Qualified One-Way Costs Shifting

We discuss Qualified One-Way Costs Shifting.


The traditional principle of English common law has been that legal costs “follow the event”, the loser pays the winner’s costs.

Legislators have repeatedly modified that principle. Possession of a Legal Aid Certificate was formerly a “shield” against having to pay a successful opponent’s costs.

By the mid 1990s, the annual cost to the public purse of civil legal aid for personal injury claims was deemed excessive. As a quid pro quo for abolition of civil legal aid in personal injury cases, new regulations and the Woolf reforms to the Civil Procedure Rules ushered in the “no-win no-fee” (conditional fee agreement) regime. Claimants could insure themselves against the risk of losing litigation, and successful defendants were expected to look to After-the-Event (ATE) insurers to reimburse their costs.

For lawyers acting for claimants, the CFA/ATE regime proved a decade of bonanza. From 1 April 2000, they were able to claim, In addition to their usual fees, “success fees” from an unsuccessful opposing litigant, commonly claimed at the maximum of 100 per cent. Why legislators should have expected rational business-people to claim any lesser percentage than the maximum remains a mystery.

Traditionally, an insurer would accept a premium (such as a motor policy premium) in advance, and pay-out only if the contingency (risk) did occur. However the “no-win no-fee” regime designed to replace legal aid, introduced the novel prospect of ATE insurers stipulating the amount of an insurance premium, payment of which was to be” deferred”, and that they would only in practice levy if the contingency ( risk) they were insuring did not occur.

Where their policyholder lost at trial, ATE insurers (often domiciled out of the jurisdiction) became increasingly notorious for “avoiding cover” : discovering reasons, such as their own policyholder’s “newly-identified” dishonesty, to evade paying the successful defendant’s costs.

It took the spiralling costs of rising numbers of clinical negligence claims to force the government, as de facto insurer of the National Health Service, to call a halt to the CFA/ATE bonanza. Situated toward the end of the Legal Aid Sentencing and Punishment of Offenders Act 2012 (LASPO) were clauses abolishing recoverability of success fees and insurance premiums between litigants.

The quid pro quo, as a sop to the interests of some claimants, was QOCS.

Where QOCS?

Qualified One-Way Costs Shifting, (QOCS), was the brain child of Lord Justice Jackson’s review of civil costs, and introduced by new sub-rules of the main Civil Procedure Rule (CPR) dealing with costs : rule 44.

The concept was to reintroduce, for personal injury claimants, some measure of the formerly commonplace protection offered by a legal aid certificate.

It was not to be a reversion to the near -absolute “shield” afforded by a Legal Aid Certificate. Hence “qualified”. However, in some limited circumstances a losing personal injury claimant was to have the benefit of QOCS protection.

The Rules (at CPR 44.13 to 44.17), it must be said, owe more to the Victorian style favoured by parliamentary draftsmen than to principles of plain English equally accessible to self-represented litigants as to lawyers. Underpinned by the unstated but sacrosanct principle that ultimate discretion over costs lies with a judge (and not with the rule-drafting committee) they set out a mix of circumstances when QOCS may be applied, and exceptions to those circumstances, hedged about by supplementary exceptions.

In broad summary, QOCS sets a cap on what a claimant who is awarded some damages but not enough to beat a defendant’s “Part 36”offer might have to pay in costs to the defendant, limiting it to the amount of damages and interest. A claimant could see his/her damages being “wiped out” but would be protected by QOCS from personal insolvency from having to pay all of the defendant’s costs.

Tip-toeing around the problem that procedural rule-drafting committees strive to their utmost to avoid presuming to instruct trial judges what they may order about costs, the committee reverse-engineered the rule, to suggest, (but no more), (at 44.14), that a presumption may arise in favour of the defendant that damages may be wiped-out “without the permission of the Court”.

The prospect for a fully-successful defendant, against whom no damages are awarded (such that there is nothing to “wipe-out”) is left unclear.

The corollary is that a defendant would appear under all circumstances to remain fully entitled to seek the court’s permission to enforce more costs than would merely “wipe out” the claimant’s damages.

This approach dictated twin sets of exceptions to QOCS : where the permission of the court was required, and where it was not required, (rules 44.15, and 44.16 respectively).

Under 44.15, a defendant who has successfully struck out a claimant’s case can enforce full costs. Under 44.16 claimants pursuing “fundamentally dishonest” claims lose QOCS protection. These exceptions may be thought comparatively uncontroversial.

Uncertainty is sown at 44.16(2) and (3), which deserves setting out in full:

“(2) Orders of 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:
(a) 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
(b) a claim is made for the benefit of the claimant other than a claim to which this Section applies.
(3) 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”.

It is possible to follow the broad concept behind (2)(b). Someone at the committee will have raised the point : “What about when the victim was a fatality?”. Quite why the rule-drafters considered that the dependents of a person killed in an accident should be less deserving of QOCS than the victim (only to add the vaguely-specified sub-exceptions in parenthesis) is mysterious.

Subsection (2)(b) would appear to be opaque.

Commentators have raised concerns that subsection (3) should worry solicitors advising the dependents of personal injury victims in fatal cases because the scope of just who may fall into the class of “person, other than the claimant, for whose financial benefit the whole or part of the claim was made” is unspecified. On the face of the rule, it would appear that, only in fatal cases, pursuit by a claimant of heads of financial loss other than care, loss of earnings or medical expenses (such as for instance, loss of pension rights, funeral expenses, damage-to or replacement-of vehicle and/or personal effects, credit- hire and so on) could result in the court making an order against anyone deemed to be benefiting financially from the claim, including conceivably the claimant’s solicitors.

Such a risk would appear to be remote if only because, were the court minded to order a claimant’s solicitor to pay all or part of a successful defendant’s costs, it has far clearer powers under section 51 Senior Courts Act 1981, or elsewhere in the CPR, to make “wasted costs” orders against solicitors, or others.

It is early days for QOCS, but the reported cases so far clarify more about when it does not apply, than when it does.

We have guidance that it does not apply where a “pre-commencement funding arrangement” (read CFA/ATE ) had been entered into and that applies even if an appeal was pursued under different funding arrangements (Michael Landau v Big Bus Co Limited (2014)).

It does not apparently apply to a subordinate “part 20” dispute (Arrabella Wagenaar v Weekend Travel Limited (2014)).

The action of a claimant filmed shopping at length one morning without a crutch but presenting that afternoon for a medico-legal examination with a crutch and alleging that he was in constant pain had been “fundamentally dishonest” within CPR 44.16, and so lost him QOCS protection (Gosling v Hailo and another (2014)).

Whither QOCS?

Defendants’ insurers not infrequently take the view that attempting to enforce costs against an impecunious claimant would be “throwing good money after bad”. Vindication of their policyholder’s position by a trial judge, and not having to pay damages, (or not as much as was being claimed), will in some measure have justified their expenditure of defence costs.

Insurers are less likely to take that view where a losing claimant, ostensibly perfectly able to pay adverse costs (if not in cash, then by the application of a charging order over property), nonetheless asserts an alleged “right” to QOCS.

Defendants and their insurers tend to feel strongly about dishonest claims. Expect more decisions on applications for permission, exploring the limits of Gosling , where the issue is whether the claimant was sufficiently dishonest to make his/her entire claim “fundamentally dishonest”.

As the pre-LASPO cases fall away, increasing numbers of successful defendants may be expected to challenge the operation of QOCS.

That is because the CPR rules do not establish a right to QOCS protection. At most, they arguably raise a presumption that QOCs might apply. That presumption can be readily displaced by the straightforward act of the defendant asking the court for permission to enforce full costs. An application for permission might be made orally by the defendant’s advocate, following the handing down of judgement, when the court comes to hear submissions on costs.

The Court clearly retains its full overriding discretion to make such order as to costs as it considers just. If not under the convoluted rules under CPR part 44, then under the court’s overriding discretion under section 51(3) Senior Courts Act 1981.

The CPR committee did not presume to set out guidelines for the application of the judges’ discretion to permit full enforcement notwithstanding QOCS. Those guidelines must be expected to be developed over time by the common law. That is something of a misfortune for litigants, because the evolution will be slow, self-contradictory at the level of first-instance judges, and unpredictable.

Left wide-open is the central issue of whether means are a relevant consideration for the court to take into consideration when hearing an application for permission to enforce in full. In the past, only claimants of restricted means could enjoy the legal aid costs-shield, (simply because more- prosperous claimants would not have met the means criteria for legal aid). In the past, for wealthier losers, costs simply “followed the event”. To witness wealthy claimants benefiting from QOCS, would therefore seem a novel injustice on successful and vindicated defendants.

If uncertainty over the claimant’s means exists, it would be fully within the court’s power to make an order that the claimant be examined under oath as to means, and to adjourn the issue of the defendant’s application for permission to enforce costs, until after the means examination.

Watch this space.

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