Government’s proposed CPR changes to QOCS will overrule Ho v Adelekun

On 9 May 2022, the Government launched a consultation on proposed changes to the Qualified One-Way Costs Shifting (QOCS) rules in personal injury cases.

We have previously reported in detail upon the issues caused by the combined effect of the decisions in Ho v Adelekun [2021] UKSC 43 and Cartwright v Venduct Engineering [2018] EWCA Civ 1654. These cases have exposed flaws in the drafting of the QOCS rules that create unfairness and imbalance between claimants and defendants beyond what was originally intended.

In Ho v Adelekun [2021] UKSC 43, the Supreme Court found that CPR as drafted prevented the defendant from offsetting costs awarded to the defendant against both damages and costs awarded to the claimant as may have been anticipated in CPR 44.12.  The offset where QOCS applies was limited to damages (and interest) awarded only.  Ho was a fixed recoverable costs case where the claimant was making unmeritorious points as to the application of fixed costs. Despite the lack of merit in the underlying argument, the claimant was able to do so at no costs risk to themselves. In giving judgment, Lord Briggs noted that such limitation was “counterintuitive and unfair”.

In Cartwright v Venduct Engineering [2018] EWCA Civ 1654, the Court of Appeal found that an order for damages was required before costs could be enforced.  In cases concluded by Tomlin Order (as in Cartwright) an order for payment of damages does not exist and there is nothing to enforce a defendant’s costs entitlement against.  This issue also extended to Part 36 where there is no order for damages on settlement and an order only comes into being if the damages are not paid and the Claimant applies for judgment. That decision was often practically managed by parties offsetting costs liabilities between them, a practice now prevented by Ho.

It is these issues that the Government now seeks to address by proposing amendments to the wording of CPR 44.  The Government consider that it is appropriate to address these matters now to restore the original intention of fairness before the wider extension of FRC in civil cases.  The Government have invited views on their proposed amendment to the CPR:

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, costs and interest made in favour of the claimant.

(2) For the purposes of this Section, orders for costs include 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.

Our view

Overall, the Government’s proposed changes should be welcomed from a defendant’s perspective. 

The proposed changes appear to address the imbalance created by Ho. Allowing the defendant to set off their costs against their liability to the claimant for damages, costs and interest makes practical sense:

• It still ensures that a claimant is not required to pay a defendant more than their means.  In circumstances where claimants have taken out adequate ATE insurance cover, their recovery will not actually be affected anyway.
• It reflects the practical position that damages may already have been paid over to the claimant upon settlement, and so the effective way of resolving competing costs liability is a set-off between the two costs liabilities.
• In circumstances where costs such as assessment or application costs are not limited by fixed recoverable costs, it allows a practical set-off of those costs in circumstances where, for example, the claimant failed to better a defendant’s Part 36 offer on assessment.

Whilst at first glance the proposed changes appear to address the flaws exposed by Cartwright, it overlooks the fact that a Part 36 settlement only creates a deemed order for costs, it does not create a deemed order for damages. Whilst the proposed changes would allow defendants to set off their costs against the claimant’s costs under Part 36 settlements, and in many cases this may be sufficient, defendants are still unable to set off their costs against damages in a claim that settles under Part 36.

The cases where Defendants had made their offers at the earliest and/or the Claimants had accepted at the latest possible moment would be potentially be those where the Defendant was penalised the most.

Further the proposed amendment does not address the issue of cases that settle pre-issue (where there could still be cost issues in Part 8 costs proceedings) or under a Tomlin Order.

The Government’s intention appears to be to reverse both the Cartwright and the Ho decisions and we believe that this can be achieved by alternatively amending CPR 44.14 to:

(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, damages, costs and interest made in favour of the claimant.

In terms of immediate action, it is important that all insurers respond to the consultation to highlight the failure of the proposed changes to fully address the Cartwright issue.  The more weight there is behind our proposed change the more likely the MOJ are to listen.  In addition, the claimant side of the market will inevitably respond, to challenge the proposed changes and without support for the changes from the insurance market there is a risk the changes are not implemented or are watered-down.

The consultation states that the proposed changes would be made before (or at the same time as) the wider fixed costs extension which is currently expected to be April 2023. Needless to say, we will be urging that the rule is changed as soon as possible and submitting that there is no reason to delay the change to coincide with the fixed costs extension.

Even if the rule is changed only as amended, the anticipated change needs to be kept in mind. It is likely that the change will have retrospective application so terms as to payment of costs should only be agreed that leave open the option of recovery/set off.  In some cases, applications for stays may be warranted to allow time for the new rules to be implemented.  These steps will need to be considered on a case by case basis and we will be happy to provide further guidance on any individual cases.