Court of Appeal Ratifies ‘Extremely Regrettable’ QOCS Outcome

Published 11 January 2023

In a decision that emphasises the need for amendment of the current provisions that implement ‘Qualified One-Way Costs Shifting’ (‘QOCS’) in personal injury cases, the Court of Appeal has significantly further shifted the practical benefit of Part 36 offers in favour of personal injury claimants. By determining in University Hospitals of Derby and Burton NHS Foundation Trust v Harrison that an order providing permission to accept a Part 36 offer outside the expiry of the relevant period was not an ‘order for damages and interest’ for the purposes of QOCS, a defendant is unable to either off-set or enforce any late acceptance of Part 36 costs against a claimant’s costs or damages. This was an outcome which the original judge admitted was ‘extremely regrettable’ and he called upon the Civil Procedure Rule Committee to determine whether there are any adverse policy consequences that need addressing.

The purpose of QOCS

The introduction of QOCS was a trade-off for prohibiting the recovery of ‘After the Event’ insurance premiums from losing defendants. A partially successful defendant who has compromised damages but has also obtained a costs order in their favour was expressly permitted to enforce those costs against the damages (r.44.14). In 2018, the Court of Appeal determined in Cartwright v Venduct Engineering that there must be an order for ‘damages and interest’ to trigger the right to enforce costs under the QOCS regime and therefore Part 36 offers accepted in time without any order for damages being made do not constitute an order for damages to enforce against. There remained uncertainty as to whether Cartwright only applied to Part 36 settlements made without requiring any order and it was generally accepted that in the event of an order being made (such as where a defendant’s Part 36 offer was accepted out of time), a defendant could enforce its costs award.

The outcome in this case

The claimant indicated that she wanted to accept the defendant’s Part 36 offer made almost two years previously but required permission to do so as it was made subject to the recoverable benefits provision in accordance with r. 36.22(3). In any event, the parties were unable to agree the costs liability to include whether the defendant would be able to enforce any costs it was awarded for the two year late acceptance period due to QOCS. At a contested hearing the judge granted permission for the offer to be accepted, granted the defendant its costs for the two year late acceptance period (so the claimant did not get her costs for that period) but made an order denying the defendant permission to enforce its costs due to QOCS. The judge determined that it was not relevant whether the Part 36 offer had been accepted in time or not; the QOCs provisions meant that he was not entitled to allow the defendant to enforce the costs incurred defending the claim for the two year late period as the settlement order arose due to the acceptance of a Part 36 offer. It was not an order ‘for damages and interest’ as far as QOCS was concerned and it did not therefore trigger an entitlement to enforce a costs order against it.

Order for Damages and Interest

In the Court of Appeal judgment, Coulson LJ ratified the decision of the judge below as follows;
1. The function of the making of the Order was binary without evaluation or assessment of what was to be paid; it was simply a formal endorsement of settlement and not an order ‘for damages and interest’ as far as QOCs was concerned.
2. Form over substance must not prevail as that could not be accepted as a ‘sensible or appropriate approach to CPR’.
3. Policy considerations supported the outcome as otherwise claimants who required more protection such as the vulnerable would be denied QOCS; claimants such as infants and protected parties require court’s permission (orders) to accept Part 36 offers whereas others do not.
4. Current authorities (notably Cartwright and Ho) support the conclusion that settlement achieved by an offer and acceptance under the Part 36 regime ‘howsoever recorded’ is not an order ‘for damages and interest’ for QOCS.
5. The current provisions of r. 44.14 do not include reference to ‘agreements to pay’ only ‘orders for damages and interest’ and therefore should not be read to include words that do not exist (even if that is exactly what is proposed as an amendment).

What this means

• Part 36 does not currently provide personal injury defendants with a means of recovering their costs except where an order for damages is made at trial. It is still however an effective means of ensuring costs liability to be paid to a late accepting claimant will be restricted to the period before a Part 36 offer expiry (although that might be just as effectively achieved in most cases by a Calderbank offer).
• Existing Part 36 offers especially on large value cases should be reviewed as any costs order in favour of defendants cannot be enforced unless one of the exceptions apply (see below).
• The exceptions to QOCS protection concerning strike outs, fundamental dishonesty and non-party costs orders (rr. 44.15 and 44.16) are not impacted by this decision as they require judicial evaluation.  

Next steps

The government’s consultation on amending the QOCS provisions that arose from the Supreme Court’s decision of Ho v Adelekun and the proposed amendment was expressly referenced in the Court of Appeal’s judgment. The Court of Appeal noted that the proposed amendment to include reference to ‘agreements to pay’ (and to include payment out of costs as well as damages) did not expressly refer to Part 36 settlements.

The CPRC is believed to be aware of the judgment and will need to consider how best to deal with the issue.

If you wish to discuss this further, please feel free to get in contact with our Costs Team at DAC Beachcroft Claims Limited.