Jonathan Djanogly, Parliamentary Under Secretary of State for Justice, has provided further information on the plans for next year’s cost reforms for civil litigation (due in April 2012). The focus of his clarification was very much on early settlement of claims and increased use of Part 36 offers.

The current rules on costs provide that a losing party generally pays the winning party’s costs. Currently this produces the requirement for claimants to use ‘after the event insurance’ to protect themselves from a cost liability in the event the claim is unsuccessful. Under the ‘new’ costs regime which is proposed, ‘QOCS’ – Qualified One Way Cost Shifting - comes into force. This means that unsuccessful claimants would not have to pay the defendant's costs if their claim fails, provided that they have acted reasonably in their claim (fraudulent claims for example would be excepted from this protection). One piece of good news was that the suggestion that QOCS protection be means tested has been removed – which was an area of concern as it could produce uncertainty.

However, what is now clear is that a claimant who fails to beat a Part 36 offer made by a defendant will now be at risk of a costs liability – certainly in relation to their own legal costs and probably the other side’s cost incurred after the expiry of the initial time for acceptance of such an offer. A successful claimant could therefore find that they win their claim, but fail to beat an offer and so lose most of their damages to legal costs. At present, most claimants have at least some protection from such liability. From our perspective this raises concerns that the ‘cost’ of achieving early settlements will be claimants accepting offers which are too low. They may feel pressurised into agreeing due to the risks of continuing and we query whether this is really achieving fair compensation for injured parties.

There are equally provisions to encourage claimants to make offers to settle and penalise defendants who don’t take a sensible approach to such offers. In cases where the defendant does not accept a Part 36 offer made by the claimant but the claimant later achieves an equal or better settlement, an additional amount will be added to the costs to be paid by the defendant - 10% of damages. These penalties will be subject to a tapering system for large claims over £500,000.

The statement from Mr Djanogly also made reference to the emphasis that the courts will have on proportionality of legal costs (when determining what legal costs should be recovered from the other party). He explained that 'legal costs will be deemed to be proportionate only if they bear some sort of reasonable relationship to the sums of money and the value of any non-monetary relief at issue, the complexity of the litigation and any additional work it may have generated and any wider factors such as reputation or public importance and interest'.

We welcome the encouragement of sensible assessment of claims and early negotiation but do have concerns as to whether the end result of these changes will be that claimants settle early at figures below what their claim is sensibly worth because they don’t want to risk costs penalties. We feel that some consideration needs to be given to the information available to claimants while they assessed an offer when deciding whether they should be penalised in costs later for failing to do better.

The emerging clarification is helpful but there still remains considerable uncertainty about the detail of the forthcoming changes.

Individuals considering investigating a claim would do well to ensure that they get this under way under the current costs regime, where they are better protected.