2015: The Year of the QOCS?

Qualified One-Way Costs Shifting (‘QOCS’) is increasingly a part of the repertoire of the personal injury lawyer as the cohort of post 1.4.13 cases increases. The Court of Appeal has considered the lawfulness of the QOCS regime and addressed a number of other issues of its applicability in Wagenaar v Weekend Travel Ltd, T/A Ski Weekend and Serradj [2014] P.I.Q.R. P23. There is also a first instance decision on the procedure to be adopted and the meaning of fundamentally dishonest from HHJ Moloney, QC in Gosling v Hailo Cambridge CC, 29 April 2014.

Matters are becoming clearer; however, there are many areas of uncertainty and QOCS are likely to be a significant area of CA consideration in coming years.

QOCS, when does it apply?

QOCS is currently restricted in its application to claims for personal injury and those statutory claims where there is a fatal accident and/or a claim for personal injury or death that survives for the benefit of the estate.

QOCS applies to cases where there are multiple personal injury claimants as confirmed by the CA in Wagenaar at para 38: “… The whole thrust of CPR rr.44.13 – 44.16 is that they concern claimants who are themselves making a claim for damages for personal injuries, whether in the claim itself or in a counterclaim or by an additional claim …”

However, if a counterclaim relates to property damage only, QOCS protection should not apply.

The CA left open circumstances where a claimant brought multiple claims, one of which was not a personal injury claim, see para 44: “… Argument has not been addressed to the question of whether QOCS should apply to a subsidiary claim for damages not including damages for personal injuries made by such a claimant against another defendant in the same action as the personal injury claim. I would prefer to leave that question to a case in which it arises …”

Contribution claims under Part 20 are not subject to QOCS protection, see Wagenaar (para 42): “… The defendant was a commercial party in the business of supplying packaged skiing holidays. The fact that its insurance was for some reason vitiated in this case is nothing to the point. It chose, in its own commercial interests, to bring the third party into the proceedings as a third party because, no doubt, it thought it commercially to its advantage to do so. In doing so, it would have weighed up the pros and cons including the costs consequences, which, on the defendant’s own case, it expected to be the ones normally to be expected in litigation before these courts (before QOCS were introduced). The defendant could have chosen to resist the claimant’s claim on its merits and saved itself the trouble and expense of joining the third party and the risk of an adverse costs order. It did not do so …”

Subject to none of the exclusions applying, QOCS

• is retrospective and applies to cases commenced prior to 1.4.13 but concluded afterwards. In Waggener, the defendant was aggrieved as they “had taken all its litigation decisions before the new rules were even published”. However (para 30): “It is well established that the presumption against retrospection does not apply to legislation concerned with matters of procedure, and that provisions of that nature are to be construed as retrospective unless there is a clear indication that that was not the legislature’s intention”.
• applies regardless of BTE that may have been taken out prior to (or after) QOCS coming into force on 1.4.13. These were the facts of Waggener (the claimant had legal expenses insurance with DAS);
• applies to interlocutory costs orders as well as final orders. Therefore, whilst orders for costs may be made against a claimant at the interlocutory stage and be summarily assessed, cost orders cannot be enforced unless one of the exceptions applies (see below).

In terms of timing for enforcement of interlocutory orders for costs, CPR, Part 44.14(2) states: 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 (assessment means summary or detailed assessment (44PD.12.7).

In cases where a personal injury claim is likely to fail, or costs may exceed damages recovered, and none of the exceptions to QOCS is likely to apply, there may be defendant focus at the interlocutory and final stage on costs orders against legal advisers under CPR, Part 46.8 / Senior Courts Act 1981, s.51(6) and Part 44.11.

QOCS do not apply to personal injury cases where there was a pre-1.4.13 CFA or ATE (CPR, Part 44.17; Part 48.1 & 48.2; Part 43.2(l)(k)(i) & (ii)), nor to an appeal where the substantive claim had been funded by a pre-1.4.13 CFA & ATE (see Landau v Big Bus Co Ltd SCCO 31.10.14 (Master Haworth) 31.10.14).

The rules do not distinguish between a pre-1.4.13 CFA or ATE that is enforceable at the conclusion of the claim and a pre-1.4.13 CFA or ATE having been agreed but is no longer enforceable at the time of judgment (e.g. legal representation has ceased to act on this basis and / or ATE insurers have declined further cover).

It is not clear whether pre-1.4.13 CFAs and ATE can be ‘thrown off’ and reliance placed on QOCS: there may be advantages for clients of such a course where ATE may be ‘flakey’, of limited cover or where cases of ‘close to call’ prospects of success.

Certainly the analysis in Landau, by analogy, would suggest that it is not the enforceability of the CFA but the fact of having entered into a pre-1.4.13 CFA which would act as an effective bar on any future reliance on QOCS.

However, an analysis of Simmons v Castle would suggest a contrary view. In Simmons the 10% increase hinged on LASPO 44(6) (see paras 40 & 50): The amendment made by subsection (4) does not prevent a costs order including provision in relation to a success fee payable by a person (“P”) under a conditional fee agreement entered into before the day on which that subsection comes into force (“the commencement day”) if:

• the agreement was entered into specifically for the purposes of the provision to P of advocacy or litigation services in connection with the matter that is the subject of the proceedings in which the costs order is made, or
• advocacy or litigation services were provided to P under the agreement in connection with that matter before the commencement day.

The word ‘prevent’ seems to be the crucial word – if the Court of Appeal on QOCS was to take a consistent approach it would talk about pre-1.4.13 CFAs being enforced and not their historical existence – this was raised as an aside in Simmons at para 33 re satellite litigation and the Court of Appeal stated: “33 APIL’s first point is that ABI’s proposal would lead to satellite litigation. However, the only examples Mr Aldous came up with were (i) a case where a claimant had entered into a CFA before 1 April 2013, and, after that date, he had died, and his executors then entered into a fresh CFA, and (ii) where a claimant entered into a CFA before 1 April 2013, and then disinstructed his solicitors and reinstructed other solicitors on a CFA after 1 April 2013. The first situation will very rarely arise, and the answer in the second situation is obvious”.

QOCS does not apply to applications for pre-action disclosure (Senior Courts Act 1981, s.33 & County Courts Act 1984, s.52).

Effect Of QOCS

CPR, Part 44.14 provides:

• 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.
• 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.
• a 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.

If a claimant is successful on liability and the claim gives rise to damages being paid by the defendant to the claimant, costs orders can be enforced up to the aggregate amount in money terms of the damages “without permission”.

Therefore, a defendant can enforce any interlocutory costs orders at the conclusion of the claim against a successful claimant up to the value of the damages ordered to be paid.

Likewise, a defendant can enforce a final costs order made where a defendant’s Part 36 offer was not exceeded at trial or where conduct issues have given rise to adverse costs orders against a claimant, again limited to the value of the damages ordered to be paid. In both instances, the defendant is entitled to enforce without permission i.e. ‘as of right’.

Set off of costs pursuant to CPR, Part 44.12 has a part to play in a defendant’s recovery of costs.

However, if the claimant loses the claim or is successful on liability but receives nominal damages, any interlocutory or final costs orders in favour of the defendant cannot be enforced unless one of the exceptions applies.

It must be stressed that the effect of QOCS is not to prevent costs orders being made against a claimant either at the interlocutory or final stage. It is exclusively the enforcement of costs orders that is fettered by QOCS.

The provisions of Part 36 and its costs consequences are not ousted by the existence of QOCS.

Further, costs budgeting remains a live issue for defendants regardless of QOCS as without a costs budget, a defendant will have no costs to enforce and a defendant Part 36 will be nugatory.

Exceptions To QOCS Where Permission Is Not Required

CPR, Part 44.14 provides:

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:

• the claimant has disclosed no reasonable grounds for bringing the proceedings;
• the proceedings are an abuse of the court’s process; or
• the conduct of:
  • the claimant; or
  • a person acting on the claimant’s behalf and with the claimant’s knowledge of such conduct, is likely to obstruct the just disposal of the proceedings.

A defendant is entitled to costs without permission if the claim is struck out on certain specific grounds. The list of reasons for striking out is not comprehensive and would appear to be a closed list (“… struck out on the grounds that”).

The basis for striking out the claim are the CPR, Part 3.4(2)(a) and (b) grounds and the inherent jurisdiction (abuse) but does not include (interestingly) striking out for “a failure to comply with a rule, practice direction or court order” (CPR, Part 3.4(2)(c)).

Therefore, for example, if a claim is struck out for non-payment of court fees under CPR, Part 3.7, a defendant would not be entitled to their costs under the CPR, Part 44.15 exception on a reading of the words of the section.

Some interesting hybrid situations may arise. For example, if a claimant is disbarred from relying on lay or expert evidence on account of late service (perhaps less likely following Denton) giving rise to the claim being untenable, the question arises as to whether the strike out is due to a breach of a rule (exception to QOCS not apply) or ‘disclosed no reasonable grounds’ and / or an ‘abuse of the court’s process’ (exceptions to QOCS apply).

The common use of the CPR, Part 44.15 exception maybe where, after service of proceedings, a defendant brings an application to strike out as, for example, limitation has expired or the wrong party has been sued. In either of these examples, if the claim is struck out the claimant is fully exposed to enforceable adverse costs orders.

Claimants may be astute to the tactical play upon an application to strike out- if an application is made by a defendant to strike out the claim, a claimant may discontinue the claim before hearing resulting in an unenforceable order for costs in the defendant’s favour (though subject to the Part 44.16 exceptions, that at 44PD.12(c) refers to discontinuance, see below as this is what happened in Gosling).

Should the claimant discontinue in the face of an application to strike out the defendant is entitled to apply to set aside discontinuance under CPR, Part 38.4. How this provision may be used by defendants to preserve their entitlement to costs on strike out will have to be seen. In Gosling, HHJ Moloney, QC did not consider that reversing discontinuance had much utility and approached the application on the basis of fundamental dishonesty (see para 10).

In any event, a court may consider that setting aside discontinuance is a collateral attack on QOCS that permits discontinuance without costs consequences subject to the permitted 44PD.12(c) adjudication on fundamental dishonesty.

The CPR, Part 44.15 exception may give rise to the utility of defendants seeking to strike out a claim at a late stage in proceedings.

In Summers v Fairclough Homes Ltd [2012] 1 WLR 2004 it was stated (from the headnote):

“… strike out a statement of case … at any stage of proceedings, even after trial in circumstances where the court had been able to make a proper assessment of both liability and quantum; but that that power would be exercised at the end of a trial only in very exceptional circumstances where the court was satisfied that the party’s abuse of process was such that he had thereby forfeited the right to have his claim determined; that, while the existence of such a power was in the public interest, in deciding whether to exercise it the court had to have regard to the claimant’s Convention 2005 rights to have his claim fairly determined by a court and to enjoyment of his possessions and so to examine the circumstances of the case scrupulously in order to ensure that any decision to strike out the claim was a proportionate means of controlling the court’s process and deciding the case justly; and that it would be a very rare case in which, at the end of a trial, it would be appropriate or proportionate to strike out a case rather than to dismiss it in a judgment on the merits or, where both liability and quantum could be assessed fairly, to give judgment in the ordinary way …”.

However, it was stated in Summers that (para 62): “… nothing in this judgment affects the case where the fraud or dishonesty taints the whole claim. In that event, if the court is aware of it before the end of the trial, judgment will be given for the defendant and, if it comes to light afterwards, it will be open to a defendant to raise the issue in an appeal …”

Therefore, whilst the discretion to strike out is only to be exercised in the “very exceptional case” at the conclusion of a claim, where the whole claim is tainted by fraud or dishonesty, it can be struck out thus forestalling the need for an enquiry as to fundamental dishonesty and permission to enforce costs orders.

Nonetheless, at the conclusion of the claim, the fundamental dishonesty Part 44.16 exception is likely to be a more effective route for enforceable costs orders in favour of defendants than at trial strike out.

Exceptions To QOCS Where Permission Is Required

CPR Part 44.16 provides:

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.

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:

• the proceedings include a claim which is made for the financial benefit of a person other than the claimant or a dependent 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
• a claim is made for the benefit of the claimant other than a claim to which this Section applies.

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 at 44.PD.12.6 provides:

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.

Addressing each limb of the exceptions for which permission is required:

(a) Fundamental Dishonesty

‘Fundamental dishonesty’ is a departure from the proposed wording which was to be ‘fraud’ or ‘fraudulent’. It is also to be noted that it is the claim that must be ‘fundamentally dishonest’ rather than the claimant.

The practice direction at 44PD.12 gives guidance on how fundamentally dishonesty will be determined.

In a case to which rule 44.16(1) applies (fundamentally dishonest claims):

• the court will normally direct that issues arising out of an allegation that the claim is fundamentally dishonest be determined at the trial;
• 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;
• 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;
• the court may, as it thinks fair and just, determine the costs attributable to the claim having been found to be fundamentally dishonest.

Therefore, where there is a trial the issue of fundamental dishonesty will need to be addressed at the trial.

This presents a pleading point- should the defendant’s statement of case identify fundamental dishonesty? The answer is probably ‘yes’, or at the least the issue should be raised at the PTR and identified as one of the issues to be addressed at the trial.

Where there has been no trial and the claim has settled, possibly at a significant undervalue, “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”.

The foregoing assumes that settlement has addressed damages but not costs. It can be inferred that the condition of exceptional circumstances is to discourage satellite litigation on this issue. What, exactly, are exceptional circumstances is yet to be determined.

Post settlement, surveillance evidence may be relied on and be practical in terms of summary determination of the issue of fundamental dishonesty. However, the court may consider that surveillance evidence is not an exceptional circumstance considering the regularity with which such evidence plays a significant role in reducing claimant’s exaggerated claims for damages.

Adjudication of fundamental dishonesty is not subject to exceptional circumstances on discontinuance, see 44PD.12.4(c).

In Gosling, HHJ Moloney, QC adopted a summary procedure on proportionality grounds with no oral evidence being heard and matters being limited to submissions from counsel, see paragraphs 23 and 24.

The issues included fundamental dishonesty as to the occurrence of the accident and with regard to the quantum of the claim. On the former point, HHJ Moloney, QC considered the evidence insufficiently cogent for summary disposal and a hearing of oral evidence disproportionate, see paragraph 33.

On quantum, it was held that the evidence was sufficiently cogent (“bang to rights”) and oral evidence would be disproportionate, see paragraphs 51 to 57.

The allegation of fundamental dishonesty as to quantum was based on a “devastating surveillance video”. Addressing fundamental dishonesty, HHJ Moloney, QC found: “44 It appears to me that this phrase in the rules has to be interpreted purposively and contextually in the light of the context … It appears to me that when one looks at the matter in that way, one sees that what the rules are doing is distinguishing between two levels of dishonesty: dishonesty in relation to the claim which is not fundamental so as to expose such a claimant to costs liability, and dishonesty which is fundamental, so as to give rise to costs liability.

45 The corollary term to “fundamental” would be a word with some such meaning as “incidental” or “collateral”. Thus, a claimant should not be exposed to costs liability merely because he is shown to have been dishonest as to some collateral matter or perhaps as to some minor, self-contained head of damage. If, on the other hand, the dishonesty went to the root of either the whole of his claim or a substantial part of his claim, then it appears to me that it would be a fundamentally dishonest claim: a claim which depended as to a substantial or important part of itself upon dishonesty”.

The Judge found that the dishonesty in question was fundamental to two heads of damage thus:” 49 Overall, I therefore conclude that in relation both to that very substantial element of his claim, future care, and in relation to an even larger part of his claim, general damages for pain, suffering and loss of amenity, the dishonesty in question here, if established, is fundamental to those heads of damage, and thus to around half of the total claim in damage terms. It appears to me to be very clear that on any sensible definition of a “fundamentally dishonest claim”, dishonesty crucial to such a large part of the claim under those two heads is sufficient to enable the claim to be characterised as fundamentally dishonest.

50 It was not suggested on the claimant’s part nor, I think, could it be seriously maintained that as a matter of law it would be required that the dishonesty went to the root either of liability as a whole, or damages in their entirety. It must be the case that dishonesty fundamental to a sufficiently major part of the claim would suffice to deprive the claimant of his costs protection, and open him to the court’s discretion as to how much of the costs he should pay …”

Consistent with HHJ Moloney’s approach 44PD.12.4(d) permits the court “as it thinks fair and just, determine the costs attributable to the claim having been found to be fundamentally dishonest”.

The inference from 44PD.12.4(d) is that despite the use of “claim” (as opposed to “claim and / or claims”) in CPR, Part 44.16, an allegation that part of the claim is fundamentally dishonest, is sufficient as otherwise attribution would not be relevant.

This particular issue, however, will have to wait for the Court of Appeal’s determination. Meanwhile, HHJ Moloney’s analysis is likely to feature in defendant’s submissions.

(b) A Claim For The Benefit Of A Person Other Than The Claimant

The second limb of CPR, Part 44.16 is supplemented by 44PD.12:

12.2 Examples of claims made for the financial benefit of a person other than the claimant or a dependent 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 care’ within 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, childminding, home maintenance and decorating, gardening and chauffeuring.

Gratuitous care, re-payable earnings paid by an employer and medical expenses escape the definition. Claims for the benefit of third parties, such as subrogated claims and claims for credit hire, are prima facie subject to third party costs orders and, therefore, are exceptions to QOCS.

As provided by CPR, Part 44.16(3), the costs order is made against the third party and not against the claimant (who would otherwise have to recover from the third party) though “exceptionally” this is permissible (44PD.12.5(a)).

The second limb of CPR, Part 44.16 is further supplemented by 44PD.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).

• 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.
• 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.

Therefore, costs ordered against the third party should be limited to those attributable to, for example, the subrogated claim.

If the claim is for the benefit of another, the requirements of the Senior Court’s Act 1981 s.51(3) and CPR, Part 46.2 need to be satisfied before an order is made.

The threshold for third party costs orders has historically been high and “would always be exceptional”, see Dymocks Franchise Systems (NSW) Pty Ltd v Todd (Costs) [2004] UKPC 39 and in summary:

• The order for payment of costs by a non-party would always be exceptional and any application should be treated with considerable caution.
• The application should normally be determined by the trial judge who could give effect to any views he had expressed as to the conduct of the non-party without constituting bias or the appearance of bias.
• The mere fact that someone has funded proceedings would generally be insufficient to support an application that they pay the costs of the successful party. Pure funders, as described at the case of Hamilton v Al-Fayed No. 2 [2002] EWCA Civ 665 reported [2003] QB 117 at [40], will not normally have the discretion exercised against them. That definition of “pure funders” means those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business and in no way seek to control its course.
• It is relevant but not decisive that the defendant has warned the non-party of the intention to seek costs or that the non-party’s funding has caused the defendant to incur the costs it would not otherwise have had to incur.
• The conduct of the non-party in the course of the litigation and other than as a pure witness of material fact is of relevance and potential weight.
• Most of the decided cases on the exercise of the court’s discretion under section 51 concerned commercial funders or corporate bodies closely associated with the party who incurred the costs liability which they were unable to satisfy. In the family context, the courts have been reluctant to impose third party costs orders against those family or friends who in the interests of access to justice assist a party to come to court for philanthropic and disinterested reasons.
• In determining these applications the court must exercise its case management powers to ensure that the application does not turn into satellite litigation that results in prolonged, complex and over-extended arguments about costs about costs. For that reason the inherent strength of the application is always a relevant factor.

How these issues may be addressed when QOCS anticipates that third parties should pay will have to be seen.

An interesting point arises on the recoverability against BTE and other third party funders of claimant cases. The existing law on the Senior Court’s Act 1981 s.51 and before the event insurance is to be found in Murphy and Another v Young & Co’s Brewery and Another [1997] 1 W.L.R. 1591. In the headnote it states, inter alia:

“… dismissing the appeal, that an order under section 51 that a non-party pay costs was only justified when exceptional circumstances made such an order reasonable and just; that legal expenses insurance was a respectable and well recognised form of insurance which was in the public interest; that the existence of legal expense insurance with a limit of cover that had been exhausted did not, in itself, make it reasonable or just to order the insurers to pay the costs of the adverse successful party; that, while the insurers had funded the litigation under a commercial agreement, they had had no interest in the result, had not initiated the litigation, had exercised no control over the conduct of the action and had been contractually obliged to provide funds up to the limit of cover; and that, accordingly, there were no exceptional circumstances to make it reasonable or just to order the insurers to pay the first defendant’s costs …”

Therefore, whilst QOCS means costs may not be enforced against a claimant, an application could be made (and be successful) against a third party funder unless the third party funder “had no interest in the result, had not initiated the litigation, had exercised no control over the conduct of the action and had been contractually obliged to provide funds up to the limit of cover”.

In the personal injury claim of Thomson v Berkhamsted Collegiate School QBD [2010] C.P. Rep. 5 Blake J. ordered disclosure of the extent to which the claimant’s parents had controlled a claim by their now adult son for bullying against their son’s school.

In the context of defendant cases, orders against defendant insurers have been made on account of the degree and extent of the control exercised by the insurer over the conduct of the litigation, see for example Palmer v Palmer (Deceased) , MIB and others [2008] EWCA Civ 46 (W/B 2014 vol 1 p.1495 & Cook on Costs 2014 p.609).

It is likely that there will be CA cases in the context of QOCS on “financial benefit for another” and the s.51 jurisdiction.

Third party funders will want to be astute to the points made in Murphy and the importance of not permitting themselves to be, or appear to be, the controller of the litigation as occurred in Palmer. Defendants will be interested in disclosure to identify control as in Thomson.

Therefore, whilst no orders should be enforceable or made against the BTE insurers and other litigation funders if they are just funding the litigation in the Murphy sense, this is likely to be a developing area of jurisprudence considering the financial cost of QOCS to defendants.

---

Author: John Meredith-Hardy Farrars (chambers@farrarsbuilding.co.uk)

---

• Share article:

---