For personal injury cases with issued proceedings on or after 6 April 2023, amendments will apply to the application of Qualified One-Way Costs Shifting (‘QOCS’). The amendments redress the ‘counterintuitive and unfair results’ lamented by the Supreme Court concerning the current regime that has also been described as ‘extremely regrettable’. The changes have been the subject of a government consultation which launched in May 2022 and were expressly referenced by the Master of the Rolls. The new provisions confirm the reversal of and retreat from the principles established in the Cartwright, Ho and Harrison decisions (see below).

Background

The introduction of QOCS was a trade-off for prohibiting the recovery of ATE premiums from losing defendants. A partially successful defendant that had obtained an order for costs was always entitled to enforce payment of those costs against damages, but needed to obtain an order for ‘damages and interest’ in accordance with r.44.14.

‘Cartwright workaround’

In 2018, the Court of Appeal determined in Cartwright v Venduct Engineering two key principles:

• Part 36 offers accepted in time did not constitute an order for damages and interest.
• A Tomlin Order is not an order for damages and interest for the purposes of QOCS provisions.

Therefore, a personal injury defendant that had settled damages without an order for damages and interest would only be able to gain credit for any costs order in their favour by off-setting it against the claimant’s costs. This could also be used to top-up a shortfall if the defendant’s costs order exceeded damages. This was the ‘Cartwright workaround’ which was no longer possible following Ho v Adelekun.

Ho v Adelekun: Off-setting

By determining that off-setting costs is to be treated as enforcement for the purposes of the QOCS provisions, the Supreme Court’s judgment of Ho v Adelekun precludes the setting-off of any costs liability beyond the level of any ordered damages. Therefore if there are no ordered damages (as determined in Cartwright) no off-setting is possible and no enforcement of the costs order is possible. The government launched a consultation on amending the QOCS provisions in light of the ‘extremely regrettable’ situation exposed by Ho.

Part 36 settlements requiring Orders

In the aftermath of Cartwright and Ho, there remained a degree of uncertainty concerning Part 36 settlements where the court was required to make an order and whether the defendant would be able to enforce a costs order. If the claimant was a protected party and therefore an order was required granting permission or where a claimant accepted a Part 36 offer out of time, the key issue was whether the subsequent order was an ‘order for damages and interest’ entitling the defendant to enforce a costs order.

HARRISON : ‘Extremely regrettable’ outcome

In December 2022 the Court of Appeal concluded in University Hospitals of Derby NHS Trust v Harrison that any settlement order arising from acceptance of a Part 36 offer was not an ‘order for damages and interest’. The issue arose in Harrison as permission was required to accept a Part 36 offer. The offer was in any event accepted out of time and therefore the decision closed the door on an argument that a defendant can enforce a costs order arising from a late Part 36 acceptance. 

So where does that leave defendants on cases with proceedings before 6 April 2023?

• If the underlying personal injury damages claim is settled by a Part 36 offer (by either party) and there is a costs order in the defendant’s favour, the defendant DOES NOT recover its costs. This applies regardless of whether the Part 36 offer is accepted in time or not. This also applies if an order is required to conclude settlement, where for example permission is required to conclude settlement. This will also apply to any costs order obtained in the ancillary detailed assessment of costs proceedings.
• Part 36 does not currently provide personal injury defendants with a means of recovering their costs except where an order for damages is made at trial. It is still however an effective means of ensuring costs liability to be paid to a late accepting claimant will be restricted to the period before a Part 36 offer expiry.
• The exceptions to QOCS protection concerning strike outs, fundamental dishonesty and non-party costs orders (rr. 44.15 and 44.16) are not impacted by this decision as they require judicial evaluation.

STRATEGY POINTS

What about Calderbank offers?

Harrison was concerned with an order made where settlement arose from a Part 36 offer. However, the rationale was that there needs to be a substantive determination of damages beyond a form or binary decision to enable the currently drafted QOCS provisions to allow for enforcement of a costs order. This would mean that if an offer to pay damages was accepted (such as might be made in a Calderbank offer) it would also fail the ‘beyond form/binary’ test. It therefore seems that until the QOCs rules are amended, the only way a defendant can enforce a costs order is by going to trial. If a Calderbank offer has been made (such as a time limited offer for damages) or is going to be made to simply increase the chances of a good trial outcome as an admissible offer, nothing has changed.

Should defendants still make Part 36 offers?

The point of making a Part 36 offer is to ensure the court applies the automatic consequences if the matter proceeds to trial. If accepted out of time, the automatic consequences are still a denial of the claimant’s costs for the late period. Other than an awareness that any costs order arising from a late acceptance would not be capable of being enforced, the same principal benefits of making a Part 36 offer remain.

Should defendants review existing Part 36 offers?

If an offer has been made early on and has been expired for some time, it no longer represents an off-set risk. For example, if an offer of £50,000 damages was made 1 year ago and it is estimated that the defendant’s costs are £50,000 since the offer expired it is no longer the case that the defendant’s costs are going to wipe out damages. The same risk to the claimant’s costs (that they are not going to be recovered) remains. However, if the offer was now withdrawn and a lower offer was made, all of the claimant’s costs are going to be payable. 

Rules Change 6 April 2023

By amending the QOCS provisions to allow enforcement of costs orders against ‘agreements to pay or settle a claim for, damages, costs’ and expressly including deemed orders (which arise where Part 36 offers are accepted), moving forward Part 36 settlements will no longer enable claimants to avoid paying defendant’s costs orders. Tomlin orders and off-sets against costs will be permitted.

Practitioners should bear in mind that the changes will only apply to cases with proceedings issued on or after 6 April 2023. It remains to be seen whether this will result in a spike in proceedings on existing cases to try and take advantage of the current regime with the Cartwright, Ho and Harrison position prevailing on cases where proceedings are issued before then.

The changes will encourage settlements at an early stage and ensure parties seriously engage in meaningful attempts to resolve meritorious claims more swiftly, which will benefit injured claimants.

If you wish to discuss this further, please feel free to get in contact with our Costs Team at DAC Beachcroft Claims Limited.