Costs Litigation Blog

The Government has opened two consultations on Costs: (1) considers changes to the CPR dealing with QOCS (following the issues raised by the Supreme Court in Ho v Adelekun [2021] UKSC 43); and (2) concerning how costs for vulnerable parties might be uplifted under the extended FRC which is now set to come into force in April 2023.

The Consultations on QOCS is available here and on vulnerable parties is available here.

Proposed Changes to QOCS and Part 44
Background to QOCS
QOCS was originally implemented to enable the end of recoverable ATE premiums. Sir Rupert Jackson proposed that a new costs protection regime be developed, for PI claims, based on the legal aid ‘shield’, then in s. 11(1) of the AJA, such that:

“Costs ordered against the claimant [in any PI claim] shall not exceed the amount (if any) which is a reasonable one for him to pay having regard to all the circumstances including – (a) the financial resources of all parties to the proceedings, and (b) their conduct in connection..”

The Government decided, with the agreement of all sides that, for practical reasons, means should not be an issue in respect of QOCS in PI claims. Although conduct was accounted for in the rules as drafted through provisions such as those in relation to fundamental dishonesty. The policy objective was to put “parties who are in an asymmetric relationship onto a more equal footing.” In other words, a claimant who loses a reasonably brought PI claim should not lose their house paying the other side’s costs whilst a Claimant who has no assets may have nothing to lose.

The Current Position & Its Difficulties
At present, the QOCS regime operates such that [a Defendant’s] costs can be enforced up to the total awarded in damages; but it does not allow costs to be offset against costs, per the Supreme Court’s decision in Ho v Adelekun.

Ho follows the Court of Appeal’s decision in Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654 which held the acceptance of a Part 36 offer does not create an enforceable order for the purposes of QOCS. Prior to Ho, Cartwright was manageable in practice because parties could agree an offset against costs. However, because Ho made it clear that any offset must be limited to damages only and not costs, the decision in Cartwright cannot now be managed between parties in the same way. Thus, the combined outcome of both of these cases is to undermine the effectiveness of QOCS and Part 36 in resolving disputes.

The Proposed Changes

The proposal states that the Government considers that the most effective way of addressing issues around QOCS is by amending Section II of Part 44 as follows:

• A claimant’s entitlement to costs is considered to be part of the overall fund against which set-off can be applied; and
• Extend costs orders to deemed orders, so a defendant can enforce a deemed order for costs (especially following acceptance of a Part 36 offer) without the permission of the court.

Discussion – Redressing the Balance
The policy objective of these changes is articulated in the consultation as follows:

“It is right that claimants have sufficient protection, so they are not left in a worse position after the claim than before it. However, there must be balance. It is the Government’s position that defendants must be able to make effective use of Part 36 and recover costs where appropriate and, if necessary, by set-off, so that there is effective control over the running of unmeritorious issues.”

Vulnerable Parties
The second consultation relates to vulnerable parties.
As those reading this blog will know, in Aldred v Cham [2019] EWCA Civ 1780 the Court of Appeal drew the distinction between “a feature of the claim” and “a feature of the claimant” (only costs incurred due to “a feature of the claim” are recoverable). Accordingly, the Court of Appeal held that the costs incurred for advising on a child settlement (which is mandatory under CPR 21) were a feature of the child as a claimant, not a feature of the claim, and were therefore not recoverable.

However, “the MoJ is keen to ensure that those who are vulnerable (either as parties or witnesses) are not disadvantaged in bringing or defending claims which are within the scope of FRC.” This issue was highlighted by the report by HHJ Cotter QC (as he then was) for the Civil Justice Council (CJC) in 2020, which was published after both Sir Rupert Jackson’s FRC report in 2017 and MoJ’s consultation on it in 2019.

Accordingly, the MoJ proposes that vulnerability in respect of parties and witnesses under the extended FRC (it should be noted that this is the new regime which has yet to come into effect, which, simply put, will be extending the fixed costs regime to all personal injury cases valued up to £100,000 with exceptions for certain diseases and a special regime for clinical negligence). The MoJ proposes that the extended FRC scheme should deal with costs associated with vulnerable parties as follows:

The Vulnerability Proposals for the Extended FRC
(i) It is a judicial decision to determine whether or not the vulnerability gives rise to sufficient extra work to justify, exceptionally, an additional amount of costs;
(ii) There needs to be a threshold, which is proposed to be 20% in line with existing provisions, of additional work caused by the vulnerability;
(iii) The procedure by which people can establish a vulnerability uplift needs to be clear and simple; and
(iv) The process needs to be retrospective (as with the assessment of costs generally), not prospective: the judge needs to be satisfied that sufficient extra work has been incurred, not that it may need to be.

Discussion
There are various existing CPR provisions which allow for the above proposals already. CPR 45.13-15 and 45.29J-L set a minimum threshold of 20% additional costs to trigger additional recovery and provide for the challenging party to pay the costs of challenge if the court does not consider the claim to be appropriate or, on assessment, the minimum 20% threshold is not met. However, costs would not be capped at a maximum but would be subject to assessment by a judge to determine reasonable and proportionate costs.

Comment
These proposals don’t offer much security to those who will be acting for vulnerable Claimants (i.e. children or those who lack capacity). In fact, it is a risky strategy to try and seek further costs as if you fall short of showing an additional 20% of costs have been generated you will have to pay the costs of challenge, which look, per the likely changes to QOCS, to soon be part of the ‘pot’ against which the Defendant’s costs can be enforced.

It should be noted that there is no proposal to change the existing FRC regime (although views are invited on the same as part of the consultation). This is because it is noted that “vulnerability in itself does not automatically generate exceptional extra work to require an uplift” and “vulnerability appears to have a minimal impact in existing (low value PI) FRC regimes because the cases covered are mainly straightforward low value claims where the presence of a vulnerability has little bearing on the case or the amount of time or work that is required. Furthermore, those cases that are not of this type are typically excluded from existing FRC altogether.”

Practical Takeaways

• Claimants should continue to take advantage of Ho which remains the current state of the law – which in practice means that interim applications can be made with little fear as to costs. ATE premiums should reflect the currently small risks on costs.
• However, this is likely to change and it will be wise to very carefully consider the merits of interim applications if Ho is reversed – with a knock on inflationary impact on ATE premiums.
• No changes to the current FRC for claims up to £25,000 look likely in respect of vulnerable parties.
• There is likely to be some costs protection for vulnerable parties under the new extended FRC scheme which has yet to come into force – however, to qualify litigators will need to show that they have incurred 20% more costs as a result of the vulnerability in question as fixed costs regimes by their nature operate a system of ‘swings and roundabouts’.