Subject to any unforeseen delays, we are now just six months away from a regime of qualified one way costs shifting for personal injury claims. To those who might be unfamiliar with the notion of 'QOCS' this is an approach to civil litigation funding that prevents a defendant from recovering its costs from an unsuccessful claimant. It is one of a range of new measures that are set to be introduced from April 2013 onwards as part of the implementation of the proposals set out by Lord Justice Jackson. The 'trade off' with QOCS is that although defendants will be unable to recover their own costs even if successful save for very limited circumstances, they will benefit from other interlinked costs measures such as ATE insurance premiums and success fees no longer being recoverable from the defendant.
So, if a claimant whose claim fails does not have to pay the defendant's costs does this mean that QOCS is good news for fraudsters? Thankfully, a number of 'exceptions' are being built into the QOCS regime and if triggered will result in a claimant losing the costs protection that is afforded under QOCS.
Costs may be awarded against a claimant:
1. If the claimant is guilty of fraud in pursuing the claim;
2. If the claim is struck out as a result of the claimant having no reasonable grounds to pursue the claim / an abuse of process;
3. Where the claimant fails to beat a Part 36 offer.
As the proposed rules stand, in order to 'trigger' the fraud exception under the QOCS regime there is a requirement that fraud must be pleaded. So potentially, a claim could be found to be fraudulent but if allegations of fraud were not pleaded then the fraudster could escape liability for the defendant's costs. This seems harsh to say the least although in these circumstances a defendant could still protect itself on costs by making a Part 36 offer.
The Civil Justice Council has suggested a definition of fraud in the context of QOCS and this is likely to be the 'test' that defendants will have to overcome in order to establish fraud:
It must be proved on the balance of probabilities that:
1. The statements and representations relied on were made;
2. They were false;
3. They were likely to interfere with the course of justice in some material respects;
4. At the time they were made, the maker had no honest belief in their truth and knew of the likelihood that they would interfere with the course of justice.
Interestingly, the above 'test' is the test used for proving contempt of court although it has been modified to reduce the burden of proof from the criminal standard of 'beyond all reasonable doubt' to the civil standard.
Exaggeration alone will not be enough to trigger the loss of QOCS and if a defendant believes that a genuine claim has been dishonestly exaggerated and wants to recover its costs from the claimant then they will essentially have two options:
1. Plead fraud. If dishonesty is proven then QOCS will be lost.
2. Make a part 36 offer and QOCS will be lost if the claimant fails to beat it.
If a claim is discontinued then QOCS will still apply, meaning that in such cases a defendant will be unable to recover its costs. It is currently quite common in fraud claims for a claimant to simply file a Notice of Discontinuance and under the existing regime this gives the defendant an automatic entitlement to costs. Unfortunately that will be lost under the new regime. However, this is perhaps incentive for defendants to instead apply to strike out a claim believed to be fraudulent. Unlike discontinuances, a claimant whose case is struck out (on the grounds identified above) will be liable for the defendant's costs.
It remains to be seen whether any further changes to the proposed rules will be made between now and the implementation date. Certainly, the procedural rules that will translate the QOCS policy into the CPR have yet to be publicised. It does seem clear though that the introduction of QOCS will have a significant practical effect on how litigation is dealt with when fraud is suspected and counter fraud tactics will need to evolve to ensure that opportunities to recover costs are not lost.