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Qualified One Way Costs Shifting - Mark Carlisle, Director of Deep Blue Costs and Consultant Law Costs Draftsman at Berlad Graham LLP

16/10/15. The transitional provisions and Casseldine –v- the Diocese of Llandaff Board for Social Responsibility [2015]

On the face of it QOCS is straight forward. It provides Claimants in personal injury cases with full protection against liability for costs save where (a) there is an adverse order for part of the costs and its amount does not exceed the aggregate of damages and interest ordered (so interim orders in favour of the Defendant can be set off against damages), (b) the proceedings are struck out on specified grounds, or (c) where the claim is found to be fundamentally dishonest.

It is fully retrospective in respect of those proceedings that it covers, applying to claims issued both before and after 1st April 2013, and is disapplied only where the transitional provisions say so.

The transitional provision at 44.17 is short and to the point -

44.17 This Section [which comprises the totality of the QOCS rules] does not apply to proceedings where the claimant has entered into a pre-commencement funding arrangement (as defined in rule 48.2).

Previous thinking on the transitional provisions had therefore concluded in light of the above that if a client had at any point entered into pre Jackson Conditional Fee Agreement, QOCS was disapplied for ever more. This was what emerged from the decision of Master Haworth in the case of Landau –v- the Big Bus Company, in which the Claimant was funded at first instance by a pre Jackson CFA, and on appeal by a post Jackson CFA. Master Haworth concluded that “whilst it may be unreasonable, unfair and inconvenient to deny the claimant the benefit of QOCS in this case, for the reasons given on a true construction of the relevant provisions of CPR in this case, QOCS does not apply” however his reasoning was based quite narrowly on the definition of “proceedings” within the provisions that we will come to shortly, concluding that the appeal did not constitute separate proceedings from the original claim.

But…. dig just a little deeper into the changes both to the costs rules generally and the transitional provisions and a whole world of uncertainty emerges, largely caused it seems by poor drafting.

I apologise if this gets long winded, but I am going to have to start at the beginning (well….the legislative beginning…I’ll get to the very beginning a little later on!)

Firstly, as we know, recoverability of additional liabilities was abolished by s.44 Legal Aid Sentencing and Punishment of Offenders Act 2012, as follows –

(4) For subsection (6) of that section [s58A Courts and Legal Services Act 1990] substitute—

(6) A costs order made in proceedings may not include provision requiring the payment by one party of all or part of a success fee payable by another party under a conditional fee agreement.”

(5) In section 120(4) of that Act (regulations and orders subject to parliamentary approval) after “58(4),” insert “(4A) or (4B),”.

(6) The amendment made by subsection (4) does not prevent a costs order including provision in relation to a success fee payable by a person (“P”) under a conditional fee agreement entered into before the day on which that subsection comes into force (“the commencement day”) if—

(a) the agreement was entered into specifically for the purposes of the provision to P of advocacy or litigation services in connection with the matter that is the subject of the proceedings in which the costs order is made, or

(b) advocacy or litigation services were provided to P under the agreement in connection with that matter before the commencement day.

Similarly in relation to the abolition of recoverability of ATE premiums, s46 LASPO Act provides as follows –

(1) A costs order made in favour of a party to proceedings who has taken out a costs insurance policy may not include provision requiring the payment of an amount in respect of all or part of the premium of the policy, unless such provision is permitted by regulations under subsection (2).; and

(3) The amendments made by this section do not apply in relation to a costs order made in favour of a party to proceedings who took out a costs insurance policy in relation to the proceedings before the day on which this section comes into force.[that date being 1st April 2013]

The full rules in relation to QOCS are set out at CPR 44.13 to 44.16 and there is no need to go into them here, because they either apply or they do not and, once they apply their operation is relatively straightforward. In order for QOCS to be disapplied, CPR 44.17 says that the funding arrangement must be one “as defined in rule 48.2”. It is worth noting that the sole purpose of CPR 48 is to codify rules under the primary legislation enabling the recovery of additional liabilities under pre Jackson funding arrangements, in a new landscape that forbids them.

That purpose is affirmed by s1.2 and 1.30 of the Practice Direction to Part 48, which refer back to the saving provisions and say as follows –

1.2 Sections 44(6) and 46(3) of the 2012 Act make saving provisions to the effect, respectively, that these changes do not apply so as to prevent a costs order including such provision where the conditional fee agreement in relation to the proceedings was entered into (or, in relation to a collective conditional fee agreement, services were provided to the party under the agreement), or the costs insurance policy in relation to the proceedings taken out, before the date on which the changes come into force.

1.3 The provisions in the CPR relating to funding arrangements have accordingly been revoked (either in whole or in part as they relate to funding arrangements) with effect from 1 April 2013; but they will remain relevant, and will continue to have effect notwithstanding the revocations, after that date for those cases covered by the saving provisions.

So, how does 48.2 define a “pre-commencement funding arrangement”?

48.1

(1) The provisions of CPR Parts 43 to 48 relating to funding arrangements, and the attendant provisions of the Costs Practice Direction, will apply in relation to a pre-commencement funding arrangement as they were in force immediately before 1 April 2013, with such modifications (if any) as may be made by a practice direction on or after that date.

(2) A reference in rule 48.2 to a rule is to that rule as it was in force immediately before 1 April 2013.

48.2

(1) A pre-commencement funding arrangement is—

  1. in relation to proceedings other than insolvency-related proceedings, publication and privacy proceedings or a mesothelioma claim –

  1. a funding arrangement as defined by rule 43.2(1)(k)(i) [emphasis added] where –

(aa) the agreement was entered into before 1 April 2013 specifically for the purposes of the provision to the person by whom the success fee is payable of advocacy or litigation services in relation to the matter that is the subject of the proceedings in which the costs order is to be made; or

(bb) the agreement was entered into before 1 April 2013 and advocacy or litigation services were provided to that person under the agreement in connection with that matter before 1 April 2013;

  1. a funding arrangement as defined by rule 43.2(1)(k)(ii) where the party seeking to recover the insurance premium took out the insurance policy in relation to the proceedings before 1 April 2013;

(iii) a funding arrangement as defined by rule 43.2(1)(k)(iii) where the agreement with the membership organisation to meet the costs was made before 1 April 2013 specifically in respect of the costs of other parties to proceedings relating to the matter which is the subject of the proceedings in which the costs order is to be made;

In a level of multiple “Russian doll” definitions it can be seen that to disapply QOCS the pre commencement funding arrangement must be within both the current CPR 48.2 and within CPR 43.2(1)(k)(i) to (iii) as they were before Jackson.

CPR 43.21(1)(k) as it was before Jackson read as follows –

(k) ‘funding arrangement’ means an arrangement where a person has –

(i) entered into a conditional fee agreement or a collective conditional fee agreement which

provides for a success fee within the meaning of section 58(2) of the Courts and Legal

Services Act 19901;

(ii) taken out an insurance policy to which section 29 of the Access to Justice Act 1999

(recovery of insurance premiums by way of costs) applies; or

(iii) made an agreement with a membership organisation to meet that person’s legal costs;

Those definitions seem at first glance to support the status quo, i.e. the idea that if a claimant had at any point entered into pre Jackson Conditional Fee Agreement, QOCS was disapplied for ever more. But look a little closer and the definitions contain additional wording that is surprising if, as 44.17 indicates, it is the overall definition at 48.2 that determines what kind of funding arrangement will disapply QOCS.

48.2(1)(a)(i)(aa) deals with Conditional Fee Agreements and requires there to be, as part of the definition, a “person by whom the success fee is payable”.

Similarly 48.2(1)(a)(ii) requires that there is a “party seeking to recover the insurance premium”

So, if the success fee is not payable by anyone, and no one is seeking to recover the insurance premium…..what then? If we take a step back and review : QOCS applies unless 44.17 is engaged, and 44.17 is engaged only where the claimant has entered into a pre Jackson funding arrangement as defined by 48.2. If no success fee is payable, then on the face of it the funding arrangement is outside CPR48.2. Likewise if no party is seeking to recover the premium.

But that produces an absurdity, because those circumstances only arise where the Claimant has lost. For a success fee to be payable (as opposed to being potentially payable) the Claimant must have won his or her case because, until that point, under the contractual provisions of the CFA absolutely no success fee is payable at all. Likewise in respect of an ATE premium, the Claimant does not “seek payment” of it unless and until the case is won. It can be argued therefore that, on a strict literal interpretation, the transitional provisions do not engage in respect of any funding arrangements other than those where the Claimant has succeeded.

Did the rules committee really mean to draft the legislation in such a way that QOCS applies to all cases except those where it is not needed? That would of course be surprising, but it must be assumed that the unqualified use of the definition at CPR 48.2 within the transitional provisions was deliberate, particularly as there was already a perfectly good definition at the former CPR 43.2.1(k) which would have achieved precisely the position that has previously been considered to be the status quo.

So, where a literal interpretation produces absurdity or uncertainty, the rules should be interpreted purposively, and it is at this point that we go back to the very beginning.

In the case of QOCS the rule changes were made, effective from 1st April 2013, following acceptance by Parliament (without qualification insofar as they relate to this issue) of the recommendations made by Lord Justice Jackson in his Review of Civil Litigation Costs : Final Report, published in January 2010. We therefore have a very clear indication of the purpose of the changes in the form of several thousand pages of reports.

Of particular relevance are the extracts from Chapter 9 of the report in relation to the recoverability of ATE premiums –

5.1 The question. If the recoverability regime is abolished, the question arises as to how the law should protect those claimants who, as a matter of social policy should be protected, against the risk of adverse costs.

5.2 The answer. In my view, there is only one sensible way to give effect to that social policy, namely by introducing one way costs shifting. The advantage of this solution is that costs protection can be targeted upon those who need it, rather than offered as a gift to the world at large;

And Chapter 10 in relation to the recoverability of success fees –

4.1 Scope of this section. In this section I shall discuss whether success fees and ATE insurance premiums should be recoverable under costs orders from losing parties. The issues of policy and principle in respect of (a) success fees and (b) ATE insurance premiums are very similar. The relevant facts and arguments in respect of ATE insurance premiums are set out in chapter 9 above. The relevant facts and arguments in respect of success fees are set out in sections 1 to 3 of this chapter.

4.20 In my view the proper course is to abolish recoverability and to revert to style 1 CFAs, as they existed before April 2000. Those arrangements were satisfactory and opened up access to justice for many individuals who formerly had no such access: see PR paragraph 16.3.2. During 1996 APIL confirmed that those arrangements provided access to justice for personal injury claimants and that those arrangements were satisfactory: see paragraph 25 of chapter 2 of Lord Woolf’s Final Report on Access to Justice.

These followed on from the discussion within Lord Justice Jackson’s preliminary report, published May 2009, at chapter 47, paragraph 4.4

If success fees and ATE premiums cease to be recoverable, then the question arises as to how the interests of individual claimants (most of whom could not sensibly afford the costs of litigation) might be protected. In the field of personal injury litigation, possible measures might include:

 

    1. Introducing one way cost shifting.

 

    1. Capping the proportion of damages which the claimant’s lawyers might take in respect of success fees. Prior to April 2000 the cap was in practice 25% of damages. I am told by Michael Napier QC and Senior Costs Judge Peter Hurst (both assessors to the Costs Review) that this arrangement worked satisfactorily and did not give rise to complaint.

 

    1. Providing that no element of damages referable to future care costs could be subject to any deduction.

 

    1. Raising the level of damages. This might be perfectly feasible if some of the huge transaction costs could be reduced, as discussed in chapter 26. (v) Introducing a CLAF or a SLAS for personal injury claims, as discussed in chapters 18 and 19.

 

What emerges clearly is that recommendation to abolish recoverability against Defendants whilst giving qualified costs protection to Claimants was to effect a quid pro quo. The introduction of QOCS was to protect those who, as a matter of social policy, should be protected against adverse costs orders in circumstances where they could not insure themselves against such outcome.

Looking at the rules afresh in that light allows an interpretation that, with very little difficulty, achieves the stated purpose of a quid pro quo.

The starting point is that CPR 48.2 is concerned with recoverable success fees. That is its primary purpose and the transitional provision at CPR 44.17 must be read in that context.

That is to say that, under the interpretation that I advance, QOCS does not apply where the Court, on or after 1st April 2013, is faced with a hearing at the conclusion of which it may be required to consider making an Order under s58A and / or 58C Courts and Legal Services Act 1990, as amended by s.44 / 46 LASPO Act, namely an Order that, owing to the transitional arrangements, makes provision for recovery of a success fee or insurance premium by way of costs.

Those circumstances arise only where –

 

      1. The Claimant has entered into a pre-commencement funding arrangement,

 

      1. The proceedings have been funded by such funding arrangement

 

    1. Additional liabilities that arise as a result of the funding arrangement are therefore potentially recoverable in principle from the Defendant in the event of success.

In all other circumstances under this interpretation, where the Court is considering making an Order for costs in a claim for personal injuries, QOCS applies.

To my mind this is the only logical interpretation that can be given to the transitional provisions that is consistent with the intention of Parliament in adopting the suggestions of Lord Justice Jackson.

And so on to Casseldine –v- the Diocese of Llandaff Board for Social Responsibility, in which this interpretation was put to the test.

The chronology of the substantive case is important to set out :

02/03/12

CFA between C and Thompsons Solicitors

02/03/12

Letter of Claim sent to D incorporating notification of funding by CFA and ATE insurance

09/03/12

ATE Insurance policy with UIA (Insurance) Ltd

22/06/12

Liability denied by Ecclesiastical Insurance on behalf of D on the basis of unsigned witness statements

30/01/13

Thompsons terminate CFA, resulting in no entitlement to base costs or success fee, and the UIA ATE cover therefore ends pursuant to contractual provisions

06/08/13

C instructs Stone Rowe Brewer LLP

06/08/13

CFA between C and SRB LLP

06/08/13

SRB revive claim

20/08/13

D maintains denial of liability

06/09/13

SRB request signed witness statements

20/09/13

D refuses disclosure of signed witness statements, asserting “we are under no obligation to disclose witness statements pre litigation”

19/12/13

Proceedings issued

10/04/14

Proceedings served with Notice of Funding referring to the 06/08/13 CFA only

01/12/14

Case heard before DDJ North at Pontypridd County Court

  • Claim dismissed

  • Permission to Appeal refused

  • Entitlement of the Defendant to costs referred to the Regional Costs Judge in Cardiff to determine the preliminary issue on QOCS

So the Conditional Fee Agreement with Thompsons was terminated, prior to the issue of proceedings, by the solicitors on 30th January 2013.

As a result of termination there was no contractual entitlement on the part of Thompsons to a success fee, indeed no contractual entitlement to any costs at all.

A new Conditional Fee Agreement was entered into with Stone Rowe Brewer LLP on 6th August 2013, prior to the issue of proceedings

Proceedings were served on 10th April 2014, including a Notice of Funding that referred only to the new CFA.

The proceedings were conducted, in their entirety, in accordance with the new Conditional Fee Agreement.

The Court could not therefore have considered making an Order under s58A and / or 58C Courts and Legal Services Act 1990 (i.e. an order for costs that would have included a right to recover additional liabilities) had the Claimant been successful, because there were no additional liabilities of which payment might have been ordered.

In the circumstances the Defendants were never at risk of being required to pay any additional liabilities if the Claimant succeeded at trial, indeed they were not at risk of being required to pay any at all under the first Conditional Fee Agreement.

Mrs.Casseldine was not in a position to insure herself against the risk of an adverse costs order, because (even if any such insurance had been available, which it was not) the very transitional provisions upon which the Defendant sought to rely in disapplying costs would have precluded her from recovering the cost of such insurance.

The disapplication of QOCS would have been wholly unjust and contrary to the intention of Parliament in that the Claimant would have been liable for costs under the very same rules that precluded her from adequately protecting herself against such liability. That too would be an absurdity, and directly contrary to the policy decision of protecting against adverse costs orders those who could not sensibly afford the costs of litigation.

Regional Costs Judge Phillips sitting in Cardiff County Court decided as follows in a reserved judgment dated 3rd July 2015 –

  1. No proceedings were commenced under the first (pre Jackson) CFA

  2. The proceedings were conducted under the second (post Jackson) CFA

  3. The first CFA had been terminated by the first solicitors, thus no success fee or indeed any costs were payable under the first CFA

  4. Had C won at trial, the Court would not have been in a position to Order D to pay any additional liabilities

  5. The transitional provisions at CPR 44.17 and 48.2 must be read in context – CPR 48.2 is directed squarely at recoverability

  6. The purpose of the rules was to achieve a quid pro quo, so that post 1st April 2013 QOCS protection applied where D was not faced with any additional liability

  7. Mrs.Casseldine was therefore entitled to the full protection of QOCS.

Permission to appeal was granted in view of the novelty of the point and the absence of binding authority, however no appeal was ultimately pursued.

The point has been raised that this interpretation would encourage Claimants to chop and change funding arrangements at the drop of a hat, especially in advance of the trial of a claim that was looking decidedly precarious, purely in order to secure QOCS protection, but I do not think that is right. Firstly, a major part of the reasoning in Casseldine was that no part of the proceedings had been conducted under a pre Jackson funding arrangement. Secondly, from a practical point of view, termination of both CFA and ATE by the client (they would both have to go in order to be outside CPR 48.2) secures no advantage for him or her, because it results in a contractual entitlement on the part of the solicitors to recover base costs and the inability to recover any disbursements under the policy. QOCS protection might be secured, but at the expense of a large liability for the client elsewhere. Termination by the solicitors results in them, as in the Casseldine case, having no entitlement to anything at all and potentially a large disbursements bill to fund without the benefit of insurance, effectively shifting the Claimant’s costs of the litigation directly on to their office account.

Mark Carlisle
Director of Deep Blue Costs and
Consultant Law Costs Draftsman at Berlad Graham LLP

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