Qualified One Way Costs Shifting and CPR 36

Following the introduction of Qualified One Way Costs Shifting (QOCS), parties have begun seeking to find ways to try to recover their costs where they are not, on the face of it, recoverable. One of the methods currently being tried is to make a CPR 36 offer on the basis that beating a CPR 36 offer will entitle the defendant to all of its costs, assessed on the standard basis.

 Background

After the event insurance (ATE) became recoverable inter partes on assessment of costs as a result of the introduction of section 29 of the Access to Justice Act 1999. This section was introduced following the Access to Justice Report (published on 26 July 1996) in which Lord Woolf identified that litigation was ‘…too expensive… and too unequal: there is a lack of equality between the powerful, wealthy litigant and the under resourced litigant’, and furthermore expressed concern over the level of public expenditure on litigation. This resulted in a shift to a publicly funded justice system, to a system in which the costs of litigation were funded by the litigants themselves.

Almost 13 years later, Lord Justice Jackson published his report into the state of civil justice, which criticised the recoverability of after the event insurance on the basis that it allowed claimants to litigate ‘risk free’, and at huge cost to the defendants should they lose. Jackson LJ considered that this placed a disproportionate costs burden on defendants and therefore recommended that recoverability of ATE be abolished.

It was, however, recognised that the abolition of the recoverability of ATE alone would simply bring about a return of the problems identified in the Woolf reforms, and that the balance would swing too far in favour of the well-funded litigant against the private individual. This was especially true in the field of personal injury, in which in the vast majority of cases the claimant would be a private individual of only modest means, whereas the defendant would be a large and well-funded insurer.

The purpose of QOCS

The QOCS regime was proposed as a part of Jackson LJ’s report, and was intended to redress some of the imbalance in equality of arms identified by both Lord Woolf and Jackson LJ. The idea of the new regime was that defendants would not be liable for large insurance premiums if the claimant succeeded, but that they would also not be able to recover their costs if they won. The thinking behind this seems to be that it would encourage settlement because whereas previously the high costs liability of ATE insurance (which would become payable if the defendant settled) discouraged settlement, defendants would now not have that liability if they were to settle, but if they proceeded to trial they would not be able to recover their costs.

Scenario

I was recently instructed to advise in relation to a matter where the defendant had made an offer, purportedly pursuant to CPR 36, to ‘discontinue with a drop hands on costs[i]. The defendant had stated that the effect of this offer would be that if the claimant did not succeed at trial, the defendant would be entitled to assessment of its costs following the expiry of the relevant period, and that this would ‘override’ the QOCS regime.

Analysis

CPR 36.17(3)(a) provides that, where a claimant fails to obtain judgment more advantageous than a Defendant’s Part 36 offer ‘…the court must (my emphasis)… order that the defendant is entitled to costs… from the date on which the relevant period expired; and interest on those costs.’

In our scenario, therefore (and assuming that the CPR 36 offer was valid), if judgment were to be given in favour of the defendant then the court would be required to make an order that the claimant pay the defendant’s costs.

However, CPR 44.14(1) states that ‘orders for costs made against a claimant may be enforced… 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’. This means that the quantum of the costs which can be allowed in respect of the order arising from CPR 36.17(3)(a) can be no more than the damages awarded to the claimant; if the damages awarded are nil, then the maximum costs which the defendant can recover are nil.

There are exceptions to CPR 44.14, which are set out at CPR 44.15 and 44.16, however these exceptions relate to matters where the claimant has been ‘fundamentally dishonest’ or the claimant’s conduct was an abuse of process or was otherwise likely to obstruct the just disposal of proceedings, and it would certainly be extremely unlikely that a court would find that merely not accepting a CPR 36 offer caused the claim to fall into any of these categories in the absence of other factors.

A word of caution: in Broadhurst & Anor v Tan & Anor [2016] EWCA Civ 94 it was held that claimants who beat a CPR 36 offer are entitled to more than the fixed costs set out in CPR 45. In theory, it may be possible for defendants to raise arguments along similar lines, and that QOCS is in effect a fixed costs regime and therefore that judgment applies. However, Broadhurst dealt with a specific exception in CPR 36.14A relating to CPR 45 fixed costs, and the court found that in the absence of that exception, costs would be limited. As there are no exceptions to the QOCS rules relating to CPR 36, it is therefore unlikely that such an argument could succeed.

I would finally point out that if it were true that a nil CPR 36 offer would override the QOCS regime and allow for costs to be assessed on the standard basis, it would entirely undermine the QOCS regime, as every defendant could simply make a nil CPR 36 offer upon receipt of the letter of claim, and then proceed to trial and recover all of their costs.

Summary

A CPR 36 will only entitle a defendant in a claim subject to QOCS to costs up to the value of any monetary award to the Claimant following judgment. If the Claimant’s claim is entirely unsuccessful, the Defendant will not be entitled to any costs.

Matthew Rose is a Solicitor in the Costs and Litigation Funding department at Clarion Solicitors. You can contact him at matthew.rose@clarionsolicitors.com, or the Clarion Costs Team on 0113 222 3248.

[i] An offer which includes a provision for costs cannot in any event be a valid CPR 36 offer (Mitchell v James [2002] EWCA Civ 997).

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