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News on when insurers may be able to go behind claimants' QOCS protection

Here we are in the second week of the post Jackson/LASPO world and things are starting to slowly change, but with no overnight big bang. We need to remember that most of the changes will not impact on insurers straightaway, but in many cases change will only be felt over a period of time.

Background

Here we are in the second week of the post Jackson/LASPO world and things are starting to slowly change, but with no overnight big bang. We need to remember that most of the changes will not impact on insurers straightaway, but in many cases change will only be felt over a period of time. Good examples of this are the 10% increase on PSLA, and the point that is mentioned in this message, QOCS protection gained by claimants against adverse costs orders. Each of these changes will essentially only apply to new claims taken onto retainers by claimant lawyers after 1st April, so that claimants with CFAs or CCFAs involving recoverable success fees are never entitled to the 10% uplift on PSLA whenever their claims settle, and claimants with the same recoverable success fees, or recoverable ATE premiums or union equivalents, will never get QOCS protection against a liability for defence costs.

But we do now have a court decision that will impact on the post 1st April landscape once we start to handle cases where QOCS has come into effect, although of course it is worth noting that QOCS is limited to injury claims. The case concerns a route that insurers may use to try to get around QOCS, that is by instead trying to recover their costs in a successfully defended case not from the claimant himself but from his solicitors. Its a Court of Appeal case where judgment was given today - Flatman v Germany (that is a person with the surname Germany, nothing of course to do with the country).

As we know from the changes to the rules, in the future claims where QOCS protection for claimants applies, any adverse costs order made against them personally cannot usually be enforced against them. There are of course a few exceptions to claimants' QOCS protection including:

  • where the case is struck out in certain extreme situations
  • where the claim is found to have been fundamentally fraudulent
  • where the claimant fails to beat a defence Part 36 offer and becomes liable to pay defendants' post Part 36 costs out of his damages and interest. There is a further argument not yet tested that under the existing set off provisions in the old rules and repeated in the new rules at 44.12, that in practice there can also be a set off of defendants' costs against claimant's costs.

But QOCS does not give similar protection to others such as claimants’ solicitors

For new claims taken on by claimant lawyers after 1st April they will have to sort out not only whether to charge a success fee out of damages assuming a CFA is used rather than a DBA, but also how to fund disbursements and whether an ATE policy should be taken out by the claimant to cover the residual post QOCS costs risks as well as claimant's disbursements. Some claimants will opt to take out ATE, others will not, and claimant's solicitors may choose to take the risk of the claimant's disbursements themselves, as the solicitors in the Flatman case case did. 

The questions the Court of Appeal considered was whether there should be disclosure of the funding arrangements - the court decided that in the cases being looked at there should be, and they went on to consider whether the fact that solicitors might have assumed responsibility for the disbursements meant that the lawyers should take on a liability for defence costs when the claim failed - the court decided that funding disbursements by itself was not enough to take on that liability, but that there might be here on the basis of what the disclosure had shown.

Claimant lawyers will take some comfort from the second part of the decision where they intend to fund disbursements in future claims. What seems clear for insurers when they start dealing with QOCS cases which have been taken on by the claimant lawyers after 1st April and which have been successfully resisted is that insurers may wish to  try to obtain disclosure of documents which show the funding of the claim. If there was BTE or ATE insurance in place (though of course no notices of funding will be served in the future) then this may assist  recovery of costs, though that insurance will only indemnify the claimant and thanks to his QOCS protection he may not have a costs liability anyway. If there is evidence of the solicitors funding the claim, then it will be worth looking carefully at whether the disclosure suggests that there was anything else going on to put the lawyers in the frame to pay defence costs. It is perfectly possible now in many cases in the pre QOCS regime to persuade claimant solicitors to pay defence costs in order to avoid enforcement action being taken against their clients. Post QOCS implementation it will be more difficult to do so as the claimant is less likely through QOCS to have that liability in the first place, but the position of the solicitors will be worth looking at.

In the Flatman case some interesting correspondence between the claimant and his solicitors emerged, apparently making it clear that the case proceeded without ATE despite the claimant's specific instructions, and suggesting that the solicitors were so keen to earn their fees that as they saw it, the claimant should not be concerned about his costs liability as if he did not own a house with equity, he had "nothing to lose" in proceeding. Unsurprisingly, an application for the solicitors to pay defence costs in that case is proceeding.

We'll keep an eye out for other developments showing the reforms in action.

For further information please contact Simon Denyer, Partner on 0161 604 1551 or email simon.denyer@dwf.co.uk

By Simon Denyer

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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