Get ready for a roller coaster ride in 2023

Rarely does a year slip past with no reform to the costs rules – and 2023 will not be one of those years. The endless roller coaster of costs reform will be hurling litigators around in its usual thrilling fashion over the next 12 months. So what changes should lawyers be bracing themselves for?

One big jolt relates to qualified one-way costs shifting (QOCS), with a change that could significantly affect claimant personal injury lawyers.

Back in 2000, the government took away legal aid for PI claims, and in its stead handed claimant lawyers the gift of recoverable success fees and additional liabilities. This turned out to be rather a generous prize, for which defendants were picking up the tab. So in 2013, the Jackson reforms sought to redress the balance.

This time the government took away recoverable success fees and replaced them with QOCS. The idea was that if a personal injury claimant lost their case, QOCS would protect them from having to pay their opponent’s legal costs – as long as the claimant was not ‘fundamentally dishonest’, and the claim had not been stuck out.

The QOCS regime is undoubtedly far cheaper for the defendant sector than recoverable success fees used to be. But a decade on from Jackson, defendants have been pushing for further change – and they are about to get it.

The battle centres around cases in which a defendant has a costs order made in their favour. For example, because they have won an interim application, or – very commonly – because the claimant failed to beat the defendant’s Part 36 offer. The question is, where the defendant has such a costs order made in their favour, should they be able to net this off against a costs order that has been made against them? If so, it would effectively reduce the amount that defendants must pay towards the claimant’s costs, potentially leaving claimant lawyers out of pocket.

In 2021 the Supreme Court considered this issue in detail in Ho v Adelekun [2021] UKSC 43, and ultimately did not allow the defendant to set off its costs, which was a victory for claimant lawyers. The SC effectively admitted that its ruling would produce some unfair results, but this was just part and parcel of an overall QOCS scheme that was much better for defendants than recoverable success fees had been.

Meanwhile the battles have continued to rage in the lower courts, and we have seen a run of recent QOCS cases in which judges have rejected defendant attempts to set off costs.

But it seems that the government has lent a sympathetic ear to the complaints of defendants, and so the Civil Procedure Rule Committee has drawn up draft rules to amend the position and open the door to costs set-off in QOCS claims. For defendant lawyers, this is a fairer solution, but claimant representatives consider it a serious erosion of the principles behind the QOCS regime. The draft rules were put before the CPRC at its October meeting, and it seems fair to assume that a final version will be introduced during 2023.

What other twists and turns lie in store for the costs roller coaster? There is the dreaded extension of fixed recoverable costs (FRCs) to most civil claims worth up to £100,000 in October, assuming (as I fear we must) that ministers have not decided to abandon the plan having read my December column. Then there is the separate plan for fixed costs in low-value clinical negligence claims. And the lack of recent announcements on that development is probably just the quiet before the storm.

We then have the big loop – the loop that is the Civil Justice Council’s ‘strategic and holistic’ costs review, with the potential to turn the costs world on its head. Last July, the CJC said it would look at four areas: budgeting; guideline hourly rates; pre-action protocols in light of digital justice; and the ‘wider impact’ of extending FRCs. It since extended its deadline to hear submissions on how the Court of Appeal’s October ruling in Belsner may affect these issues, and the consultation closed last month.

So what changes will the CJC recommend? The most eye-catching bit of its remit is the reform of costs management, with the outright abolition of costs budgeting one option on the table. But that now seems unlikely to happen. My own feeling is that the fingers of the senior judiciary were twitching to send budgeting to the firing squad. But first they needed lawyers to call for budgeting to be scrapped, which the profession failed to do, for fear that budgeting would be replaced by even more fixed costs.

Meanwhile, in Belsner, the Court of Appeal made clear that it believed the Solicitors Act, which governs solicitor/own client disputes, is in dire need of an overhaul. That could prompt a whole new set of changes, though these may be further into the future. After all, there is already more than enough costs reform to be getting on with in 2023.

Rachel Rothwell is editor of Gazette sister magazine Litigation Funding, the essential guide to finance and costs.

For subscription details, tel: 020 8049 3890, or click here