There are to be fundamental changes to the QOCS regime for claims issued on or after 6th April 2023 which will have a wide impact on the conduct of claims by claimants and defendants alike.
The latest amendment to the Civil Procedure Rules reverses the effects of the important decisions of Cartwright v Venduct Engineering Limited [2018] EWCA Civ 1654 and Ho v Adelekun [2021] UKSC 43.
For all claims issued on after 6th April 2023, costs order made against a claimant will be enforceable not only against orders for damages under CPR 44.14 but against “any orders for damages or agreements to pay or settle a claim for, damages costs and interest made in favour of the claimant”. A further addition to the rules confirms that orders for costs includes deemed costs orders.
The immediate and obvious impact is that claimants will lose the costs insulation provided by the existing rule which largely stymies defendants from enforcing costs orders against any settlement, including on late acceptance by a claimant of a Part 36 offer, and which prevents defendants from setting off any costs orders, whether made at an interim stage or otherwise, against those in favour of a claimant.
The Court of Appeal in Cartwright held that settlement by Part 36 or Tomlin order did not amount to an order for damages under CPR Part 44.14 and thus a defendant (or indeed a co-defendant who had its costs on discontinuance) could not enforce any costs order against the settlement damages.
The Supreme Court confirmed in Ho that CPR 44.14 equally prevented set off of defendant’s costs orders against claimant’s costs orders (the appellant defendant had a Court of Appeal costs order in its favour for close to £50,000 which it had wanted to set off against the claimant’s costs orders of £17,000 or so). The monetary cap was provided by any order for damages but the Supreme Court was critical of this outcome.
The Rules Committee has moved with some speed to re-balance matters (worthy of comparison with the lack of interest in addressing the ambiguity in the rules which means that claimants are only entitled to fixed costs until allocation in claims patently worth more than £25,000 but which started life in the MoJ Portal).
There is no real ambiguity in the proposed changes to CPR 44.14 with the explanatory notes confirming that the effect is to permit set-off of costs liabilities unrestrained by the level of any damages award and that the effect is intended to allow defendant costs orders to be enforced against agreements to pay damages or costs including Part 36 compromises and settlements concluded by Tomlin Order, with deemed orders caught by the rules.
Immediate points to note:-
- The changes do not bite against cases issued before 6th April 2023.
There is a balancing act here with the premature issue of claims likely to give rise to separate disputes especially if the pre-action protocol is breached.
There may be some cases where limitation is pressing or where the claim will be ready for service within the period by which the claim form has to be served, where the need to issue might be more obvious.
James Marwick of our Personal Injury team has advised on a number of cases in the last few weeks on this issue.
The use of the DCP avoids any lag between proceedings being received at Court (and thereby brought for the purposes of limitation) and subsequent formal issue by the Court.
- The changes will require parties to approach certain tactical questions with additional care.
This will include multiple defendant cases (where the existing iteration of the rules encourages bringing in defendants protectively knowing that if need be they can be dropped out with limited costs exposure, per Cartwright), contesting interim applications (where defeat for the claimant will inevitably now diminish the ultimate damages and costs pot) and the risk exposure of Part 36 offers.
Defendants will once again be able to make Part 36 offers with some teeth to them and their full utility is restored by the amendment.
- There may yet be an impact on the ATE market.
Most firms as a matter of routine implement ATE for clients. That seems imperative now.
James has envisaged no immediate significant changes to the market in terms of premiums because the re-balancing still limits defendants to enforce only up to the extent of the pot of money of damages and costs made in favour of a claimant. Thus, it might only be that policies are re-worded to avoid a scenario where a claimant is receiving the full benefit of their damages and costs orders but an ATE insurer is paying out against an adverse costs order.
James also understands that at least one major market insurer is taking a ‘wait and see’ approach to how the new rule lands.
What will be important, more than ever, for claimant solicitors will be the terms of retainers and informed consent on costs exposure.
James Marwick and Rachel Segal will be recording a podcast early next week where they will discuss some of the possible nuances of the rules including the impact on multiple defendant claims, the new found impetus given to Part 36 and precisely how co-defendants may come to understand the terms of any Tomlin Order. You can access all of our podcasts here.