What has changed?

“Qualified one-way costs shifting” was introduced for personal injury claims from 1 April 2013.

This means that defendants will generally be ordered to pay the costs of successful claimants but, subject to certain exceptions, will not recover their own costs if they successfully defend the claim.

How was the change implemented?

The change was implemented by the introduction of new Civil Procedure Rules 44.13 to 44.17 from 1 April 2013.

Can the claimant lose the protection of QOCS?

Yes, the claimant can lose the protection if:

• The claim is found on the balance of probabilities to be “fundamentally dishonest”.
• The claim is struck out as disclosing no reasonable grounds for bringing the proceedings, or as an abuse of process, or for conduct likely to obstruct the just disposal of the proceedings.
• The claimant has failed to beat a defendant’s Part 36 offer to settle. In other words, the Part 36 offer regime “trumps” QOCS, so that a claimant who refuses a defendant’s Part 36 offer but fails to do better at trial is at risk for the defendant’s costs from the end of the relevant offer period. However, the claimant’s liability for the defendant’s costs in these circumstances is capped at the level of damages and interest recovered by the claimant. In light of these provisions, it is important for defendants to make a well-judged Part 36 offer at an early stage.

The rules also do not preclude a successful claimant being deprived of all or part of his or her costs, or ordered to pay the defendant’s costs, in other circumstances, such as where the claimant has failed on an interim application or on some issues at trial. Again, however, the claimant’s liability for any costs orders is capped at the level of damages and interest recovered.

Is QOCS means tested?

No. It applies to all personal injury claims, regardless of the claimant’s wealth or otherwise.

Does QOCS apply outside personal injury actions?

QOCS applies only to personal injury claims, including clinical negligence claims. There has however been some discussion of its possible expansion to other areas, including actions against the police and “follow-on” professional negligence cases over failed or under-settled personal injury claims (see the Civil Justice Council’s report published in June 2016).

Why was this change introduced?

The introduction of QOCS implemented a recommendation of Lord Justice Jackson which was aimed at counter-balancing the impact on personal injury claimants of the decision to abolish recoverability of CFA success fees and, in particular, ATE insurance premiums.

From 1 April 2013 parties can still enter into CFAs and take out ATE insurance to fund their litigation, but have to bear the additional costs of doing so, with an obvious impact on the level of damages claimants will receive (though in personal injury cases the success fee is subject to a cap of 25% of damages, excluding future pecuniary loss).

The introduction of QOCS was one of a number of measures intended to counter-balance this impact. In particular, the intention behind QOCS was to make ATE insurance unnecessary for personal injury actions, since the claimant would not be liable for the defendant’s costs if the claim fails. However:

• The fact that the claimant can lose the QOCS protection where the defendant has made a Part 36 offer means that the claimant is potentially back on risk for costs whenever a Part 36 offer is made, though only up to the amount of the claimant’s damages. If ATE cover is available in respect of this risk, and is taken out, the premium is not recoverable.
• ATE is also taken out, normally, to cover own disbursements as well as adverse costs. The government carved out from the reforms the cost of ATE premiums to cover expert reports on liability and causation in clinical negligence cases, but the cost of ATE cover in respect of other disbursements is not recoverable.

What are the implications for commercial parties?

Where commercial parties defend personal injury claims, they must pay the claimant’s costs if the claim is successful but will not be able to recover their costs if they successfully defend the claim (subject to the exceptions referred to above).

For repeat defendants, however, their overall costs in claims that they defend are unlikely to have increased as a result of the move to QOCS. The inability of defendants to recover costs in claims that fail is likely to be outweighed by the fact that defendants are no longer liable to pay the success fee and ATE premium in claims that succeed against them.

The crucial point for defendants to personal injury claims is to consider making a well-judged Part 36 offer at an early stage of the case, in order to retain some costs protection.