What’s happening?
The rules governing liability for legal costs in death and personal injury cases in UK courts, are being changed to increase the amount of costs that defendants can recover from unsuccessful claimants. New rules impacting cost recovery will apply for claims issued on or after today’s date, 6 April 2023.
What was the position on QOCS?
In the UK, legal costs associated with a claim are usually paid by the losing party. On 1 April 2013, the “Qualified One-Way Cost Shifting regime (“QOCS”) was introduced as a modification to this approach in death and personal injury claims in order to maintain access to justice. Subject to certain exceptions, if a claimant loses any aspect of the case, any cost awards that are made in favour of the defendant can only be enforced up to the level of any damages and interest awarded to the claimant. Therefore, if the claimant is entirely unsuccessful, the defendant cannot recover any costs.
The impact of the QOCS regime on settlements was subsequently refined via case law:
- The Court of Appeal ruled that defendants could not recover costs from any settlement reached with the claimant under Part 36 (as a reminder, Part 36 of the English Civil Procedure Rules prescribes rules for making settlement offers with advantageous cost consequences) or a Tomlin Order (a type of Court Order often used to record settlements) (Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654); and
- The Supreme Court ruled that a defendant could not set off their costs against a claimant’s costs (Ho v Adelekun [2021] UKSC 43).
As a result, it was almost impossible for defendants to recover their costs if they settled with the claimant.
QOCS was intended to act as a shield against excessive defense costs for genuine, but unsuccessful claimants. However, the Supreme Court has recognized that the rules could be considered “counterintuitive and unfair” in certain circumstances. They were therefore reviewed.
What’s changing?
The new rules provide that defendants can offset their costs against the claimant’s damages, interest, and costs, increasing the pot of money available for applicable defense costs. It also allows all modes of settlement to be QOCS compliant, which will increase the ease of enforcing cost orders against unsuccessful claimants.
What does this mean in practice?
The changes are likely to lead to a significant reassessment of how personal injury claims are handled. We have flagged some key issues below:
- The changes will affect settlement dynamics and will need to be considered by parties when making offers, accepting or rejecting them. The changes will give claimants more incentive to accept sensible Part 36 offers by the defendant given the increased risk of exposure on costs.
- Interim applications are likely to become more important and could dictate the outcome of cases. In some cases a generous costs order at the interim stage could force the claimant to settle rather than go to court.
- There will also be scope for defendants to recover their costs associated with disputes over costs once the case has settled. This should discourage claimants from taking an unreasonable position on costs.
- After The Event insurance will be an attractive option for some claimants to protect against adverse costs. However, we may see a corresponding rise in insurance premiums.
These changes may not be the end of the matter. There was a series of cases on the interpretation of the QOCS regime after it was introduced and it would be no surprise to see the new rules lead to a further round of litigation.
If you would like assistance with understanding how these changes could impact your business, please do not hesitate to contact a member of the Cooley team.
