The Justice Minister, Jonathan Djanogly, confirmed that Qualified One Way costs shifting will be brought into force by April 2013 when the Legal Aid, Sentencing and Punishment of Offenders Act comes into force. This changes the scope of no win no fee claims.
This supports the provisions within the Act for removing the recoverability of success fees and insurance premiums from the Defendant in personal injury and clinical negligence claims.
The statement of the Justice Minister, released 10 July 2012, is set out in full below.
There is a lot for honest Claimants to worry about. Of particular concern is that the provisions of Part 36 will override the principle of one way costs shifting. This means that, if a Claimant fails to beat a formal settlement offer made by the Defendant, the Defendant will still be able to recover their costs from the time that the offer ought to have been accepted, up to the totality of the Claimant’s damages. This means that a Claimant could now lose all of their damages to the Defendant by way of costs.
The aim of Part 36 is, of course, to encourage early settlement and to punish those who continue to litigate without good cause. The penalties of Part 36 have, however, always been more onerous for the Claimant and will now be even more so. There are times when a Claimant simply cannot asses the value of their claim at an early stage, due to an uncertain future medical prognosis (such as in cases of injury to young children, where it is uncertain how the injury will affect the child as an adult). There has been an increasing trend for Defendants to make very early settlement offers in such cases regardless of the inability to properly assess the value of the claim. In such circumstances, even though the Claimant have acted perfectly reasonably in not accepting the offer, the cost penalties of part 36 have been still held to apply to the Claimant who later accepts the offer.
The Claimant is in a difficult position – accept the offer and risk insufficient damages for the future if their prognosis turns out to be poor, or reject the offer and risk losing most or all of their damages in costs if their prognosis turns out to be good.
Since insurance premiums will no longer be recoverable from the Defendant, it is not clear whether insurance will remain available for this risk at all or how onerous the premiums for such policies will be.
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WRITTEN MINISTERIAL STATEMENT
Tuesday 10 July 2012
MINISTRY OF JUSTICE
A regime of qualified one way costs shifting (QOCS) is to be introduced in personal injury claims, so that claimants conducting their case properly will not have to pay towards defendants’ costs if the claim fails. Rules will be drafted on the following basis:
i. QOCS will apply to all claimants whatever their means; there is to be no financial test to determine eligibility;
ii. Subject to the provisions below, claimants who lose will not have to contribute towards defendants’ costs (there is to be no minimum payment by a losing claimant);
iii. QOCS protection would be lost if
(a) the claim is found to be fraudulent on the balance of probabilities;
(b) the claimant has failed to beat a defendant’s ‘Part 36’ offer to settle; or
(c) the case has been struck out where the claim discloses no reasonable cause of action or where it is otherwise an abuse of the court’s process (or is otherwise likely to obstruct the just disposal of the proceedings).
iv. The principles set out in Part 36 of the Civil Procedure Rules override QOCS, but only up to the level of damages recovered by the claimant;
v. QOCS protection would apply in relation to claims that are discontinued during proceedings (subject to iii(a) above); and
vi. QOCS protection would be allowed for all appeal proceedings as the requirement for permission to appeal controls unmeritorious appeals.
The Ministry of Justice is considering further the practicality of QOCS protection not applying to elements of a claim for personal injury that are pursued for the benefit of a third party (such as a property damage insurer or a credit hire provider) in respect of goods, services or indemnity provided by a third party to the claimant as a consequence of the accident.
The sanctions under Part 36 of the Civil Procedure Rules (offers to settle) are to be reformed on the following basis in order to encourage early settlement:
i. There is to be an additional sanction to be paid where judgment for the claimant is more advantageous than a defendant’s Part 36 offer. This additional sanction is to be calculated as 10% of damages where damages are in issue, and 10% of costs for non-damages claims;
ii. In mixed (damages and non-damages) claims, the sanction will be calculated as 10% of the damages element of the claim;
iii. However, the sanction under these provisions is to be subject to a tapering system for claims over £500,000 so that the maximum sanction is likely to be £75,000; and
iv. There would only be one sanction applicable for split trials.
The new rule on proportionality has been agreed by the Civil Procedure Rule Committee (CPRC), and the test is intended to control the costs of activity that is clearly disproportionate to the value, complexity and importance of the claim. The senior judiciary are considering revisions to the Costs Practice Direction to give effect to the new rule.