The Qualified One-Way Costs Shifting (QOCS) regime, introduced as part of Lord Jackson’s reforms, aimed to protect claimants from adverse cost orders in personal injury cases.
As a part of this reform, it was intended to alleviate the need for claimants to purchase After-the-Event (ATE) Legal Expenses Insurance (LEI). However, significant changes to the QOCS rules, introduced in April 2023, have reshaped the legal landscape. This article will break down these changes and what they have meant for legal practitioners.
The purpose of QOCS
Initially, the QOCS rules sought to shield claimants from the financial burden of paying the defendant’s costs if their claim was unsuccessful. Before the 2023 reform, the extent of a claimant’s liability was limited to their damages and interest, meaning even if a claimant lost the case, they could only be forced to pay the defendant’s costs from their awarded damages.
This protection meant that claimants would never be out-of-pocket, even if all their damages were used to pay the defendant’s costs.
Pre-April 2023 case law
Several key cases prior to the 2023 changes shaped the interpretation and application of the QOCS regime:
- Cartwright v Venduct [2018] EWCA Civ 1654 – The Court ruled that settlement agreements, including Part 36 settlements and Tomlin orders, were not considered Court orders for damages. This meant most cases involving such agreements would not be subject to adverse cost orders.
- Ho v Adelekun [2021] NZSC 43 – The defendant sought to set off their costs against the claimant’s damages, which the Court refused. This case highlighted the difficulty defendants faced in recovering their costs under the QOCS regime.
- Harrison v UHDB [2022] EWCA Civ 1660 – In this case, a settlement was approved due to the claimant’s lack of capacity, but the Court ruled that these orders were not considered damages orders, limiting the defendant’s ability to recover costs.
The 2023 reforms
On April 6, 2023, significant changes were introduced to the QOCS regime. These changes were driven by the Government’s belief that defendants should have more opportunities to recover costs, particularly in cases where the claimant brings unmeritorious claims. The new rules apply to all cases issued on or after 6 April 2023.
Under the new rules
Enforcement against agreements: Cartwright has been overruled, meaning adverse cost orders can now be enforced against settlement agreements such as CPR part 36 offers and/or Tomlin orders. This expands the scope of recovery for defendants, allowing them to recover costs from settlement agreements.
Adverse costs can now be recovered from the total of damages plus costs rather than where previously recovery was limited to the amount paid for damages only.
Set-off rights: The new rules also overturned Ho v Adelekun, permitting defendants to set off the adverse costs against the amount they owe to the claimant.
These changes have tipped the balance in favour of defendants, creating new challenges for claimants. In the past, a claimant could rely on the protection offered by QOCS, but now they may find themselves liable for significant costs.
The need for ATE insurance
As a result of these reforms, the need for claimants to obtain ATE insurance has increased. While QOCS originally reduced the necessity for this form of insurance, claimants now face greater financial risks. ATE insurance may be vital in cases where there is a potential for significant adverse cost orders.
Impact on CPR Part 36 Offers
Part 36 offers have become an even more strategic tool post-reform. Previously, Part 36 settlements were not treated as Court orders, and thus adverse costs could not be set off against damages. However, under the new rules, defendants have more leverage. Claimants must be cautious when making or responding to Part 36 offers and significant difficulties will be faced where early offers are made that are unable to be fully assessed.
Comment
The recent changes to the QOCS regime have shifted the landscape, increasing the risks for claimants in personal injury litigation. Defendants now have more opportunities to recover costs, and claimants must navigate this more treacherous terrain with greater care.
Legal practitioners representing claimants should advise their clients about the increased need for ATE insurance and the strategic importance of Part 36 offers. Practitioners are advised to get a grip of the value of claims as early as possible. This will mean more frontloading of claims for claimants but it is crucial to ensure effective case management and mitigate the risks associated with costs orders.
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