proceedings are an abuse of the court’s process; or

(c) the conduct of –

(i) the claimant; or

(ii) a person acting on the claimant’s behalf and with the claimant’s knowledge of such conduct,

is likely to obstruct the just disposal of the proceedings.

Exceptions to qualified one-way costs shifting where permission required

44.16

(1) Orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest.

(2) Orders for costs made against the claimant may be enforced up to the full extent of such orders with the permission of the court, and to the extent that it considers just, where –

(a) the proceedings include a claim which is made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 (other than a claim in respect of the gratuitous provision of care, earnings paid by an employer or medical expenses); or

(b) a claim is made for the benefit of the claimant other than a claim to which this Section applies.

(3) Where paragraph (2)(a) applies, the court may, subject to rule 46.2, make an order for costs against a person, other than the claimant, for whose financial benefit the whole or part of the claim was made.

Transitional provision

44.17

This Section does not apply to proceedings where the claimant has entered into a pre-commencement funding arrangement (as defined in rule 48.2).”

The Practice Direction

“12.1

This subsection applies to proceedings to which Section II of Part 44 applies.

12.2

Examples of claims made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 within the meaning of rule 44.16(2) are subrogated claims and claims for credit hire.

12.3

‘Gratuitous provision of care’ within the meaning of rule 44.16(2)(a) includes the provision of personal services rendered gratuitously by persons such as relatives and friends for things such as personal care, domestic assistance, childminding, home maintenance and decorating, gardening and chauffeuring.

12.4

In a case to which rule 44.16(1) applies (fundamentally dishonest claims) –

(a) the court will normally direct that issues arising out of an allegation that the claim is fundamentally dishonest be determined at the trial;

(b) where the proceedings have been settled, the court will not, save in exceptional circumstances, order that issues arising out of an allegation that the claim was fundamentally dishonest be determined in those proceedings;

(c) where the claimant has served a notice of discontinuance, the court may direct that issues arising out of an allegation that the claim was fundamentally dishonest be determined notwithstanding that the notice has not been set aside pursuant to rule 38.4;

(d) the court may, as it thinks fair and just, determine the costs attributable to the claim having been found to be fundamentally dishonest.

12.5

The court has power to make an order for costs against a person other than the claimant under section 51(3) of the Senior Courts Act 1981 and rule 46.2. In a case to which rule 44.16(2)(a) applies (claims for the benefit of others) –

(a) the court will usually order any person other than the claimant for whose financial benefit such a claim was made to pay all the costs of the proceedings or the costs attributable to the issues to which rule 44.16(2)(a) applies, or may exceptionally make such an order permitting the enforcement of such an order for costs against the claimant.

(b) the court may, as it thinks fair and just, determine the costs attributable to claims for the financial benefit of persons other than the claimant.

12.6

In proceedings to which rule 44.16 applies, the court will normally order the claimant or, as the case may be, the person for whose benefit a claim was made to pay costs notwithstanding that the aggregate amount in money terms of such orders exceeds the aggregate amount in money terms of any orders for damages, interest and costs made in favour of the claimant.

12.7

Assessments of costs may be on a standard or indemnity basis and may be subject to a summary or detailed assessment.”

Suggested wording of Civil Procedure Rule

“44.14 Subject to rules 44.15 and 44.16 no costs order shall be made against a claimant covered by rule 44.13 unless the claimant at trial fails to beat a defendant’s Part 36 offer”.

Return to news