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implementation of Part 2 of the Legal Aid Sentencing and Punishment of Offenders Act 2012

11 July 2012

In a written ministerial statement yesterday, Jonathan Djanogly clarified the shape of the rules that will be put in place to support the civil costs reforms under the Legal Aid Punishment of Offenders Act (LASPO), which are due to come into effect next April.

Qualified one way costs shifting will protect personal injury claimants from adverse costs orders (a decision has still to be taken as to whether this will extend to mixed claims such as credit hire claims arising from an road traffic accident (RTA) where there is also an element of injury). Under these rules, defendants will rarely recover their costs of the action. The trade off for defendants will be that they will no longer have to bear after the event (ATE) premiums.

The scheme was to be qualified in the sense that there would be some exceptions. However, it now seems these will be very limited.

In his report on civil costs, Sir Rupert Jackson proposed an exception for the conspicuously wealthy. The result was a debate as to what amounts to conspicuous wealth, with the higher tax band being considered as a possible cut off, for a time. A financial limit has now been abandoned: there will be no means testing.

Conduct was another area which was considered as a matter which may justify a departure from one way costs shifting. The difficulty here was in identifying the level of misconduct required to remove protection. Clearly a claimant who simply lost their case should not be penalised or the regime would not be one way costs shifting. Djanogly has confirmed that the claimant who discontinues will also retain protection. This must be right, as claimants who discover their claims are weak at a late stage should not be penalised for discontinuing promptly.

The problem which remains is how to deal with the prospect of have a go claimants. The possibility of a minimal payment from an unsuccessful claimant, which might have prevented dubious claims, has been abandoned. Instead, costs protection will be lost where a claim is either fraudulent, on a balance of probabilities, or has been struck out as disclosing no cause of action, or for being an abuse of process.

The strike out qualification will capture a very small number of claims. It seems that not only must the claim be struck out but the Court will also be required to make a finding of abuse of process or that the claim discloses no cause of action. In injury claims, such findings are rare, and it seems any claimant could circumvent the rule by discontinuing on receiving a strike out application. Alternatively, the rules may give rise to satellite litigation as defendants push for a finding of, for example, abuse of process.

The fraud exception poses a similar risk of satellite litigation, while also raising questions over the necessary standard of proof. While a fraud defence to a civil claim is determined on the balance of probabilities, the seriousness of the allegation is such that in practice a judge will typically require something more than evidence of 51 likelihood before making a finding of fraud. It is likely the same approach will be taken in relation to costs.

Part 36 and qualified one way costs shifting (QOCS) also posed difficult questions as to whether a defendant should be able to protect their position by making strong early offers. Under the current regime, a defendant who makes strong Part 36 and goes on to secure a more favorable settlement of judgment may recover their costs from 21 after the Part 36 offer was made. The Government has confirmed that this will continue under QOCS - ie Part 36 will trump QOCS . However, the defendants costs recovery will be limited to the level of the claimants damages, meaning that a claimant should not be left out of pocket, though he may be left with no damages.

The government and rules committee may need to give some further thought to the costs aspect of the interaction of Part 36 and QOCS . Depending on the terms of their conditional fee agreement (CFA), claimants may be left out of pocket if they are required to pay their own solicitors some costs over and above those that are recovered. Currently any such liability could be met using damages.

The prospect of overriding QOCS should act as a strong incentive for defendants to make early offers and for claimants to accept, where they are reasonable. However, Part 36 is also to be bolstered in relation to claimant offers, with claimants to recover a 10 uplift on damages where they better their own offer. For non-pecuniary claims, the 10 uplift will be calculated on claimant costs. Under both regimes there will be a sliding scale of uplift for higher value cases, so that the uplift should not exceed £75,000 in any claim.

There has been a great deal of speculation, fed by information of varying reliability, as to how these reforms would shape up and it is helpful that the Ministry of Justice (MOJ) has released this information to clarify how the reforms are likely to look. However, there remain unanswered questions which must be addressed through the rules when they are finally published if satellite litigation is to be controlled.

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