CPR44.14: Qualified One-Way Costs Shifting – A Significant and Welcome Redressing of the Balance in Favour of Defendants
Over the last 10 years following the implementation of the Qualified One-Way Costs Shifting (“QUOCS”) regime, defendants have encountered two very common situations in which they have gained an entitlement to costs but have been frustrated in terms of enforcement by the operation of CPR 44.14:
- Interim costs orders arising out of interlocutory hearings or applications
- Costs following acceptance of a Part 36 offer beyond the expiry of the relevant period
The current wording of CPR 44.14(1) provides:
- Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.
The desire to seek enforcement or recovery of the defendant’s costs has led to repeated attempts to find new and novel arguments to get around the wording of 44.14(1) and thus allow such recovery or enforcement against the claimant’s damages or costs.
The first occasion that the issue troubled the Court of Appeal was in the case of Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654. Here it was held that a Tomlin order was not an order for damages within the meaning of 44.14. Similarly, acceptance of a Part 36 offer did not result in an order for damages. The claimant therefore retained the protection of QUOCS in such situations.
Defendants subsequently enjoyed a period of some success in effectively side-stepping QUOCS by utilising the set off provisions of CPR 44.12. This allowed at least a partial recovery of costs even in circumstances where there was no order for damages. This period was short lived and in Ho v Adelekun [2021] UKSC 43 the Supreme Court held that set off was a species of enforcement and was thus caught by 44.14. Any set off of costs could therefore not exceed the aggregate amount of any order for damages in monetary terms. Defendants once again found themselves requiring an order for damages before enforcement or recovery could be achieved.
An attempt to generate an order for damages following late acceptance of a Part 36 offer in Chappell v Mrozek [2022] EWHC 3147 failed. The Court held that QUOCS prevented a defendant enforcing its costs following the relevant period against the settlement sum. In University Hospitals of Derby & Burton NHS Foundation Trust v Harrison [2022] EWCA Civ 1660, the Court held that an order recording the net sum payable following further deductions for CRU after the relevant period under CPR 36.22 did not amount to an order for damages. It was reaffirmed that settlement achieved by way of Part 36 was not an order for damages within 44.14.
The practical effect of these decisions is that a defendant has virtually no prospect whatsoever of recovering costs from a claimant when a claim settles. This seems remarkably unfair and arguably undermines the Part 36 mechanism itself. Part 36 is intended to create risk in litigation with specific costs consequences to ensure careful evaluation of offers and to encourage settlement. If a claimant can proceed against a Part 36 offer safe in the knowledge that the prospect of having any liability for the defendant’s costs is vanishingly remote then this does not create the litigation risk intended by Part 36. Why should there be any logical difference between the position whereby a claimant accepts a Part 36 offer beyond the relevant period and a claimant, when obtaining judgment at trial, fails to beat the same offer? In the former the claimant maintains QUOCS protection and in the latter the defendant can enforce its costs.
Fortunately, a seismic change is on the horizon, one which significantly redresses the balance in a defendant’s favour.
As of 6th April 2023 and the latest update to the Civil Procedure Rules, CPR 44.14 will read as follows (shows tracked changes from previous version and bold emphasis added):
- Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages or agreements to pay or settle a claim for, damages, costs and interest made in favour of the claimant.
For the purposes of this Section, orders for costs includes orders for costs deemed to have been made (either against the claimant or in favour of the claimant) as set out in rule 44.9.
Orders for costs made against a claimant may only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.
Where enforcement is permitted against any order for costs made in favour of the claimant, rule 44.12 applies.
An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record.
The revisions essentially reverse Cartwright and Ho. Enforcement of the defendant’s costs will now be possible not only in respect of order for damages but in respect of any order or agreement to pay or settle a claim for damages and costs made in favour of a claimant.
The revisions, in fact, go some way further than a simple reversal of the position following Cartwright and Ho. A defendant can now enforce up to the extent of orders or agreements for both damages and costs. Previously, liability was capped at the level of the award for damages alone. This now allows the defendant to take the totality of the claimant’s entitlement to both damages and costs as the cap for enforcement. This could be directly against damages or via set off under 44.12 or a combination of both.
Settlement via Part 36 will create a deemed costs order under CPR 44.9 which will automatically bring the claimant’s costs within the new provision in the scenario of late acceptance. However, the provision is so wide it would seem to catch any agreement or settlement for damages or costs in any event.
This is a most welcome and probably the most significant change in the QUOCS landscape for defendants since its inception 10 years ago.
There is some slight consolation for claimants. This new regime will only apply to claims issued on or after 6th April 2023 so there will be a further short delay before defendants will be able to take full advantage of the new 44.14.
Written by Simon O’Dwyer
