In terms of recent trips to the Court of Appeal, I am winning 4-0. I do not wish to go back any further, as earlier disasters might upset that happy batting average. My last visit was in February in the case of Corstorphine v Liverpool City Council  EWCA Civ 270. The case concerned Qualified One Way Costs Shifting or QOCS. The QOCS rules have been a real boon for the credit hire industry and are the bane of the insurance industry in this field, as even a modest whiplash claim will result in the claimant being “held harmless” from costs consequences, should his claim be lost at trial.
Corstorphine is a sad case. The infant claimant suffered brain damage whilst utilising a tyre swing at a playground under the control of the Liverpool City Council. The claimant sued the council as occupier, and then subsequently after they had been brought in by the council as part 20 defendants, also as second and third defendants the installers of the swing and it’s manufacturer.
After a 5 day trial on liability before Mr Recorder Edge in the County Court at Liverpool, the claimant lost against all defendants. In between the action being started against the council, and the joinder of the second and third defendants, the Jackson reforms had taken effect with the implementation of LASPO 2012 on 1st April 2013.
The Learned Recorder directed that the Part 20 claim be dismissed, and the council should pay the part 20 defendants costs of the Part 20 claim, but in the usual way directed that those costs could be added to the bill the council would present to the claimant. But it was contended before the Recorder that he would be wrong to do so: because although the claimant had made a CFA and incepted an ATE insurance policy before 1st April 2013, those funding arrangments only pertained to a claim against the council.
As there was no “pre-commencement funding arrangement” against the second and third defendants, the rules on QOCS applied to the claims against those defendants. And accordingly, the court should not make an order, which effectively circumvented the QOCS protection that the claimant would otherwise enjoy, by requiring the claimant to pay those parties costs through a procedural anomaly. The Learned Recorder disagreed with this analysis and hence an appeal had to be made to the Court of Appeal.
In the Court of Appeal a rather different approach was taken to costs to that which had been applied at first instance. Hamblen LJ who gave the sole substantive judgment of the Court of Appeal explained:
- In the present case, we are concerned with proceedings involving additional parties which were commenced after the QOCS regime came into effect. There is no CFA or ATE policy which applies to the claims against those parties. Unless the QOCS regime applies, the Appellant will have no protection against adverse costs orders in respect of such claims. Although it is suggested that a further or amended CFA and ATE policy could have been entered into, that assumes that it would have been lawful so to do after 1 April 2013. Even if it was, the Appellant might legitimately have taken the view that there was no need to do so once the QOCS regime applied.
- Lord Sumption explains that the purpose of the transitional provisions was to preserve vested rights and expectations. At the time of the inception of QOCS the Appellant had no vested rights or expectations in respect of claims against the Second or Third Defendants. Its sole rights and expectations concerned the claim against the Respondent, which alone was the subject matter of the PCFAs. At the time of the PCFAs the “underlying dispute” was the claim against the Respondent, which was the only existing claim at that time. Similarly, it alone was the subject of the retainer.
- In the above circumstances, in my judgment the correct construction of CPR 48.2 is that the relevant “matter” in the present case was the claim for damages for personal injury against the Respondent. In terms of CPR 48.2(1)(a)(i), that was the “matter” which was the “subject of the proceedings” and in relation to which “advocacy or litigation services were to be provided”. It was “specifically” for the “purposes of the provision” of such services that the PCFA was entered into. In terms of CPR 48.2(2)(a)(ii) it was “proceedings” in relation to that claim that the ATE policy was taken out and which are the sole subject-matter of that policy.
- It follows that in my judgment the judge should have concluded that the QOCS regime applied to the claims made against the Second and Third Defendants. If so, that would have been a highly material factor to be taken into account in determining whether the Appellant should be liable to pay to the Respondent the costs it had to pay the Second and Third Defendants.
He then went on to set aside the costs order made at first instance:
- In an ordinary case of an additional claim which was closely interconnected with a primary claim, where both claims failed, the order made by the judge would be unexceptional – see, for example, Johnson v Ribbins  1 WLR 1458 at 1464 (Goff LJ); Arkin v Borchard Lines Ltd  EWCA Civ 655;  1 WLR. 3055 at - (Lord Phillips MR). This is not, however, an ordinary case.
- The consequence of concluding that the QOCS regime applies to the claims against the Second and Third Defendants is that the Appellant is entitled to QOCS protection in respect of adverse costs orders in respect of those claims. The effect of the judge’s order is effectively to deprive them of that protection. By ordering the Appellant to pay to the Respondent the costs of the Second and Third Defendants for which it is liable, the Appellant is made liable for virtually all those costs. In essence, it makes the Appellant indirectly liable for costs which could not be enforced against him directly.
- Further, there is Court of Appeal authority that draws a clear distinction with regard to the QOCS regime between costs relating to the claimant’s claim and those relating to third party proceedings. In Wagenaar v Weekend Travel Ltd  1 WLR 1968 it was held that the QOCS regime does not apply to third party proceedings in relation to a claim for damages for personal injury and that the normal costs rules apply. As Vos LJ observed at , there is no good reason to suppose that the QOCS regime was meant to apply “to the costs of disputes between those liable to the injured parties as to how those personal injury damages should be funded amongst themselves”.
- In a case in which the QOCS regime applied to the main claim but not to the third party proceedings, a successful defendant would not be able to enforce its costs order against the claimant and so the costs of the third party proceedings would lie where they fell. It would be surprising if a different result was to follow in a case such as the present where, although the QOCS regime does not apply to the claim against the defendant, it does apply to the claim against the additional parties.
- In these circumstances, I consider that the judge has exercised his discretion on an erroneous basis in that he has failed to take into account a highly material factor, namely the applicability of the QOCS regime to the claims against the Second and Third Defendants. His decision should accordingly be set aside and this Court may itself exercise that discretion. In my judgment, for the reasons outlined above, the fair, just and proportionate order to make in the circumstances of the present case is to vary the costs order made in favour of the Respondent so as to exclude any costs of the Second and Third Defendants parties which the Respondent had been ordered to pay.
The case establishes clearly that the scope and application of the QOCS rules in any individual piece of litigation, is set not by the subject matter of the claim in broad terms or by reference to the fact of the accident, but rather is to be determined by scrutinising the terms of the claimant’s funding arrangements, in particular to look at the scope of any pre-commencement CFA and ATE insurance policy. Where these have been limited in their application to a claim against a named defendant, later additions of parties post the implementation date are likely to lead to the application of QOCS to the claims against those parties.
That in turn means that it will be necessary to carefully consider to what extent such defendants may be liable-or not liable-to pay any success fees or ATE insurance premiums at the end of the case. Fresh contracts of retainer or ATE insurance in respect of additional parties may well push such sums into the realm of irrecoverability: variation and amendment of existing contracts may well have a greater scope to enable such sums to be recoverable on any assessment of costs