QUOCS and Part 36

The post below is the text of a lecture delivered to the Association of Costs Lawyers Conference on 9th May 2014.

1.The introduction of the Jackson reforms on 1st April 2013, saw as one of the “big ticket” changes, the abolition of the recovery of After the Event (ATE) insurance premiums, and the introduction of a new procedure to provide, meritorious but wrong claimants in personal injury claims with protection from adverse costs, a scheme called Qualified One Way Costs Shifting (QUOCS).

2.It should be noted, that it is still possible, indeed still the norm, for claimants to incept ATE insurance policies as part of the funding package, but the utility of such a policy is greatly reduced. It acts now, to insure against part 36 risks, as we shall see, and to insure against the non-recovery of disbursements. As most solicitors in this context, will be funding a client’s disbursements on credit, as a case progresses, in practical terms it functions as re-insurance for a solicitor against the credit risks posed by a client.

3.Indeed, one of the issues, that might arise, in the not too distant future, is a surge in professional indemnity claims against solicitors, arising from two mis-selling scandals waiting to happen: solicitor-own client success fees, and advice to incept unnecessary insurance ATE insurance policies.

4.Both could easily occur, in context where there is pre-existing BTE, and the latter in circumstances, where there is a failure to weigh up the risks of proceeding with/without ATE insurance.

5. The purpose of this paper is to consider how the QUOCS scheme works, is working and how it is going to continue to develop over the next year.

The Jackson Report

6. The starting point then is to consider what Jackson LJ had to say about Qualified One Way Costs Shifting in his Final Report:

1.2 Important features of personal injuries litigation. There are two important features of personal injuries litigation. First and self-evidently, the claimant is an individual. For the vast majority of individuals it would be prohibitively expensive to meet an adverse costs order in fully-contested litigation. The most recent Social Trends report shows that 73% of all households have savings (made up of securities, shares, currency and deposits) of less than £10,000. Defence costs can easily be many times higher than £10,000 in fully-contested litigation. This would mean that for three quarters of households their other financial assets (their own home in most cases) would be at risk from an adverse costs order. Secondly, the defendant is almost invariably either insured or self-insured. By self-insured, I mean that the defendant is a large organisation which has adopted the policy of paying out on personal injury claims as and when they arise, rather than paying substantial liability insurance premiums every year.

1.3 Factors pointing towards one way costs shifting. The factors which make one way costs shifting a serious candidate for consideration in relation to personal injuries litigation are the following:

(i) Claimants are successful in the majority of personal injury claims. Defendants seldom recover costs, so they derive little benefit from two way costs shifting.

(ii) Personal injuries litigation is the paradigm instance of litigation in which the parties are in an asymmetric relationship, as discussed in chapter 9 above.

(iii) The principal objective of recoverable ATE insurance premiums is to protect claimants against adverse costs orders. One way costs shifting would be a less expensive method of achieving the same objective.

(iv) One way costs shifting is not a novel concept in personal injuries litigation. Between 1949 and 2000, the vast majority of personal injury claims proceeded under a one way costs shifting regime, namely the legal aid shield.

4.1 In my view, the regime of recoverable ATE insurance premiums is indefensible for the reasons set out in chapters 9 and 10 above. On the other hand, most claimants in personal injury cases have for many years enjoyed qualified protection against liability for adverse costs and there are sound policy reasons to continue such protection. The only practicable way that I can see to achieve this result is by qualified one way costs shifting.

4.2 Despite the arguments of the MDU, the ABI and others, I do not regard it as practicable to introduce one way costs shifting for limited categories of personal injury cases, such as low value cases or CFA cases. Either one way costs shifting is introduced across the board for personal injury cases or, alternatively, two way costs shifting remains the rule, except for those protected by the legal aid shield. Given that stark choice, I favour introducing qualified one way costs shifting for all personal injury cases.

7. Thus the stated justification for the introduction of QUOCS in the Jackson report, is that claimants need to be protected from adverse costs, and in a way that is less expensive, than the scheme established by the Access to Justice Act 1999, with its provision for ATE premiums, which by and large, do not benefit liability insurers, when considered across the industry as a whole.

8. It is also important to note the reference to asymmetric litigation: because personal injury litigation is only one area, of legal practice, where such asymmetry applies: judicial review, environmental claims falling within the scope of the Aarhus Convention, defamation, privacy, are all other areas  where such asymmetry is likely to be present.

9.It should also be noted, that Jackson LJ is focusing on the mean, the average, and making no allowance for what might be termed the Naomi Campbell factor: the courts, like the Savoy Hotel, are open to all, but an accident or clinical negligence might happen to anyone, rich or poor. This is significant, because, the scheme of costs shifting which applied under the legal aid legislation, did so distinguish: by definition, only those practically devoid of assets or income, would qualify to obtain legal aid, as it was means tested, thus by default only providing costs protection to the very poor, who it could be said, might need it least, given the practical limitations on enforcing any costs award.

11.These factors were apparent, as part of the backdrop, from the discussion in the Final Report, on the operation of the legal aid provisions in practice.

4.3 The legal aid shield. Section 11(1) of the Access to Justice Act 1999 (the “1999 Act”) provides:

Except in prescribed circumstances, costs ordered against an individual in relation to any proceedings or part of proceedings funded for him shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances including:

(a) the financial resources of all the parties to the proceedings, and

(b) their conduct in connection with the dispute to which the proceedings relate…

It can be seen that this protection against costs liability is qualified protection, rather than total protection.

4.4 How the legal aid shield works in practice. Section 11 of the 1999 Act is supplemented by the Costs Regulations, the Cost Protection Regulations and sections 21 to 23 of the Costs Practice Direction. The effect of these provisions is that the judge making a costs order against a legally aided party may specify the amount to be paid or may direct that the amount be determined at a separate assessment. Before that separate assessment, the legally aided party files and serves a statement of resources. Whilst on its face section 11 of the 1999 Act appears to give the court a wide discretion to order costs to be paid, in practice the section operates as something very close to complete immunity from costs liability. It is not hard to see why this is the case. Pursuing an order will involve the receiving party in significant costs and the prospects of making any significant recovery, when the paying party is by definition of very limited means, are low. Although no official figures exist my understanding, confirmed by discussion with my assessors, is that it is rare indeed for a successful opponent even to attempt recovery against a legally aided party.

4.5 The necessary elements of a one way costs shifting regime. A one way costs shifting regime for personal injuries litigation (including clinical negligence) needs to have the following elements:

(i) Deterrence against bringing frivolous claims or applications.

(ii) Incentives for claimants to accept reasonable offers.

4.6 Deterrence against frivolous claims or applications. The claimant must be at risk of some adverse costs, in order to deter (a) frivolous claims and (b) frivolous applications in the course of otherwise reasonable litigation. In my view, the best formula is that contained in section 11(1) of the 1999 Act. This provides a proper degree of protection against adverse costs without eliminating all personal risk. It is a formula which is tried and tested, having been included in all legal aid legislation since the original Legal Aid and Advice Act 1949.23

4.7 Proposed rule. I therefore propose that all claimants in personal injury cases, whether or not legally aided, be given a broadly similar degree of protection against adverse costs. In order to achieve this result I propose that a provision along the following lines be added to the CPR:

Costs ordered against the claimant in any claim for personal injuries or clinical negligence shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances including:

(a) the financial resources of all the parties to the proceedings, and

(b) their conduct in connection with the dispute to which the proceedings relate.

If this proposal is adopted, there will have to be consequential provisions of the kind that currently exist to enable section 11(1) of the 1999 Act to be operated. The details of these consequential provisions will be a matter for the Civil Procedure Rule Committee.

12. The key point to note is that this is not in fact, the rule that has been formulated! Instead of the more nuanced approach, advocated by Jackson LJ, a far broader, some may say cruder, rule has been formulated. In particular, the Naomi Campbell factor has survived into the scope of qualified one way costs shifting: it is available to anyone, be they ever so wealthy, or the defendant ever so poor.

13. One can see the benefits to such an inclusionary provision: it removes the transactional costs of asking a judge to form a view in individual cases, as to how much if anything, an unsuccessful claimant should pay. It should cut down the scope of satellite litigation, by its very inflexibility.

14. Equally, however, one can see little basis, for including very wealthy litigants within its scope, or more prosaically, those who have the benefit of BTE insurance and thus have already prudently insured against the risk of adverse costs in litigation, should they be unfortunate enough to become embroiled in it.

4.8 I do not think it should be necessary in most cases to require a detailed enforcement procedure to determine liability under this provision. In the great majority of cases it should be determined at the conclusion of the case whether an order should be made and, if so, the amount should be determined summarily. Furthermore the making of a costs order will be the exception, rather than the rule. Nevertheless, the formula suggested above will enable the court to make a costs order in three specific situations where such an order would be appropriate: (a) where the claimant has behaved unreasonably (e.g. bringing a frivolous or fraudulent claim); (b) where the defendant is neither insured nor a large organisation which is self- insured; or (c) where the claimant is conspicuously wealthy.

4.9 Consistency with overriding objective. The new rule suggested above would be consistent with the overriding objective. CPR rule 1.1(2) provides:

Dealing with a case justly includes, so far as is practicable (a) ensuring that the parties are on an equal footing…

(c) dealing with the case in ways which are proportionate…

(iv) to the financial position of each party…

Parr v Smith

15. In order to complete the picture of how the Legal Aid costs shifting shield operated, it is important to note that it was never a complete shield, and indeed led to the common practice of the making of a “Pools” order: what would doubtless be termed a “Lottery” Order today. The case of Parr.v.Smith [1995] 2 All ER 1031 illustrated how this worked:

The judge in this case ordered that the unsuccessful defendants, who were legally aided for part of the time, should pay the plaintiffs’ costs,

“such costs not to be enforced without leave of the court.”

An order in those terms is very frequently made, both at first instance and in the civil division of the Court of Appeal. I cannot speak for other courts, but in this court there is in the ordinary way little if any enquiry into the means of the unsuccessful party before such an order is made. Perhaps it is thought that the successful party would press for an enquiry if there was any prospect of discovering assets.  The problem is whether such an order is within either or both of Regulations 129 and 130 . Regulation 129(b) provides that the court may direct, where the court thinks it reasonable that no payment should be made immediately or that the assisted person should have no liability for payment, that payment under the order for costs be suspended either until such date as the court may determine or indefinitely.

Like the Master of the Rolls, I consider that the court is exercising (or purporting to exercise) this power when it makes an order for costs which is not to be enforced without leave of the court.

However, I also consider that Regulation 130 applies to such an order. It follows that leave to enforce the order cannot be given (i) after 6 years have elapsed, or (ii) unless there is either new information which could not have been obtained by reasonable diligence at the time when the order was made, or a change in the assisted person’s circumstances since that date.

There are thus significant limitations on the usual form of order, that the assisted person shall pay the costs not to be enforced without leave of the court. Those limitations may not be fully appreciated by those who apply for such orders or those who make them. As I have said, little or no diligence is commonly used to assess the assisted person’s financial situation when the order is made. It is assumed that his means are negligible, or small.

There may be a method of avoiding that result. Regulation 127 provides that the court may postpone the determination of the amount of an assisted person’s liability for costs, for such time as the court thinks fit. There would not then have been a “determination”, which Regulation 130 treats as final after six years or unless one of the conditions for review is satisfied.

If that be right, successful litigants may prefer an order for costs in their favour with the determination of the assisted person’s liability postponed, to an order for costs not to be enforced without leave of the court.

16.  So the “shield” provided by Legal Aid, was not complete: it could be pierced and frequently was, with amounts equivalent to the Legal Aid contributions that a person would have to pay during the currency of the case, being ordered to be paid to the successful defendant. And if the financial circumstances of the claimant changed (it could be you etc), then that too, could prompt a payment of the defendant’s costs. The point that I would make is that the Legal Aid shield, was far more nuanced and dependent on the financial circumstances of the parties.

Lockley v National Blood Transfusion Service

17. The final case, that I would note is that of Lockley.v.National Blood Transfusion Service [1992] 1 WLR 492 which dealt with the ability of a defendant, to set off costs awarded in its favour in interlocutory matters against costs or damages it was ordered to pay the ultimately successful claimant at the conclusion of the case. Scott LJ suggested that the applicable principles are as follows:

In my judgment, the following propositions can be stated.

(1) A direction for the set-off of costs against damages or costs to which a legally aided person has become or becomes entitled in the action may be permissible.

(2) The set-off is no different from and no more extensive than the set-off available to or against parties who are not legally aided.

(3) The broad criterion for the application of set-off is that the plaintiff’s claim and the defendant’s claim are so closely connected that it would be inequitable to allow the plaintiff’s claim without taking into account the defendant’s claim. As it has sometimes been put, the defendant’s claim must, in equity, impeach the plaintiff’s claim. *497

(4) Set-off of costs or damages to which one party is entitled against costs or damages to which another party is entitled depends upon the application of the equitable criterion I have endeavoured to express. It was treated by May J. in Currie & Co. v. The Law Society [1977] Q.B. 990 , 1000, as a “question for the court’s discretion.” It is possible to regard all questions regarding costs as being subject to the statutory discretion conferred on the court by section 51 of the Supreme Court Act 1981 . But I would not have thought that a set-off of damages against damages could properly be described as a discretionary matter, nor that a set-off of costs against damages could be so described.

(5) If and to the extent that a set-off of costs awarded against a legally aided party against costs or damages to which the legally aided party is entitled, cannot be justified as a set off (i) the liability of the legally aided party to pay the costs awarded against him will be subject to section 17(1) of the Act of 1988 and regulation 124(1) of the Regulations of 1989; and (ii) the section 16(6) charge will apply to the costs or damages to which the legally aided party is entitled.

Applying these principles to the respective orders made by the district registrar and by Mars-Jones J., I conclude that neither can be criticised. In general, in my opinion, interlocutory costs incurred in the progress of an action to trial and ordered to be paid by a plaintiff to a defendant would in equity impeach the right of the plaintiff to recover from the defendant costs of the action ordered to be paid by the defendant. A set-off of costs against costs, when all are incurred in the prosecution or defence of the same action, seems so natural and equitable as not to need any special justification. I would expect a party objecting to the set-off to give some special reason for the objection. It is, in my opinion, less obvious that a set-off of costs against damages would always be justified.

18. The decision is interesting, not only because as we shall see, the QUOCS scheme anticipates that costs in a defendant’s favour will be capable of set off against damages, but that it is silent as to whether a defendant’s costs can be set off against a claimant’s costs. The further point that this raises, is whether the statutory scheme is exclusive in terms of its purview, or whether other rights of set off, such as equitable set off can be deployed in favour of a defendant’s position. On this latter point, the case of Vava.v.Anglo American South Africa Limited [2013] EWHC 2326 had this to say about a contractual form of costs shifting agreed between the parties:

V contended that there should be no order for costs because of a contract made in correspondence between the parties on “one way costs shifting” whereby X had agreed not to seek any costs or any costs order against them, as a result of which V had cancelled after the event insurance cover. V argued that that was implicit from the expression “one way costs shifting” according to the Review of Civil Litigation costs: Final Report (the Jackson reforms), which had been published before the parties’ exchanges, the glossary of which included the description of “one way costs shifting” as “A regime under which the defendant pays the claimant’s costs if its claim is successful, but the claimant does not pay the defendant’s costs if the claim is unsuccessful”. X submitted that it was appropriate to make an order for costs limited to the amount of costs that it had previously been ordered to pay to V, namely 60 per cent of V’s costs occasioned by applications for disclosure and information. Those costs had not been assessed and X had paid nothing on account of them.

HELD: (1) The Jackson reforms did not present “A regime under which the defendant pays the claimant’s costs if its claim is successful, but the claimant does not pay the defendant’s costs if the claim is unsuccessful” as a definition of the expression “one way costs shifting” but as its “Meaning or description”. Even if it was an exact definition, the earlier costs order would not be in accordance with the agreement since it was made before the claim or even the jurisdictional challenge had been decided, and it was made for only 60 per cent of V’s costs. The parties’ agreement on costs had been concluded only when V cancelled the ATE cover: before then, they had not contractually agreed to anything (see paras 9, 11 of judgment).

(2) X was effectively seeking an order for costs to neutralise the earlier costs order, limited to the amount that it was then ordered to pay. It recognised that an order for any greater amount should not be made because it had agreed not to enforce it. The purpose of the agreement had been to provide V with protection equivalent to that which they would have obtained from ATE insurance. If the issue had to be determined as a matter of contractual construction, it would be concluded that by seeking to deploy an order for costs against the earlier costs order, X would be attempting to “enforce” a costs order against V within the meaning of the agreement. However, there was another route to the conclusion that no order for costs should be made since a judgment or order for payment of a sum could be set-off against another: that principle extended to orders for costs, Reid v Cupper [1915] 2 K.B. 147 followed. It was also reflected in CPR r.44.12. The court could order a set-off under its inherent jurisdiction to do what was fair. It would be unfair for X to set-off liability under an order that it had agreed should not be enforced against an enforceable order. Moreover, had V proceeded to an immediate assessment of their earlier costs, X’s liability would probably have accrued and been paid before any decision about jurisdiction. In those circumstances, X could not properly have sought a costs order. It was not fair that V should be worse off because they sensibly did not rush to have their costs assessed with the risk of a series of separate costs assessments between the parties. It was, accordingly, appropriate to make no order for costs (paras 12-13, 15-18).

The amendments to the Civil Procedure Rules 1998

commencement funding arrangement as defined by rule 48.2: for our purposes, then inception prior to the 1st April 2013, of a CFA with a success fee or ATE funding or being in receipt of trade union funding.

20. This raises a very interesting question: if a claimant enters into a CFA with a success fee with one firm of solicitors, then parts company with them after 1st April 2013, instructing new solicitors, he may not qualify for QUOCS protection. He may not be able to incept ATE. If he does, he will not recover any premium he agrees to pay. I use the word “may” guardedly as there is an ambiguity in the transitional provision in rule 44.17: does “has entered” mean “has entered and is subsisting” or “has entered at any time”.

CPR Part 44

21.      I turn therefore to consider the wording of the rules:

44.13

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

(a) for personal injuries;

(b) under the Fatal Accidents Act 19767; 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 19348, 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.

22. There is a teasing possibility arising from the definition of “personal injuries” in rule 2.3 it “includes any disease and any impairment of a person’s physical or mental condition”. Is this latter phrase, wide enough to include other species of claim, than what we might term personal injury claims properly so called? Could it include claims such as those for discrimination under the Equality Act 2010 where awards for injury to feelings may be pursued? Probably not, though the position is not wholly free from doubt.

Effect of qualified one-way costs shifting

23. The effect of qualified one way costs shifting must be considered carefully. Note the specific limitation on enforcement, without permission; except against awards of damages or interest. But what would be the position, if the Claimant recovers damages, interest and costs, but the defendant refuses to pay citing an equitable right of set off against not only damages and interest but costs too? Is a defence to any enforcement action possible on the basis of equitable set-off, that being said not to be “an enforcement”?

24. If this is not the case, then the curious situation may apply whereby the claimant recovers a modest damages award with interest, and a partial order for costs, the defendant reduces the damages/interest to “nil” through rule 44.14 but still has to hand over the costs due to the claimant under the partial award in the claimant’s favour. It also raises the possibility that it can still be advantageous for a claimant’s solicitors to press on to trial, even if they know full well that their client’s damages have been expunged, by for example, costs orders in the defendant’s favour at an interlocutory stage.

25. Because any question of enforcement, only arises at the end of the case, there is the intriguing prospect, that a defendant may get a costs order in its favour at an early stage, and the claimant a costs order in his favour, a little later in the proceedings, but the defendant cannot enforce its costs order, or rely on a set off, so must pay out to the claimant summarily assessed costs.

26. One also notes, that because a costs Order against a claimant does not count as an unsatisfied court judgment, if not paid, there is a temptation for a firm which has acquired a CFA caseload, to run every single case, where there client effectively has no possibility of an adverse outcome, and the mere existence of a QUOCS scheme acts as an incentive to defendants to settle cases, even bad cases, quickly to avoid incurring their own irrecoverable legal costs.

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

27. There are some exceptions to the process: of the ones set out in rule 44.15, the interesting one is 44.15(a): there are many cases in the Law Reports, where what we would now regard as well settled duties of care in negligence, started their legal history as applications to strike out proceedings alleging that there was no applicable duty of care. Such cases are often ground breaking, but it seems that if a claimant makes or asserts a novel claim, perhaps arguing for an incremental development of the law of negligence, they do so at their peril, and may lose their costs protection, without the need for the defendant to ask the court to exercise its discretion. That seems a curiously indiscriminate consequence.

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 courts process; or

(c) the conduct of

(i) the claimant; or

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

is likely to obstruct the just disposal of the proceedings.

 

Exceptions to qualified one-way costs shifting where permission required

28. There remains scope to make some further inroads into QUOCS, as in certain circumstances the court may exercise a discretion: the first of these is the “fraud” exception, although curiously the word fraud is not used, instead the synonymous phrase “fundamentally dishonest” is used. This may or may not mean that the scope of the exception is not limited to fraudulent claims: it may also mean that people who exaggerate the extent of their disability and their claims might be at risk too.”

29. The wider exceptions will arguably encompass credit hire claims, subrogated claims or the inclusion of non-personal injury claims in the same action: this could lead to some intriguing scenarios, where there may well be disputes over what a claim is fundamentally about. The provision is 44.16(3) directing the court’s attention to its powers under the SCA 1981 to make a non-party costs Order, may point to more applications being made directly against insurance companies, credit hire companies or others in similar standing to litigation conducted ostensibly by private individuals.

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.

The Practice Direction

30. The Practice Direction adds a little more meat on the bones, with some assistance with definitions, guidance on when the exceptions might be exercised, and a warning that if a paying party settles a claim, they will be in considerable difficulty, in seeking to argue fundamental dishonesty at some later stage.

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 carewithin 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, child-minding, 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.

How it works in practice

31. As noted above, personal experience of how these provisions will work in practice is still comparatively limited. This may well be, because the vast majority of personal injury claims do indeed settle, with a favourable result for the claimant.

32. In one case, I was asked to advise upon, the claimant discontinued proceedings for a tripping claim on a public highway, having seen the defendant’s evidence. The claimant was a doctor. He had the benefit of a BTE policy. But as he had not entered into a pre-commencement funding arrangement, he was entitled to do so, with the benefit of QUOCS protection. It was not possible, to circumvent the clear wording of the rule. The defendant sought to have its costs assessed: but what was the point, in circumstances where the doctor was unlikely to make a habit of pursuing tripping claims?

33. In short, the defendant had to take on the chin, the fact that QUOCS was working exactly as had been intended, without discrimination, amongst those able to pay the defendant’s costs and those who would never be able to, and the costs incurred could not sensibly be pursued.

How Part 36 applies

34. Part 36 is key to understanding, how QUOCS can be used to extract some benefit for defendants, who although losing on liability, go on to succeed on their part 36 offer. Well that happens all the time doesn’t it? In my experience, that scenario happens in perhaps 1 of 200 cases.

35. But when it does, and it is important to note, that it is the deterrent effect of the system which is the wider point, then the costs awarded to the defendant can be deducted, pound for pound, from the claimant’s damages or interest.

36. An interesting point to contemplate, is the situation where the defendant, as so many do, has retained its panel solicitors to act on the basis of a CCFA, where if the defence win the case, the solicitors are entitled to guideline rates, or court rates, on their costs, and not the panel rate which applies across the majority of their caseload.

37. In those circumstances, are the claimant’s damages reduced by the enhanced rates, or the panel rates? And does it matter where, conceivably, the insurers, might take advantage of the chance to plead guideline rates, but actually pay only panel rates, because they are not recovering monies from an ATE insurer? It seems to me that any deductions must be based on what the defence actually pay their solicitors: otherwise, the scope for an accusation of misleading or improper behaviour surely arises.

A continuing need for ATE?

38.  It remains interesting to note, that although some ATE companies have experienced in the year since Jackson, a decline in the volume of business underwritten of perhaps one third, the ATE insurance industry remains very much in business.

39.  ATE insurance now functions as re-insurance for the disbursement liabilities of a solicitor’s firm, and so it doesn’t catch a cold, on non-recovery of disbursements. It can be a requirement of some practice funders, that the disbursement carry is underwritten by ATE insurance.

40.  Whether this will continue to be so, is going to be interesting: one can anticipate that in high value cases, where disbursements might easily run into six figures, for expensive expert evidence, that the need for ATE insurance will be real.

The problems

41. So in PI, what do I perceive to be the problems that lie ahead? I think in summary they can be noted to be the following:

(1)  The Naomi Campbell factor. As things stand, the one size fits all model is based on a desire for simplicity. But some anomalous results will undoubtedly arise in the years to come, which might cause reasonable people to wonder about the blanket nature of the protection.

(2)  The BTE factor. Related to the above, one now wonders whether the real benefit of BTE, might prove to be in relation to own client costs, though noting the reluctance of BTE companies to pay own client costs, or pay them at a commercial rate. But why should a client who has insured against a liability not be required to draw on the insurance pot?

(3)  The failure to include a specific right of set off against costs, as opposed to simply damages and interests. Probably the factor which has the greatest potential to create anomalies, and perverse litigation behaviour.

Ongoing reform

42.  QUOCS is not however, limited in its application to PI cases.

43.  In fact, the plan is to roll out its application to other, disparate areas of law.

44.  The proposals which are most advanced, at the current time, relate to media and defamation, cases, but it is interesting to note, that the principles now up and running in part 44, are not simply to be applied across the board. Instead, a different system will apply to these cases.

Defamation and media cases

45. A recent email exchange with the Ministry of Justice has confirmed that the reforms in this field will take place later in the year, but with no date fixed at the time of writing this paper. The document which is of principal interests is Costs protection in defamation proceedings: the government’s s proposals published by the Ministry of Justice in September 2013.

46.  The differences are telling.

23. A party seeking costs protection would apply for it and notify the other side.

24. The Government recognises that in defamation cases there can be a disparity in the relative means of each party. The typical public perception of a defamation case might be of a wealthy celebrity claimant against a well-resourced national newspaper. However, the reality is more nuanced, with a variety of scenarios of differing resources of both claimant and defendant, and their disparity. For example, such cases can also involve a claimant of modest means – or a wealthy claimant against a small publisher or an individual.

 25. Unlike in relation to personal injury,14 the Government does not believe that it is right to provide full costs protection regardless of means to all claimants in defamation cases: rather it considers that it is right that those who can afford to pay all or some of the costs in these cases should do so. The Government therefore proposes to consider three groups (of both claimant and defendant, individual and non-individual) as set out in more detail below:

(i)  those of modest means, who should be entitled to costs protection in full (‘nil net liability’); (ii) the ‘mid’ group of those of some means – who could pay something, but not the costs in full – who should be entitled to costs protection in part (‘capped liability’);

(iii) those of substantial means, who should not get any costs protection because they would not face ‘severe financial hardship’ if they were ordered to pay the other side’s costs.

26. It would be open to the parties to agree the costs protection position – for example, a national newspaper could agree at an early stage that a claimant of modest means should have full costs protection. If the position cannot be agreed between the parties, it would be for the judge to decide, based on a statement of assets provided by the applicant. The statement of assets must be verified with a statement of truth, and must be sufficiently detailed (rule 44.26(2)).

27. Individual claimants who are not of substantial means would be entitled to costs protection unless the court was satisfied that they would not suffer severe financial hardship; however, they would have to apply formally to confirm this.

28. Claimants who are not individuals (such as businesses or charities), and all defendants, could also apply for costs protection. Again, this could be agreed between the parties, or the matter would be determined by the judge, based on the applicant’s statement of assets. If the judge were satisfied that it was in the interests of justice for costs protection to be granted, then it could be granted on a full or partial basis (on the same basis of the consideration of means as for individual claimants).

47. The summary of the proposals states:

42. In summary, the rules would apply to protect the costs that a party might have to pay to the other side at the end of a case:                          

  • Those of substantial means (whether individuals or organisations) would be excluded from the costs protection regime – on the basis that they would not face ‘severe financial hardship’ if ordered to pay the other side’s costs.

 

  • Those of lesser means – whether claimant or defendant – could get costs protection, either in full (i.e. those of modest means – ‘nil net liability’ – would not have to pay anything), or in part (i.e. those of less modest means – the ‘mid’ group – might have to pay a reasonable sum, capped at a maximum amount). Importantly, it would be clear from the first judicial hearing what the maximum liability would be.

 

  • A claimant individual of modest means would be able to get costs protection as of right (unless the court is satisfied that they would not suffer severe financial hardship); others (non-individual claimants and all defendants) would have to satisfy the judge that it was in the interests of justice to do so.

 

  • It would be open to parties to agree the position; otherwise a judge would decide, based on (i) an applicant’s means – as evidenced by a statement of assets, and (ii) the costs that s/he might be ordered to pay (which would be indicated by the costs budget which now needs to be agreed in practice in all defamation cases).

 

  • As with personal injury, costs protection would be lost if there were fundamental dishonesty, or the case were struck out.

 

  • A winning claimant with costs protection might still have to pay costs out of damages recovered (but for a claimant with ‘nil net liability’ this would be no more than damages recovered).

48.  A real question must arise, as to whether two quite distinct approaches to costs protection can survive. It raises the intriguing possibility, of whether reforms a few years down the line, might seek to achieve uniformity in costs shifting by applying this system or the PI system across the board.

Judicial review

49. A notable exception from the scheme, or indeed by its absence from the legal horizon, would be the extension of QUOCS to judicial review cases. This is particularly hard to understand as a matter of legal logic, given that Legal Aid with its statutory shield, already survives for judicial review claims, albeit in truncated form. In political terms, it is very easy to understand as the principal defendant in such claims is the government.

50. In the recent reforms to part 45 to deal with Aarhus Convention claims, the requirements of the Convention have been met, by placing a limit on the amount of costs that can be recovered from unsuccessful claimants, rather than to introduce a form of QUOCS proper for planning and environmental judicial reviews. Is the reason “full fat” QUOCS has not be introduced, is that this rule has been formulated for the government’s benefit, with its emphasis on deterrence, of claims, rather than facilitating claims being brought.

 

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