QOCS - Update following Supreme Court Ruling
- Sam Cornelius
- Oct 15, 2021
- 4 min read
“this conclusion may lead to results that at first blush look counterintuitive and unfair.”
The Recent case of Ho v Adelekun [2021] UKSC 43 has caused uproar within the legal and insurance communities with its decision in relation to the application of QOCS rules, with the judgement from the Supreme Court being called a ‘body-blow’ to Personal Injury (PI) insurers and accusation the new rules will cause 'counterintuitive and unfair' results. In this article, we will examine QOCS and what, exactly, this new decision means.
What is QOCS?
QOCS, or Qualified One Way Cost Shifting, was introduced in April 2013 by new Civil Procedure Rules (CPR) 44.13 to 44.17. In general terms, the change allowed claimants to recoup their costs in successful claims, but barred defendants from recouping their costs in the event they successfully defended their claim. The logic behind this change being that the threat of an adverse costs order likely discouraged genuine claimants from undertaking proceedings.
Of relevance to readers of this blog will be the impact of QOCS on ATE insurance, which could have seen ATE for PI claims become unnecessary following the earlier change of abolishing the recoverability of ATE premiums. However, some exceptions to the application of QOCS (such as Part 36 offers) and the other expenses associated with litigation, such as disbursements and expert fees, have meant that ATE insurance continues to find a role to play in PI proceeds.
You can read more about the intricate details of QOCS by checking out the links at the bottom of the article.
The Saga of Ho v Adelekun
Initially a RTA (Road Traffic Accident) claim which grew out of the low value portal and was initially allocated to the fast track (for cases £10,000 - £25,000 in value). The claimant made an application to reallocate the case to the multi-track (for cases £25,000+) but, shortly before the application was heard the defendant made a Part 36 offer for £30,000. Crucially, the wording of the Part 36 offer was that the offer was made ‘in accordance with CPR 36.16’. It did not mention CPR 36.20, which references fixed costs.
The parties subsequently agreed to reallocate to the multi-track, but the defendant accepted the offer before any hearing and so the claim remained in the fast track. The costs were assessed initially of a ‘standard basis’, but defendant successfully argued that fixed costs should apply. The claimant appealed that the parties had ‘contracted out of fixed costs’ and was successful.
The defendant appealed this decision, and the Court of Appeal (COA) quashed the Circuit Judge’s decision, ruling that parties could not ‘contract out’ of fixed costs in such a manner.
Unhappy with this decision, the claimant appealed again to the COA on two separate points regarding cost orders. The issues for debate in so called "Ho v Adelekun II" were as follows:
Whether the defendant could recover the costs of its appeal (which it had not been granted initially) and;
Whether the defendant was entitled to ‘setoff’ their costs (including the appeal) against not just the underlying claim settlement, but also the claimant’s costs.
The claimant boldly argued in the face of established precedent (see Howe v MIB No.2) that the court did not have jurisdiction to set off costs against costs in the fashion being asked of it. Precedent seemed on the defendant’s side and the Court of Appeal agreed (with reluctance it must be said) that yes, you could set off costs against costs as confirmed in Howe. The claimant appealed again, this time to the Supreme Court.
The decision of the Supreme Court
The Supreme court decided that setoff of defendant’s costs is entirely precluded when it exhausts the underlying award for damages and interest only, contrary to Howe. Claimants’ costs cannot be considered for this calculation.
In the context of Ho it is reported the defendant has costs of around £48,000 including their appeals. This was far greater than the £30,000 Part 36 award, and so a set-off order would totally exhaust this award. It was, therefore, deemed that no set-off was allowed at all. This leaves the defendant with not only the £30,000 award and the claimant’s costs (around £17k on the fixed basis), but also their full £48,000 own costs despite being succesful in their appeal.
This decision will come as a blow to insurer defendants, and the Supreme Court themselves note in the judgement that “this conclusion may lead to results that at first blush look counterintuitive and unfair.”
The Supreme court did however have their doubts about the correctness of them even reviewing a procedural decision such as this, stating at Paragraph 9:
“We should say at the outset that we doubt the appropriateness of a procedural question of this kind being referred to this court for determination. […] Nonetheless, permission having been given, this court must decide the question of construction, leaving it to the CPRC to consider whether our interpretation best reflects the purposes of QOCS and the Overriding Objective, and to amend the relevant rule if, in their view, it does not.”
What this decision means
Much has been said about the impact of this decision, both positive and negative. From an insurers perspective, the complete inability to off-set costs except as outlined expressly in the CPR where the underlying award is lower than costs will be a damaging blow to their bottom lines as claims costs inflate without chance of full or partial recovery in circumstances where this may previously have been available.
There is also little to no risk of claimants with low value awards seeking to avoid fixed costs with “superfluous” arguments as they are safe in the knowledge adverse costs will not be awarded. This will only increase defendants outlay.
Practitioners also note this is a further erosion of the power of a Part 36 offer.
Further Reading
Comments