This blog was written by Andrew Roy, Deputy Costs Judge & Head of 12KBW’s Costs Team.
CPR 44.14 as currently (and originally) enacted provides (emphasis added):
Effect of qualified one-way costs shifting
(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.
(2) Orders for costs made against a claimant may only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.
(3) An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record.
Cartwright v Venduct Engineering Ltd  EWCA Civ 1654;  1 WLR 6137 established that this precluded enforcement against damages recovered via settlement under e.g. Part 36 or a Tomlin order.
For a time defendants could recover at least some of their costs by way of set off against a claimant’s costs, even if QOCS precluded direct recovery because there was no order for damages in the claimant’s favour.
However, the Supreme Court in Ho v Adelekun  UKSC 43;  1 WLR 5132 then held that setting off a defendant’s costs against a claimant’s was a species of enforcement. It was therefore precluded where it exceeded the cap reflecting the sum of any orders for damages and interest made in favour of the claimant.
The upshot of all this is that QOCS makes it virtually impossible for a defendant to recover costs from a claimant when a claim settles. This was recently confirmed in University Hospitals of Derby & Burton NHS Foundation Trust v Harrison  EWCA Civ 1660.
Given that (a) the vast majority of personal injury claims settle; and (b) going to trial and having an order for damages made against it is generally the last outcome that a defendant would wish to seek, in practical terms the scope for defendants to obtain any effective costs recovery (save where one of the exceptions such as fundamental dishonesty applies) is vanishingly small.
Defendants are therefore precluded from recovering costs in any number of very common scenarios e.g.:
- When a claimant accepts a Part 36 offer out of time;
- When a claimant is ordered to pay the costs of an interim hearing;
- When a claimant loses a post-settlement costs dispute.
However, from April 2023 all this is going to change.
Ho was a landmark victory for claimants. However, it was so favourable a result that it carried with it the danger of winning not wisely but too well.
The Supreme Court at [9, 31, 44-45] acknowledges that the claimant’s interpretation led to results which could be considered counterintuitive and unfair. It therefore recommended that the Rules Committee revisit the rules in question.
They have done so. The result is a radical reformulation of QOCS.
CPR 44.14 will from 6 April 2023 read as follows (amendments tracked, bold emphasis added)
(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for
damages or agreements to pay or settle a claim for, damages, costs and interest made in favour of the claimant.
(2) For the purposes of this Section, orders for costs includes orders for costs deemed to have been made (either against the claimant or in favour of the claimant) as set out in rule 44.9.
(2) (3) Orders for costs made against a claimant may only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.
(4) Where enforcement is permitted against any order for costs made in favour of the claimant, rule 44.12 applies.
(3) (5) An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record.
(The Civil Procedure (Amendment) Rules 2023 (legislation.gov.uk))
The effect of this is as follows:
- The new sub-paragraphs (2)-(3) explicitly and directly reverse Cartwright.
- However, they go further than that. They raise the general enforcement cap to give defendants an absolute right to enforce up to the level of any damages or costs recovered by claimants. Pre-Ho, enforcement against costs could only be achieved indirectly by way of set-off. That was so even pre-Cartwright.
- Deemed orders at CPR 44.9 includes those under CPR 36.13(1) or (2) (claimant’s entitlement to costs where a Part 36 offer is accepted). For there to be any jurisdiction for a claimant to seek assessment of his or her own costs there must be a document giving rise to a right to detailed assessment. This means a costs order or proof of a deemed costs order; PD47 13.3, Bayliss v Powys  EWHC (QB). So the very fact of a claimant’s entitlement to costs will bring such costs within the scope of this provision.
- However, this provision in fact appears academic, given that enforcement is possible in respect of any damages or costs recovered by it by order or by settlement.
- The new sub-paragraph (4) explicitly and directly reverses Ho.
Ho has thus proved the ultimate Pyrrhic victory for claimants. The changes to the rules it has prompted will not merely reverse the effects of Ho itself. They will also reverse the effect of Cartwright. Indeed, they will create a more favourable costs regime for defendants than if Cartwright had been decided the other way and the rules left unchanged.
There is however a silver lining for claimants in the form of a transitional provision that the amendments “apply only to claims where proceedings are issued on or after 6th April 2023”.
(The Civil Procedure (Amendment) Rules 2023 (legislation.gov.uk))
Takeaway Practice Points
- Defendants’ Part 36 offers will in the future have much more bite.
- This is self-evidently crucial in respect of costs, which are important in themselves.
- The effects moreover feed into settlement dynamics, and thus into both strategy and tactics. Parties and their advisers will need to factor these considerations into any decision, as to what offers to make, accept or reject.
- These changes will also dramatically alter the cost/risk/benefit analysis of:
- Making or resisting interim applications.
- Post-settlements costs disputes. This includes detailed assessments. At the moment a defendant in a settled personal injury claim cannot recover its costs of these; PME v The Scout Association  EWHC 158 (SCCO). That will no longer be the case.
- Claimants would be well advised where possible to issue proceedings before 6 April 2023.
- There will an increased need for ATE insurance or other protection against adverse costs. By the same token, premiums for such insurance are likely to rise to reflect the greatly increased risks.
- The precise effect of these rules is likely to be subject to argument. All of the many significant changes to the costs rules in recent times have generated satellite litigation. Most if not all have generated unintended consequences (the original iteration of QOCS being a prime example). Watch this space.