The Court of Appeal has dismissed a defendant’s bid to pierce the shield of qualified one-way-costs shifting (QOCS) in the latest case involving costs set-off. The appeal has significant implications for all claims where a Part 36 settlement requires a court order, including those involving vulnerable claimants.

In University Hospitals of Derby & Burton NHS Foundation v Harrison and the Association of Personal Injury Lawyers [2002] EWCA Civ 1660, the court heard that the claimant suffered serious injuries when undergoing gynaecological treatment. Partway through the claim, the defendant made a Part 36 offer of £421,363. The offer stipulated that if it were accepted late and the claimant had received social security benefits, she would need the court’s permission to accept the offer.

The claimant accepted the offer some time later, and so applied to the court for permission to accept it. This was granted in a court order that set out the relevant compensation figures, and made the usual provision that the costs of the action should belong to the claimant until the end of the relevant 21-day period, and to the defendant after that. The judge’s order also specified that the defendant ‘may not set-off or enforce this costs order against the claimant’, to preserve costs protection.

The defendant unsuccessfully argued that this court order constituted an ‘order for damages and interest’, allowing it to enforce the costs order in its favour. It then went to the Court of Appeal, arguing that any order made that recorded the figures of the compensation paid to the claimant and the social security benefits would trigger enforcement.

The appeal judges unanimously rejected this argument, finding that the order should not be classified as ‘an order for damages and interest’, and so did not entitle the defendants to set off their costs against it.

Lord Justice Coulson cited the arguments made by counsel Andrew Hogan for the claimant and Roger Mallalieu KC for APIL as intervener, that if the existence of a court order were all that mattered for costs set-off to apply, there would be a ‘raft’ of unintended results that would penalise those most in need of QOCS protection.

Noting that ‘wider policy considerations’ supported the claimant’s position, Coulson LJ said: ‘Mr Hogan’s skeleton argument [contained] a list of situations where Part 36 requires the court to make an order of some kind to reflect the settlement reached between the parties.

‘Those include not only this sort of case (where a claimant is disabled, so qualifies for the ongoing receipt of disability benefits) but cases where a claimant is disabled and lacks mental capacity, so that any settlement that is reached requires the approval of the court. Those are all cases in which it might be said that a claimant has a particular need of the protection of QOCS but where, on the appellant’s case, because an order must be made by the court, such protection would or might be lost.

‘On this analysis, an “ordinary” claimant would be able to keep their QOCS protection, whilst a more vulnerable claimant would lose it. That would not be rational or proportionate.’

The judge added that if the defendant’s arguments were accepted, claimants might be reluctant to claim provisional damages or periodical payments.

The judge noted that the rules relating to costs set-off under QOCS are subject to a proposed amendment by the Civil Procedure Rule Committee that may mean ‘the whole basis on which the issue in this appeal rests – the distinction between orders of the court, on the one hand, and settlements between the parties, on the other – will cease to matter.’ He pointed out that the proposed amendment does not specifically address Part 36.

This case follows closely on the heels of Chappell v Mrozek handed down last week in which the High Court also rejected a defendant’s attempt to set-off a costs order in its favour in a claim subject to QOCS.

 

This article is now closed for comment.

Topics