QUOCS, ATE insurance and non party costs Orders

QUOCS was introduced as part of the LASPO 2012 reforms on 1st April 2013 to provide that subject to a limited number of exceptions, a costs Order made against a losing claimant bringing a personal injury claim could not be enforced against the claimant.

The principal exceptions provided for QUOCS protection not to apply in circumstances where a claim was struck out, where it was found to be fundamentally dishonest and when it was brought for the financial benefit, in whole or in part of another party. This was the quid pro quo, for the abolition of recoverable liabilities namely success fees and ATE insurance premiums.

The result has been that the insurance industry and other serial litigants if they successfully defend a claim at trial on its merits, will be left with an irrecoverable bill for their own costs.

One of the more predictable results of the LASPO 2012 reforms, is that the last 3 1/2 years have seen an upsurge in wasted costs applications against solicitors representing the losing claimants in personal injury claims, numerous allegations of fundamental dishonesty being levied at claimants sometimes with, sometimes without a proper foundation and the development of some arguments, that could be regarded as risible, including the argument that a claim struck out, is synonymous with it being dismissed at trial.

A far more fruitful argument has long seemed to me, to be the potential for a non party costs application to be made under section 51 of the Senior Courts Costs Act 1981 against an ATE insurer who has written a policy providing an indemnity for adverse costs for the benefit of a claimant in a personal injury claim.

That few such applications have been made is surprising: I suspect the reason is that it has simply been assumed that the QUOCS scheme precludes any such applications being made.

The starting point to note is that QUOCS protection applies to claimants, not to insurance companies  that have agreed to provide them with an insurance indemnity for their own unrecovered costs and any adverse costs, they may be liable to pay.

Rule 44.14 provides 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 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.

It will be noted that the express scope of the prohibition on enforcement of costs Orders is limited to those costs Orders made against the claimant: there is nothing in the prohibition which would preclude an application being made directly against an ATE insurer.

Moreover, the rules plainly contemplate that a claimant who has had a costs Order made against them, is liable to pay the costs of that Order: it remains due and owing but is simply unenforceable, meaning that court proceedings to recover the costs will fail. This seems clear from rule 44.14(3), which provides that an unsatisfied costs Order will not taint the claimant’s credit record by reason of its status on the court record. There is no wider development of a “hold harmless” provision, nor do the Rules provide, as they might that no costs Order at all should be made against a claimant, merely that such an Order is unenforceable.

The criteria upon which a non part costs Order might be made would be drawn from the leading case on non party costs Orders against legal expense insurers, that of Murphy and Another v Young & Co.’s Brewery and Another [1997] 1 W.L.R. 1591 which provided the following reasoning for making such an Order as follows drawing together a number of principles:

(1) In Giles v. Thompson [1994] 1 A.C. 142 , 164 Lord Mustill suggested that the current test of maintenance should ask the question whether: “there is wanton and officious intermeddling with the disputes of others in where the meddler has no interest whatever, and where the assistance he renders to one or the other party is without justification or excuse.” Where such a test is satisfied, I would expect the court to be receptive to an application under section 51 that the meddler pay any costs attributable to his intermeddling.

(2) Where a non-party has supported an unsuccessful party on terms that place the non-party under a clear contractual obligation to indemnify the unsuccessful party against his liability to pay the costs of the successful party, it may well be appropriate to make an order under section 51 that the non-party pay those costs directly to the successful party. Such an order may, for instance, save time and costs in short-circuiting the Third Parties (Rights against Insurers) Act 1930 . Bourne v. Colodense Ltd. [1985] I.C.R. 291 is a case where the court might well have thought fit to make such an order had it appreciated that it had jurisdiction to do so.

(3) Where a trade union funds unsuccessful litigation on behalf of a member the following factors, in addition to the funding itself, are likely to be present and, where they are, to make it appropriate to order the union to pay the successful party’s costs should such an order be necessary: (a) an implied obligation owed by the union to its member to do so—see (2) above; (b) an interest on the part of the union in supporting and being seen to support the member’s claim; (c) the conduct of the litigation; (d) expectation based on convention that the union will bear the costs of the successful party should the member lose.

(4) Where an unsuccessful defendant’s costs are funded by insurers who have provided cover against liability, which is not subject to any relevant limit, the same considerations that I have set out under (3) are likely to apply.

The analysis above is untested, as far as I can glean in any decided case post April 2013.

There are of course excellent arguments which ATE insurers could deploy to argue that they should not be made subject to non party costs Orders, but given the length of this post already, I shall have to save those for another day.

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