Claimant lawyers were left reeling today after rules were quietly amended to allow costs recovery from settlements. Experts say the amendments to the Civil Procedure Rules, enacted through statutory instruments passed yesterday, reverse court rulings in Cartwright and Ho so that defendants can set off costs not only against orders but also deemed orders and agreements to pay damages, as well as claimant costs.
Nick McDonnell, director of costs firm Kain Knight, said claimant solicitors ‘must buckle up’ to prepare for the changes, which apply to all claims issued after 6 April. Personal injury barrister David Green said the rules had been ‘radically redrafted’.
Previously, defendant costs could generally be enforced up to an amount equivalent to the aggregate of court orders for damages and interest in favour of the claimant. This effectively placed a cap on the amount of the costs orders that defendants could enforce.
In Ho v Adelekun the Supreme Court appeared in 2021 to have established that defendants could not set off costs against the claimant under the qualified one-way costs shifting scheme.
Lord Briggs and Lady Arden conceded that this outcome could lead to results that ‘at first blush look counterintuitive and unfair’ but that it was the ‘best solution so far that the opposing sides in the ongoing debate between claimant solicitors and defendant insurers have been able to devise’.
Three years earlier, the Court of Appeal ruled in Cartwright v Venduct Engineering Ltd that defendants could not enforce costs against damages recovered through a settlement under a Part 36 or Tomlin order.
Andrew Roy, deputy costs judge and head of 12KBW’s costs team, said today that the CPR amendments represented a ‘costs earthquake’ and a radical reformulation of QOCS.
He said that the new rules explicitly and directly reverse Cartwright and Ho and raise the general enforcement cap to give defendants an absolute right to enforce up to the level of any damages or costs recovered by claimants.
‘Ho has thus proved the ultimate Pyrrhic victory for claimants,’ said Roy. ‘The changes to the rules it has prompted will not merely reverse the effects of Ho itself. They will also reverse the effect of Cartwright. Indeed, they will create a more favourable costs regime for defendants than if Cartwright had been decided the other way and the rules left unchanged.’
He predicted that defendants’ Part 36 offers will in the future have ‘much more bite’ and that the rules will dramatically change the cost/risk/benefit analysis of making or resisting interim applications and post-settlement costs disputes, including detailed assessments.
Claimants, Roy added, would be ‘well advised where possible’ to issue proceedings before 6 April. There is also likely to be an increased need for ATE insurance against adverse costs, and premiums are likely to rise to reflect increased risk.
A spokesperson for the Association of Personal Injury Lawyers said this government-led rule change ‘completely undermines the whole purpose of the current system by allowing losing defendants to seek to recover more of their costs from successful claimant’.
They added: ‘The purpose and principle behind qualified one way costs shifting (QOCS) was to enable injured individuals to continue to bring legitimate claims against well-resourced defendants. It was the compromise achieved when success fees and after-the-event insurance premiums were no longer recoverable from losing defendants. From April, defendants will be given the upper hand against injured people who should never have had to bring claims for compensation in the first place.’
Sam Hayman, head of costs at Bolt Burdon Kemp and the costs lawyer involved in the Ho litigation: ‘This is a perilously dangerous situation for claimants – they now either face massive liabilities to their solicitors or law firms will face huge additional risks in representing claimants who rightly deserve access to justice. The inherent imbalance of power underlying this situation cannot be ignored, particularly where my firm represents so many people who have been injured by state actors.’
