Funding goes Dutch : Qualified One-way Cost Shifting (QOCS)

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1 May 2013 Funding goes Dutch : Qualified One-way Cost Shifting (QOCS) For injury cases the principle of QOCS has been introduced as a counter weight to the prohibition on recoverability of ATE premiums from the paying party when taken out post-1 April Generally, a winning defendant will not be able to enforce a cost order. The entitlement to QOCS protection depends upon whether there is a pre-1 April 2013 funding arrangement. The definition includes whether a pre-1 April ATE and a pre-1 April CFA exists (or a CCFA, Conditional XXX Fee Agreement, where instructions to act under the CCFA were provided pre-1 April). As soon as it was understood that QOCS would not apply if an ATE premium was taken out post-1 April on a case which was already funded by a CFA/CCFA that pre-dated 1 April, a surge of applications to obtain ATE insurance took place. What if it has not been possible to secure ATE? In these instances, there is anecdotal evidence of firms considering the unilateral cancellation of existing CFAs and then entering into a new CFA after 1 April to gain the benefit of QOCS. It is unlikely that such attempts to circumvent the intentions to the rule would succeed and defendants should be wary of any attempted abuses. Put simply, if a case is funded by a CFA or the CCFA is engaged prior to 1 April 2013 then the claimant is not entitled to benefit from QOCS. After 1 April, If an ATE premium is taken out it should not be paid if the claimant is successful. What of ATE top-up cover? This area is confusing. Cover depends upon whether a policy is taken out post-1 April 2013, or is an extension of a pre-existing policy. A new relationship: cost offers and Part 36 For cases with detailed assessment proceedings that began pre-1 April 2013, it is business as usual as far as Part offers are concerned. However, existing CPR and no longer apply to cases without detailed assessment proceedings pre-1 April and the use of Part 36 offers is being encouraged. From a paying party s perspective, this is of concern. Click here to view the post from Forum of Insurance Lawyers (FOIL) special interest group on costs. If an offer is now made purportedly pursuant to Part CPR it does not make sense as the new rule refers to the procedure where costs are payable out of a fund. Concerns regarding Part 36 offers regarding cost disputes include the following: 1) Part 36 offers have to be open for acceptance without any cost consequence for a period no less than 21 days. The upshot is that any work undertaken during those 21 days will arguably be recoverable in addition with interest if accepted. 1

2 2) Part 36 offers remain open for acceptance following the expiry of the 21 day period unless they are expressly withdrawn. If a Part 36 offer is subsequently withdrawn then the cost protection will be lost. 3) The receiving party may request clarification of a Part 36 cost offer under Part 36.8 which will arguably involve giving a full breakdown of a global offer. 4) Following acceptance of the Part 36 offer the sum must be paid within 14 days. If not paid judgment may be entered or litigation can be continued. An option to avoid the difficulties of Part 36 would be to make an offer without prejudice save as to costs of assessment (a Calderbank offer ). CPR 44.2 (4)(c) makes it clear that the court will take into account any admissible offer and not just Part 36 offers. Importantly, cost offers can only be relied upon at a later stage if the initial terms are clear. Fully inclusive offers are notoriously difficult to unpick at the conclusion of assessment. For example, if intended to be fully inclusive of any interest or costs relating to the assessment process that are not contained in the bill of costs/schedule of costs, it is very difficult to assess whether the offer has been beaten or not. At this early stage, it is BLM s experience that Part 36 offers are not being made in cost proceedings and practitioners are generally using Calderbank-style offers. Exceptions appear to be claimant representatives who appreciate that if they manage to sustain their own offer, they will obtain the 10% windfall in addition to any assessed sum. Provisional assessment the decree nisi? When detailed assessment proceedings are commenced post-1 April 2013, they will be subjected to the new provisional assessment. This procedure will apply to all claims for costs up to 75,000. This is an assessment on the papers and is designed to avoid the costs associated with an oral fully blown detailed assessment hearing. The costs of either side are capped at 1,500 fully inclusive. What are the effects on both parties? On the face of it, this is an attractive option for defendants. The potential exposure to additional costs is much less than the risk of a detailed assessment hearing which can result in additional costs of tens of thousands of pounds. On the other hand, expensive detailed assessment proceedings act as a deterrent to pursuing cases to detailed assessment hearings which forces parties to take an economic view. It is anticipated that the cap will tempt parties to have more bills assessed than are currently negotiated. Receiving parties will want to minimise the work that they do and will not want to spend time negotiating; paying parties will be more willing to take the risk to have a provisional assessment. There is an escape clause for the court to list matters by detailed assessment if it is not considered appropriate for provisional assessment. A practice note is to be issued from the senior court cost office dealing with provisional assessment. Proportionality unreasonable behaviour? For the first time there is a definition of proportionality in the CPR and the old approach to proportionality has been over ridden. CPR now has bite. It makes it clear that only costs which are proportionate to the matters in issue will be allowed even if they were reasonably or necessarily incurred. This is good news for practitioners acting on behalf of paying parties as proportionality has been a toothless tiger for far too long and has often resulted in disproportionate assessed bills. The new test will enable further reductions at the conclusion of an assessment to rigorously enforce the principle of proportionality. Are there any exceptions? The new proportionality test will not apply to cases which began pre-1 April 2013 and expressly will not apply to any work done before 1 April Although there is no definition of commence it has been understood to relate to the substantive issuing of proceedings. The provision is unclear so it could equally relate to the commencement of 2

3 detailed assessment proceedings. No doubt this issue will be tested and it is rather disappointing that courts may well find themselves powerless to act against disproportionate costs if the old Lownds test has to be applied. Cost budgets maintenance For cases issued post-1 April 2013 that are provisionally allocated to the multi-track, cost budgets will now need to be submitted and approved throughout the litigation. It is understood that courts are to get involved in budgets at an early stage; there is evidence that even in fasttrack matters courts are insisting upon at least detailed estimates and listing case management conferences to try and intervene in the incurring of costs at an early stage. This is a golden opportunity for paying parties to consider incurring costs on substantial cases before budget requirements have been piloted in courts for some time. Murray (1) Stokes (2) v Neil Downman Architecture Limited is the latest insight into the courts likely approach in the future. It was subject to a pilot scheme in the Technology and Construction Courts and although the budget was not in the prescribed form, it appeared to contain all the information required. The court approved the claimant s budget at 82,500. Afterward, the defendant pointed out that the budget did not state whether it excluded the success fee and ATE insurance premium and therefore these additional liabilities would not be recovered in addition to the approved budget figure. The claimant issued an application for relief from sanction on 14 March 2013 (before the introduction of the stricter amended relief from sanction test which applies for applications made after 1 April 2013). The court granted relief and allowed the claimant to revise the cost management order to make clear the approved budget excluded the additional liabilities. The court was reluctant to penalise the claimant. First, the defendant was already aware of the existence of the additional liabilities and had therefore not suffered any prejudice; second, the prescribed form changed to make it clear that the estimate excludes rather than required the exclusion to be stated. However, this case demonstrates the precedent forms must be used and completed correctly. In this instance although the claimant s solicitor was let off the hook, the defendant s costs of 3, had to be paid. Further, Mr Justice Coulson said: In my view in an ordinary case it would be extremely difficult to persuade a court that inadequacies or mistakes in the preparation of a cost budget, which is then approved by the court, should be subsequently revised or rectified. A further warning that the new regime will be tougher. Fixed success fees in exacerbation cases Bird v Meggit Aerospace Limited The claimant brought the case against an employer of temporary exacerbation of tennis elbow and muscle strain due to manual handling work. Regional costs judge Hale determined that exacerbation cases should be awarded the lower fixed success fees that apply to bodily injury cases, rather than the higher disease fixed success fees. As the disease was not contracted during the period of employment with the defendant, so the higher success fees do not apply. Permission was granted to leapfrog to the Court of Appeal and due to be heard May The claimant has withdrawn the appeal and will now pay the defendant s appeal costs. The claimant has also withdrawn the appeal in the similar Fountain v Volker-rail, listed to be heard on the following day. 3

4 Defendants should use both Bird and Fountain judgments and take a robust stance on claims under the old fixed success fee regimes on exacerbation cases. Reducing costs in Group Litigation Orders for failure to prove causation Jeffrey Jones & Others V (1) Secretary Of State For Energy And Climate Change (2) Coal Products Ltd This GLO (Group Litigation Order) involved 183 claimants who brought their claims for personal injury. They alleged that chronic obstructive pulmonary disease, chronic bronchitis and/or lung, bladder or skin cancer were caused by exposure to dust and/or fumes iduring their work (producing smokeless fuel briquettes). At trial, the claimants proved their claim for non-malignant respiratory disease, but failed to prove causation for the malignant diseases. The issue was whether the claimants received costs for the non-malignant diseases, or the common costs of the GLO (which would include generic costs for issues they failed to prove). The claimants argued that they should be entitled to all their costs, as they did succeed in at least part of their claim. The defendant submitted that it is inappropriate in group litigation to look at success in terms of the litigation as a whole. Instead it argued the court should look separately at each of the main generic issues decided at the trial, and then decide in respect of each issue which party had won and to what extent. The claimants criticised this approach as follows: 1) It is not appropriate to use the time spent on generic issues at trial as a surrogate for the work done on the same issues throughout the course of the group litigation. 2) The proper approach, if a reduction of the claimants entitlement to costs were to be made, it is to take a broad approach to its reduction. Although the defendant had successfully defended the malignant disease claims, the claimants were found to be the overall successful party, and therefore entitled to their costs. The High Court found there should be a reduction to the claimant's costs, but on a broad brush assessment of the appropriate percentage reduction. Based on Mrs Justice Swift s knowledge of the case as a whole and taking into account the factors, she ordered the defendant to pay 80% of the claimants costs of the action as assessed. Summary This is a welcoming decision for defendants. Previously, the GLO arena allowed claimants to potentially rack up generic costs on the presumption that costs incurred in partially successful claims will be recovered by the GLOs generic standard basis; the paying party will pay the common costs arising from the GLO. Interestingly, the court did not weigh the defendant's failure to make offers or mediate against them. Editors Adam Burrell adam.burrell@blm-law.com Contributors Adam Lidster adam.lidster@blm-law.com 4

5 Tom Curry Terry Renouf Christopher Guy Berrymans Lace Mawer LLP 2013 Disclaimer This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to clients of Berrymans Lace Mawer. Specialist legal advice should always be sought in any particular case. Information is correct at the time of release. O:\PUBLIC ATIONS\7 BLM PUBLIC ATIONS\E-BU LLET INS AND ST ATS\COSTS REVIEW\MAY 2013\COST S R EVIEW_MAY13.D OC 5