Costs Set-Off in QOCs cases from 6 April 2023
Posted on 6th February 2023 at 09:25
By Sean Linley, Costs Draftsman
New rule changes to be implemented from 6 April 2023 will see costs set-off brought back to QOCs cases. In addition, Defendants will be able to set-off where is a deemed order (such as Part 36) and agreements to pay damages (such as a Tomlin Order). This reverses the positions heralded by Ho v Adelekun and Cartwright v Venduct Engineering.
We previously signposted the changes in May last year as part of the government’s QOCs consultation.
What is QOCs?
Qualified One Way Costs Shifting (“QOCs”) was introduced on 1 April 2013 and was part of the LASPO reforms which saw the recoverability of additional liabilities between the parties significantly curtailed in most litigation. It applies to personal injury and clinical negligence claims, though there has been some talk that the scheme could be extended.
QOCs was seen as a counter-weight for access to justice. Defendants would no longer have to pick up the tab of additional liabilities (success fee and ATE premium) but the cost of this was that whilst successful Claimant’s would recover costs, successful Defendants (save for some notable exceptions) would generally not recover their own costs if they successfully defended a claim.
QOCs protection could be lost where a claim was found to be ‘fundamentally dishonest,’ where a claim was struck out where there was no reasonable grounds to bring it or where the Claimant failed to beat a Defendant’s Part 36 offer. In addition, under QOCs a Defendant can recover costs where an adverse costs order is made.
What is the current position?
The latter, however, still provided protections, as although a Defendant could recover costs where it beat its Part 36 offer (or where a Part 36 offer was accepted late) or where an adverse costs order is made, any adverse costs would be limited to the damages recovered. This meant that if a Defendant costs were say £30,000.00 but damages were only £10,000.00 then only up to £10,000.00 could be recovered. This could still create a situation whereby a Claimant’s damages are wiped out but crucially the Claimant would not have to pay more.
Notably the current rules prevent a Defendant setting off their own costs against a Claimant’s costs. For example, if the Defendant beat their Part 36 offer at Trial it could create a situation whereby both the Claimant and Defendant have a costs order. Under the current rules, the Defendant’s costs would only be enforceable up to the value of damages and interest. This means Claimant costs are ring-fenced. In short, the Claimant could pursue its costs claim without limitation but the Defendant would be limited to damages.
In addition, there is currently no mechanism for the Defendant to enforce any costs at all where a case settles by way of a Tomlin Order or Part 36 offer. This was because of a quirk of the rules where it was held that an agreement to pay damages or a deemed order was not an order for damages. This position means that in certain cases as there was, in effect, no order for damages a Defendant could not enforce any adverse costs at all.
What do the changes mean for Practitioners?
In short the changes mean that:
- Where there is an order for costs for both the Claimant and the Defendant, then the Defendant will be able to enforce its costs against damages, interest and the Claimant’s costs without permission from the Court after the conclusion of proceedings.
- The rules will be updated to cover deemed costs orders and agreements to pay damages. This means that agreements such as Part 36 acceptance and Tomlin Orders will now be recognised under the QOCs rules and consequently where claims settle under these mechanisms then a Defendant will be able to enforce its costs against damages, interest and any Claimant costs.
The rule changes will give greater bite for Defendants and will expose Claimant practitioners to enhanced risk. The changes mean that a well-pitched Part 36 offer from a Defendant could see a Claimant completely lose it damages and costs.
There are also likely to be consequences in the insurance market, given the increased adverse costs risk, ATE premiums are likely to rise and their necessity for claims is increased. The fatal flaw here is that any additional expense will have to be met by the Claimant themselves, eroding damages. The rule changes see an increased burden on Claimants and will raise further questions around access to justice.
The rule changes will see greater risks for Claimants themselves and their lawyers with greater rewards for Defendants and their legal representatives. Defendants will see this as levelling the playing field but it cannot be denied that the changes shift the power balance firmly in the favour of Defendants. The real losers are the victims, the Claimant themselves, who will likely have to shoulder (rightly or wrongly) the costs of the increased risk. There will be greater pressure on Claimant lawyers.
Will it apply retrospectively?
One potential issue has at least been avoided. The rule changes will only apply to claims issued on or after 6 April 2023.
Practitioners with QOCs cases should give serious thought to the issue of proceedings before 6 April 2023, else the increased risks and liabilities set-out above will apply.
The future of QOCs – Other changes afoot?
The spectre of extending QOCs also casts a shadow with the Civil Justice Council reflecting that which was under consideration by the government. QOCs protection was mooted for other actions including actions against the Police and other public authorities, discrimination cases under the Equality Act 2020, human rights cases, housing disrepair, professional negligence claims (particularly those arising from personal injury claims), judicial review and private nuisance. There have been no active developments to facilitate an extension and indeed the most recent QOCs consultation suggests any possible extensions are still some way off. Though it is clear QOCs is here to stay and any extension will have consequence.
QOCs remains a complex area. Should you have any queries arising from this article or upon costs generally then please do not hesitate to get in touch with our friendly team either via phone 01482 534567 or e-mail info@carterburnett.co.uk
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