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Articles, News | Tue 20th Dec, 2022
Introduction
All personal injury practitioners know that in a QOCS case a costs order in a defendant’s favour can be enforced against orders for damages and interest in a claimant’s favour (“costs/damages enforcement”). Whether a costs order in a defendant’s favour can be enforced against a costs order in a claimant’s favour (“costs/costs enforcement”) has proved more controversial.
The rules governing the latter situation are apparently about to change, as are the rules governing the interaction between QOCS and Part 36 (and settlements more generally).
Practitioners need to be aware of these impending changes and their implications, not least because (depending on whom they are advising) it may be more beneficial for their clients to settle claims before or after they come into force.
This article explains what the proposed changes are, how they came about, and identifies some potential problems thrown up by them.
Howe & Ho
Back in 2019, I wrote an article about Howe v Motor Insurers Bureau No. 2 [2020] Costs LR 297 which dealt with the issue of costs/costs enforcement. I remarked that Howe settled the issue in favour of order costs/costs enforcement in QOCS being available in QOCS cases “at least until such time as it is considered by the Supreme Court”.
The Supreme Court duly obliged.
In Ho v Adelekun [2021] UKSC 43, [2021] 1 WLR 5132, Howe was overruled. The Supreme Court held that costs/costs enforcement was not available in a QOCS case. I wrote another article, remarking that the matter was now settled “until such time as the matter is considered by the Civil Procedure Rules Committee (“CPRC”)”.
The CPRC duly obliged.
The minutes of a recent meeting of the CPRC suggest that Ho itself will now be reversed by way of changes to Part 44. To understand the proposed changes it is necessary to consider the Consultation which gave rise to them.
The Consultation
The Ministry of Justice published a consultation in May 2022 on proposed changes to Part 44 (“the Consultation”). The proposed changes are at Annex A thereof.
The first proposed change is to reverse Ho by inserting the word “costs” into rule 44.14(1), so that it would now read (with insertion emphasised):
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, costs and interest made in favour of the claimant.
The second, linked, change is to add, as a new rule 44.14(4):
Where enforcement is permitted against any order for costs made in favour of the claimant, rule 44.12 applies.
Rule 44.12 contains the general power of the Court to order a set-off where a party entitled to costs is also liable to pay costs.
The third change relates to deemed costs orders and is addressed in more detail below.
The CPRC meeting
The CPRC meeting on 7 October 2022 considered the Consultation and responses to it. The relevant section of the minutes is at paragraphs 34 to 40.
Paragraph 39 reads:
It was RESOLVED to agree in principle, the proposed redrafted CPR 44.14(1), subject to consideration of the above. Final drafting proposal to return in due course (at/by the December 2022 meeting) for final determination.
It seems, therefore, that the CPRC have resolved to amend the rules broadly in line with the proposed changes published at Annex A of the Consultation and which are set out above. Exactly how the final draft might differ from the published proposed changes is hard to divine from the minutes, because they are rather Delphic: see paragraphs 37 and 38 thereof. We shall have to await the publication of the minutes of the December CPRC meeting to know more.
The reversal of Ho will not meet with universal acclaim. The Bar Council’s response to the Consultation, for example, argued the rules should stay as they are. But the change is at least readily understandable and the proposed changes achieve what the Government wished to achieve. The changes relating to settlements are more problematic.
QOCS and Settlements
The second issue considered by the Consultation was the interaction between QOCS and Part 36 (and by extension, settlements more generally).
The Government’s intention was apparently that the proposed rule changes would reverse Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654, [2018] 1 WLR 6137 insofar as it held that a defendant in a QOCS case could not enforce a costs order in its favour against damages payable to a claimant pursuant to a Part 36 offer or a Tomlin Order.
In principle, this second change is in my view broadly to be welcomed. It was not obvious to me that there was any logical policy reason why a defendant should be able to enforce a costs order in its favour against damages payable to a claimant pursuant to a judgment or a consent order, but not pursuant to a Part 36 offer which had been accepted. However, there are problems with the Government’s approach, specifically:
To understand these points, it is necessary first to consider Cartwright in more detail.
Cartwright
The claimant in Cartwright sued six named defendants. The claim against the fourth to sixth defendants was compromised using a Tomlin order which provided (in the schedule to the order) for the claimant to be paid £20,000 in full and final settlement of the claim. The claimant discontinued his claim against the third defendant (Venduct).
Because the claim against it had been discontinued, Venduct had a right to costs from the claimant arising from rule 38.6(1). That right to costs was deemed to give rise to a costs order against the claimant in Venduct’s favour under rule 44.9(1)(c).
Venduct argued that it should be able to enforce this costs order in its favour enforced against the sums payable to the claimant by way of damages and interest by the fourth to sixth defendants under the terms of the Tomlin order.
The first issue was whether a defendant in a QOCS case with a costs order in its favour could enforce that order against sums payable to a claimant by other defendants. The Court of Appeal held that, in principle, it could. That part of Cartwright is not altered by the proposed changes.
The second issue was whether a Tomlin order was an “order for damages and interest” for the purposes of rule 44.14(1). The Court of Appeal held not, because a Tomlin order is not, strictly speaking, an order of the court. By analogy, it held, a settlement in consequence of acceptance of a Part 36 offer would also be outside the scope of rule 44.14(1), because it did not require any order from the court: see paragraph 44.
Original amendments did not reverse Cartwright
If it was the Government’s intention to reverse Cartwright on this second point then the proposed rules changes annexed to the Consultation did not do so. That was noticed by insurers and those who represent them.
A still further change has therefore apparently been proposed to rule 44.14(1) by adding “or agreements to pay”, so that it will then read (with additions emphasised):
(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, or agreements to pay, damages, costs and interest made in favour of the claimant.
It appears that the Government has adopted this proposed further amendment, because paragraph 37 of the CPRC minutes reads:
MoJ recommend implementing the rule changes on QOCS (as set out in the consultation) but with one small rule drafting amendment regarding ‘agreements to pay’ at r.44.14(1). The Government considers this to help achieve the consultation objectives and ensure that the scope of set-off is appropriately addressed.
Confidentiality
If “agreements to pay” are included in rule 44.14(1) then potential issues may arise in relation to Tomlin orders and other confidential settlements.
In Cartwright, the Court of Appeal identified the confidential nature of Tomlin orders as an “insurmountable” practical difficulty which militated against the conclusion that rule 44.14(1) was designed to cover them: see paragraph 47.
Confidentiality could present difficulties to attempted enforcement by a defendant where (as in Cartwright) a defendant who was not a party to the settlement embodied in the Tomlin order wished to enforce a costs order in its favour against sums payable to the claimant by another defendant (who was party to that settlement). The defendant who was not party to the settlement would ordinarily not be entitled even to see the Tomlin order (which remains confidential as between the parties to it): see paragraph 48.
The Court of Appeal observed, at paragraph 50, that if rule 44.14(1) was to cover confidential settlements and Tomlin orders then the rule would need to:
… contain much fuller guidance as to what should happen to settlements and Tomlin orders: whether they were to remain confidential; the circumstances in which the confidentiality should be removed … and so forth.
I do not think (with respect to the Court of Appeal) that these practical difficulties are “insurmountable”; but they are undoubtedly difficulties nonetheless, and I agree that if rule 44.14(1) is to be expanded to cover “agreements to pay” then careful thought needs to be given to what additional rules and/or guidance are needed to address those difficulties.
Deemed costs orders
The third change proposed by the Consultation is to add, as a new rule 44.14(2):
For the purposes of this Section, orders for costs include 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.
I am unclear what the Government was seeking to achieve with this proposed amendment. I infer that it thought it addressed the interaction between QOCS and Part 36, and the difficulties created by Cartwright. For the reasons stated above, it does not. The Government seems to have belatedly recognised this by accepting the need to include reference to “agreements to pay” in rule 44.14(1) in order to achieve its objectives. If that is correct, then what is amendment relating to deemed cost orders intended to achieve?
Paragraph 4 of the Consultation reads (with emphasis added):
The Government considers that the most effective way of addressing issues around QOCS is by amending Section II of Part 44 as follows:
However,
Enforcement of deemed costs orders was already possible
The proposed amendment seems predicated on the notion that currently (i.e. before the proposed amendments come into force) a deemed costs order is not a costs order that can be enforced for the purposes of rule 44.14(1).
I am not aware of any authority to that effect. In Cartwright the claimant did not argue that Venduct’s right to a costs order arising out of rule 38.6(1) and hence deemed costs order under rule 44.9(1)(c) was unenforceable because it was a deemed order. The parties and the court clearly proceeded on the basis that Venduct’s right to costs, in principle, and subject to the other points argued, would lead to a deemed costs order which could be enforced pursuant to rule 44.14(1): see paragraphs 13 and 14. The amendment, therefore, seems to be based on a misapprehension.
Acceptance of a Part 36 offer does not give rise to a deemed costs order in a defendant’s favour
The Consultation also seems confused as to when, and in whose favour, deemed costs orders arise pursuant to acceptance of a Part 36 offer.
Rule 44.9 deems costs orders to have been made on the standard basis in certain circumstances, including:
It reads, so far as relevant:
(1) Subject to paragraph (2), where a right to costs arises under –
(a) rule 3.7 or 3.7A1 (defendant’s right to costs where claim is struck out for non-payment of fees);
(a1) […];
(b) rule 36.13(1) or (2) (claimant’s entitlement to costs where a Part 36 offer is accepted); or
(c) rule 38.6 (defendant’s right to costs where claimant discontinues),
a costs order will be deemed to have been made on the standard basis.
(2) Paragraph 1(b) does not apply where a Part 36 offer is accepted before the commencement of proceedings.
Rule 36.13 reads, so far as relevant:
(1) Subject to paragraphs (2) and (4) and to rule 36.20, where a Part 36 offer is accepted within the relevant period the claimant will be entitled to the costs of the proceedings (including their recoverable pre-action costs) up to the date on which notice of acceptance was served on the offeror.
[…]
(2) Where—
(a) a defendant’s Part 36 offer relates to part only of the claim; and
(b) at the time of serving notice of acceptance within the relevant period the claimant abandons the balance of the claim,
the claimant will only be entitled to the costs of such part of the claim unless the court orders otherwise.
(3) […]
(4) Where—
(a) a Part 36 offer which was made less than 21 days before the start of a trial is accepted; or
(b) a Part 36 offer which relates to the whole of the claim is accepted after expiry of the relevant period; or
(c) subject to paragraph (2), a Part 36 offer which does not relate to the whole of the claim is accepted at any time,
the liability for costs must be determined by the court unless the parties have agreed the costs.
(5) Where paragraph (4)(b) applies but the parties cannot agree the liability for costs, the court must, unless it considers it unjust to do so, order that—
(a) the claimant be awarded costs up to the date on which the relevant period expired; and
(b) the offeree do pay the offeror’s costs for the period from the date of expiry of the relevant period to the date of acceptance.
Therefore,
a. If a Part 36 offer is accepted “in time” (i.e. within the relevant period) then:
a. a claimant has an entitlement to their costs up to the date of service of the notice of acceptance, pursuant to rule 36.13(1) or (2); and
b. that does give rise to a deemed costs order in the claimant’s favour pursuant to rule 44.9(1)(b).
b. If a Part 36 offer is accepted “late” (i.e. outside the relevant period) then,
a. Liability for costs must be determined by the court unless the parties have agreed the costs: rule 36.13(4)(b);
b. There is a presumption that the claimant will be awarded their costs up until the expiration of the relevant period, and the defendant will be awarded their costs thereafter until the date of acceptance (and if the parties cannot agree the court will so order unless it is unjust to do so): rule 36.13(5),
c. Acceptance of the offer does not give rise to deemed costs orders (either in the claimant’s or defendant’s favour).
It may be that this will rarely create difficulties in practice. In most circumstances it will be in the parties’ collective interest to agree liability for costs; and a defendant who wished to procure a costs order in its favour following late acceptance of a Part 36 offer could potentially achieve that by simply refusing to agree liability for costs and therefore oblige the court to make an order under rule 36.13(5) (which the defendant could then enforce). That, however, would be a clumsy solution, and not in accordance with the overriding objective; so it may be that the CPRC should consider whether further specific amendments are desirable to address this situation.
Stop Press
The CPRC meeting on 7 October 2022 was referred to in a decision handed down last Friday (16 December 2022): see University Hospitals of Derby & Burton NHS Foundation Trust v Harrison & anr [2022] EWCA Civ 1660 at paragraph 51. The Court of Appeal noted the CPRC’s agreement in principle to the proposed changes, including changes additional to those included in the original Consultation, namely the reference to “agreements to pay” in the new rule 44.14(1).
Coulson LJ at paragraph 52 made some observations on the implications of this further proposed change for the interaction of QOCS with Part 36. That change, he noted,
… does not expressly address Part 36 … but it would appear that the rule may be changed so as to make it at least arguable (if a settlement under Part 36 is an “agreement to pay”) that a party in the claimant’s position would lose her QOCS protection in the future.
I have two observations about this (both tendered with respect).
Firstly, it suggests that Part 36 settlements might not fall within “agreements to pay” in the new rule 44.14(1). That is surprising. The Government clearly intended the Consultation and resulting changes to address the interaction of Part 36 of QOCS. The way the Government went about that may have been bungled, and may have left unresolved issues, as explained above; but there is in my view no doubt that the intention is that Part 36 settlements should be included within “agreements to pay” in the new rule. That is more than merely “arguable”.
Secondly, it is not accurate to describe a claimant who has a costs order enforced against sums paid to her by way of Part 36 settlement as “[losing] her QOCS protection”. A claimant in such a position no more “loses” their QOCS protection than a claimant who, after judgment in their favour at trial, has a costs order enforced against the sums payable to them under the judgment. A claimant truly “loses” their QOCS protection if, for example, their claim is found to be fundamentally dishonest pursuant to rule 44.16(1). A claimant under the new rule will still have QOCS protection, but it will now be the same as the QOCS protection afforded to a successful claimant at trial.
Conclusion
A defendant in a QOCS case will soon be able to enforce a cost order in their favour against:
How soon these changes will be effected is unclear. The original intention seems to have been to make them at or around the same time as the extension of the fixed recoverable cost regime; but given delays to the latter it seems more likely that they will be made as standalone changes, probably early in 2023.
There also remains some uncertainty as to the final format of the changes. Clarity on that will have to await publication of the minutes of CPRC’s December meeting. It will be interesting to see if that meeting addresses the problems identified above regarding confidential settlements and deemed costs orders.
NOTE
The views expressed in this article are not intended to be and should not be taken as legal advice. They are the views of the author alone and not of Deka Chambers.
Call: 2006
