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The UK Government is proposing changes to the Qualified One-Way Costs Shifting (QOCS) regime to ensure the extension of fixed recoverable costs (FRC) does not exacerbate existing issues with QOCS flowing from recent case law.
Kennedys welcomes such a move to even the playing field between claimants and defendants but warns that as drafted, the proposals fail to deal with issues surrounding CPR Part 36 and Tomlin Orders.
What is Qualified One-Way Costs Shifting?
QOCS was introduced with the aim of counter-balancing the impact on personal injury claimants of the decision to abolish the recoverability of CFA success fees and, in particular, after the event (ATE) insurance premiums, from defendants. Defendants would not have to pay the claimant’s ATE premium and success fees in respect of claims successfully pursued by claimants, but would lose their right to recover their own costs from the losing claimant, save in limited circumstances.
Background
Last year, the Government published its response to the consultation on extending FRC to all civil cases in the fast track and to ‘intermediate’ cases (up to the value of £100,000). Since then, the Government and Civil Procedure Rule Committee (CPRC) have been working on the draft rules to ensure the smooth delivery of these reforms.
Over the course of this work, concerns have been raised as to whether a reconsideration of the rules around QOCS is now called for, following the judgment in Ho v Adelekun [2021].
In summary, the Supreme Court in Ho held that costs orders made in a claimant’s favour should not be taken into account when determining the limit up to which a defendant may enforce an order for costs in its favour. This was disappointing for insurers who, in some cases, have seen the value of their costs orders depreciate to the level of damages recovered by the claimant.
The Government’s proposals
To tackle the current dilemma, the Government recommends amending Section II of Part 44 of the CPR as follows:
- “Allow that a claimant’s entitlement to costs is considered to be part of the overall fund against which set-off can be applied; and
- Extend costs orders to deemed orders, so a defendant can enforce a deemed order for costs (especially following acceptance of a Part 36 offer) without the permission of the court”.
Kennedys’ response
We do not believe that the ultimate aim of the QOCS regime has been realised and rather, has unintentionally led some claimants to litigate without fear of risk. In turn, defendants are having to incur high costs in defending unmeritorious claims.
Despite the rules surrounding QOCS, case law, in our view, has shifted the balance significantly in the claimant’s favour.
We agree with the Government’s proposals to extend the terms of set-off to include costs. The outcome of Ho means there is now limited penalty for claimants, which exacerbates the issues arising in multi-defendant claims, and in our view, places an unreasonable burden on a defendant.
The proposed extension will further ensure that a claimant and their legal representatives work in concert to achieve a reasonable and positive outcome to litigation.
We also support the Government’s position on extending costs orders to deemed orders. In the case of Cartwright v Venduct Engineering Limited [2018], the defendant sought to enforce against damages awarded under a Tomlin Order but this was defeated on the basis that a Tomlin Order is outside the jurisdiction of what a court can order. In our view, this appears contrary to the purpose of the QOCS regime. The proposal seeks to rectify this issue.
We do however, have a number of concerns around the Government’s wording of the proposed amendments, including the assumption that the claimant’s entitlement to costs will always exceed that of the defendant. We also consider the lack of retrospective effect would be a missed opportunity to significantly reduce the amount of dispute resolution pending the introduction of the amendments.
Next steps
The Government will continue working with the CPRC on the details of the rules with a view to securing CPRC agreement by the end of 2022, for implementation in April 2023.
Comment
In our view, the introduction of QOCS was always likely to lead to a degree of uncertainty. The developments and interpretation of the rules has led to undesired outcomes, and an increase in satellite litigation.
It is accepted that in order to ensure access to justice, claimants should be in a position to present claims without undue financial duress. However, checks and balances are required which, absent amendment, the current rules do not bring to bear.
United Kingdom