Retrospective application of Qualified One Way Costs Shifting

The Jackson Reforms in April 2013 saw the implementation of Qualified One Way Costs Shifting (“QOCS”) in civil litigation by CPR Rule 44.13. The basis on which QOCS operates is that a claimant will not be responsible for the other side’s costs if they lose their claim at trial unless their claim is struck out or they are found, on the balance of probabilities, to have been “fundamentally dishonest”. The QOCS protection is however lost if any Part 36 offer made by the other side is not beaten at trial. In such circumstances, the claimant becomes responsible for the other side’s costs from the last day when they could have accepted the offer, which is the same as under the old regime.

Practitioners have been waiting to see the practical application of QOCS and we are now slowly seeing the courts’ approach to this rule.

The most notable application of the rule until very recently was in Gosling v Screwfix and another, where the very first definition of what amounts to “fundamentally” dishonest was given. In this case it was agreed that an accident had occurred and that the claimant had suffered injury, but the damages awarded were reduced by half when covert surveillance evidence showed that the claimant had significantly exaggerated his symptoms. The judge on the defendants’ application ordered the claimant to pay their costs on an indemnity basis as he considered the claimant had been “fundamentally dishonest” with the intent to deceive them and was no longer protected by the QOCS shield.

It was anticipated that QOCS would apply only to cases commenced after 1 April 2013, but as Gosling and the recent case of Wagenaar v Weekend Travel Ltd t/a Ski Weekend & Seeradj show, it can have retrospective application in cases where the claimant has not entered into a pre-commencement funding agreement as defined by CPR 48.2 as a conditional fee agreement which allows for recovery of additional liabilities. The claim in Gosling was funded by before-the-event (“BTE”) insurance, but due to the claimant being found “fundamentally dishonest” he lost the QOCS protection and his insurers were therefore liable to pick up the defendant’s costs.

In Wagenaar, which was also funded by a BTE policy, the Court of Appeal confirmed that retrospection could apply to legislation concerned with matters of procedure unless there was clear indication by the legislature to the contrary. There is nothing in CPR Rules 44.13 to 44.17 to indicate that these were not intended to be retrospective. The claimant had brought a claim against the defendant for serious injuries suffered in a skiing accident. The defendant denied liability and later joined a third party to the proceedings, alleging that any negligence found against them, would in actual fact have been due to negligence on the part of the third party.

The claimant’s claim against the defendant was dismissed as was the defendant’s claim against the third party. She was ordered to pay the defendant’s costs, though the costs order was not to be enforced. The defendant was ordered to pay the third party’s costs and that too was not to be enforced pursuant to CPR Rule 44.13. Both appealed on the basis that the judge had been incorrect in applying the QOCS rule. The third party argued the QOCS rules do not apply to CPR Part 20 proceedings between the defendant and the third party and there should not have been a stay on the costs order.  The defendant contended the QOCS provisions were ultra vires as s51 (3) of the Senior Courts Act 1981 provides the court with power to “determine by whom and to what extent costs are to be paid”. They also alleged that QOCS should not have retrospective provision as most of their costs were incurred prior to 1 April 2013 and also, their barrister had a pre-commencement CFA.

The Court of Appeal held that CPR 44.13 did not apply QOCS to the entire action for personal injuries or other claims specified in CPR Rule 44.13 (1) and therefore it did not apply to the Part 20 claim. The third party was therefore entitled to her costs from the defendant. However, as regards the defendant’s arguments, it concluded the QOCS provisions were not ultra vires, they could be applied retrospectively and the pre-April 2013 agreement between the defendant and their barrister did not have any impact.

Some may consider this an unfair judgment for the defendant who successfully defended the claim but was left not only to pick up their own legal costs, but also of the third party, but this case illustrates that these reforms will have repercussions for claimants and defendants alike.

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