Changes to rebalance QOCS rules are welcome but could lead to a litigation spike before Easter

There has been much written about the various appellate judgments on Qualified One-Way Costs Shifting (QOCS) in England and Wales over recent years, including a recent article on the narrow interpretation by the Court of Appeal by the writer.

In summary, recent decisions about the QOCS rules have significantly watered down their effectiveness in practice by tightly restricting the circumstances in which defendants can seek to lift QOCS protection to enforce costs orders against claimants. This unhelpful (in our view) direction of travel was drawn to the attention of the Rule Committee and, following a short consultation, it has now brought forward changes to the rules. A provision in the latest update to the Civil Procedure Rules (CPR) – released earlier this week – goes a long way to rebalancing the QOCS scheme, albeit only for new claims issued after April this year.

Background

Following the 2013 changes to Civil Procedure, codified in the Legal Aid, Sentencing and Punishment Bill 2013, in appropriate personal injury and clinical negligence cases, QOCS was intended to: 1) act as a shield for a genuine claimant so that they could avoid having to pay defence costs if the claim failed; and 2) the qualification to QOCS was intended to give the claimant ‘skin in the game’ by retaining costs consequences of decisions on defendants’ offers to settle, i.e. rejection, late acceptance or subsequent judgment less advantageous than the defendant’s offer should result in the claimant’s damages being available wholly or in part to pay the defendant’s post-offer costs.

Along with other qualifications for fundamental dishonesty and non-parties with a financial interest, and the linked changes to CPR r.36.17(4), which brought in 10% penalties for defendants who fail to beat claimant Part 36 offers, the intention of the Rule Committee was to make all parties to litigation have a direct financial interest in the outcome of the claim by way of direct financial sanction, which would (hopefully) manage litigant behaviour.

Unfortunately, this sensible intention to control the worst excesses of litigant conduct has since been undermined in practice by various appellate judgments which ultimately concluded that the lifting of QOCS protection (i.e. allowing defendants to enforce costs awards) did not apply to:

1. Cases settled by Tomlin Order – Cartwright v Venduct  
2. Setting off defence costs against claimant costs – Ho v Adelekun
3. Cases settled by way of Part 36 offer – Harrison v University Hospitals  
4. Incredibly late discontinuances where fraud is alleged – Excalibur v McDonald

The cumulative effect of these decisions was, essentially, to neuter the QOCS regime of any real potency. Fortunately, the Ministry of Justice agreed that the jurisprudence had developed contrary to the legislative intentions of QOCS and announced a consultation in May 2022 with an express intention to remedy the situation.

Proposed changes

In a Statutory Instrument (SI) laid before parliament on [date], the proposed changes to the rules were set out following the consultation. The changes will come into effect on 6 April 2023.

Below is the revised CPR rule 44.14 (the key provision in the above decisions) with the changes shown in italics.

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, or agreements to pay or settle a claim for, damages, costs and interest made in favour of the claimant.
2. For the purposes of this Section, orders for costs includes orders for costs deemed to have been made (either against the claimant or in favour of the claimant) as set out in rule 44.9.
3. 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.
4. Where enforcement is permitted against any order for costs made in favour of the claimant, rule 44.12 applies.
5. 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.

These amendments have largely fixed the problems caused by development of the jurisprudence and, crucially, all modes of settlement are now deemed to be QOCS compliant.

Defendants can also set off their costs against both the claimant’s damages and costs, giving a larger pot of money to pay applicable defence costs, and the defendant’s costs payable by the claimant are now capped at the aggregate amount of damages, interest and costs recovered by the claimant.

These are crucial amendments and will enable defendants to manage adverse behaviours. In a claim funded by a conditional fee agreement (CFA), it will give both the claimant and the claimant’s solicitor ‘skin in the game’, and it is assumed that the possibility of losing legal costs will ensure robust advice is given to claimants when defendants make sensible offers to settle.

The sting in the tail

While the rule changes are largely positive, one question that lawyers have been considering for some months is whether the changes would have retrospective effect. The answer is ‘no’, as the amendments to QOCS will only apply to claims issued after 6 April 2023, see rules 1(3) and 24 of the SI linked above.

One inevitable consequence of this implementation date is that there will likely be a rush to issue claims prior to April 2023 to ensure they are subject to the existing regime. The current QOCS rules are extremely beneficial to claimants (and their solicitors) and, as such, it is highly likely that as many claims as possible will be issued in the next two months. On a practical level, having two sets of QOCS rules is going to prove awkward in practice and it is highly likely to lead to further satellite litigation.

It is worth stating that compliance with Pre-Action Protocols is not meant to be optional and if claimant’s solicitors cut short the required time for responding or fail to engage in order to issue proceedings prematurely before April, they can be penalised in costs.

Please do speak to the writer or the wider costs team with any specific queries and we will be happy to assist.  

We will monitor claimant solicitors’ behaviours over the coming months and provide a further update prior to implementation.

This article, authored by Paul Wainwright, partner and head of costs, Clyde & Co LLP, is reproduced on the Airmic website with the author’s kind permission. It originally appeared on the Clyde & Co website, here.

Paul kindly provided the below additional update for Airmic News:

“We have seen a number of claimants’ solicitors give notice that they will issue proceedings before the rule change mainly (but not limited to) very substantial injury claims.

“One further point I would make is that, for claims issued prior to April 2023, there will very likely be an increase in disputes about legal costs.

“The current regime permits poor behaviours as defendants cannot enforce their costs orders in detailed assessment proceedings, so claimant’s solicitors can litigate essentially free of any risk, which will inevitably increase claims lifecycles.”