QOCS is happening: Qualified One-Way Costs Shifting rules now published in Scotland

It has been a long time coming, but the day is finally here: court rules on Qualified One-Way Costs Shifting (QOCS) have now been published in Scotland, due to come into force in less than 4 weeks' time. Here, we look at what the rules are, how they will operate, and what it means for pursuers and defenders in personal injury actions.

The Basic Rule

The Rules are contained within a Statutory Instrument, the Act of Sederunt (Rules of the Court of Session 1994, Sheriff Appeal Court Rules and Sheriff Court Rules Amendment) (Qualified One-Way Costs Shifting) 2021 (the "Rules"). Laid before the Scottish Parliament on 1 June 2021, the Rules will take effect on 30 June 2021; and, will apply to both Court of Session and Sheriff Court cases (with slight differences, discussed below).

For those unfamiliar with the background, the Rules follow on from section 8 of the Civil Litigation (Expenses and Group Proceedings) (Scotland) Act 2018(the "2018 Act"). Section 8 provides that, where a person brings an action for personal injuries, or a death, and has conducted the proceedings in an "appropriate manner", the court "must not make an award of expenses against the person" in respect of any expenses relating to the claim itself, or to any appeal in respect of the claim.

In other words, even if a pursuer (claimant) is unsuccessful in their claim, in most cases they will not be liable for the defender's costs. This is contrary to the normal rules in Scottish litigation, where expenses follow success.

Exceptions to QOCS: the 2018 Act

Section 8(4) of the 2018 Act provides for three exceptions, whereby a pursuer may not be considered to have conducted proceedings in an "appropriate manner" and therefore, may not benefit from the protection of QOCS. Under the Act, the pursuer will only be liable for the defender's expenses in Scotland, where they have:

- made a fraudulent representation or "otherwise acts fraudulently" in connection with the claim or proceedings;

- behaved in a manner which is "manifestly unreasonable" in connection with the claim or proceedings; or

- conducted the proceedings in a manner considered by the court to be an abuse of process.

The standard of proof for all three exceptions is the balance of probabilities (that is, the usual standard for civil proceedings).

Exceptions to QOCS: the new Rules

While the three specific exceptions above were included in the terms of the 2018 Act, Section 8(6) also provided that further exceptions may be specified by Act of Sederunt. The Rules released on Tuesday provide for additional scenarios where QOCS will not apply, and a pursuer may be found liable for the defender's expenses:

- where the pursuer fails to obtain an award of damages greater than the sum offered by way of a Minute of Tender (broadly equivalent to a Part 36 offer) lodged by the defender;

- where there has been "unreasonable delay" by the pursuer in accepting a Minute of Tender;

- where the pursuer seeks to abandon the action, by way of decree of dismissal or decree of absolvitor in favour of the defender;

- there is a further exception in Sheriff Court cases, where the defender has applied for summary decree (judgment) against the pursuer and is granted decree of absolvitor or dismissal.

These new provisions are of note as they add significant new restrictions to the operation of QOCS from a defender's perspective. In the exceptions under the 2018 Act, any basis to argue that QOCS should not apply rested solely on the behaviour of the pursuer. In contrast, the Rules, in allowing expenses to be recovered in cases where a Minute of Tender was not accepted (or, where there was a delay in acceptance), gives defenders back some negotiating power in trying to resolve cases without going to proof.

Indeed, there is an argument that the new Rules have in practical terms added weight to Minutes of Tender. The standard position to date in Scottish personal injury claims, has been that both parties are at some risk on expenses throughout the course of the case – the pursuer to prove their claim, and the defender to refute it. Applying the new QOCS Rules, a Minute of Tender means the pursuer goes from the primary position of having no liability for expenses; to, being potentially liable for all the defender's expenses from the date of Tender onwards. This should provide defenders with some protection on expenses if resolution of the claim cannot be agreed.

There are some aspects of the Rules which will require further clarification and will likely form the basis of arguments in court regarding expenses. At first glance, there is an apparent inconsistency between the Rules and the 2018 Act: under Section 8 of the Act, a pursuer who takes their case to court, and does not succeed on the merits of their claim from a liability perspective, would be entitled to the protection of QOCS provided they have behaved reasonably. In contrast, a pursuer who is successful on the merits, but does not receive an award greater than a Minute of Tender, would not benefit from QOCS under the new Rules, and would be liable for the defender's expenses from the date of Tender. Other issues will also need to be explored – for example, what constitutes an "unreasonable delay" in accepting a Minute of Tender.

While the Rules therefore provide some clarification on when defenders may apply to the court for QOCS to be disapplied, questions remain about how these will operate in practice.

Restrictions on expenses awarded against the pursuer

The new Rules also address how expenses will be calculated, if a defender makes a successful application to the court that the pursuer should not benefit from QOCS protection in the case of delay in accepting, or failing to beat, a Minute of Tender.

From the guidance produced by the Scottish Civil Justice Council, it is intended that these provisions will apply only where there has been a Minute of Tender – not, to the other exceptions under the 2018 Act or the Rules. This means, in theory, defenders could recover expenses in full from a pursuer where there has been fraudulent or unreasonable behaviour.

The new Rules make clear that the determination of an application for QOCS to be disapplied is at the discretion of the court. If the court does allow for an award of expenses against the pursuer, there are a number of aspects taken into account.

1. Firstly, the pursuer's liability in expenses is not to exceed the amount of expenses the defender has incurred after the date of the Tender.

2. Secondly, the pursuer's liability in expenses is capped at 75% of the damages awarded to the pursuer. So, for example, a pursuer receiving £10,000 in damages in terms of a Tender, will only be liable for the defender's expenses up to the value of £7,500.

If there is more than one defender, the cap of 75% applies to the total of all the defenders' expenses as an aggregate sum; not to each defenders' expenses individually.

The Rules specifically state that the figure of 75% is to be calculated without offsetting any expenses due to the pursuer by the defender. So, for example, where a defender is liable to the pursuer for the expenses of the case prior to the Tender being lodged, these cannot be offset against the expenses the pursuer is liable to pay the defender, in order to bring the defender's expenses below the cap of 75%.

One question arising is how the 75% cap will apply to a Minute of Tender which is made gross of CRU – that is, where the figure offered to the pursuer in the Tender is inclusive of recoverable benefits due to be paid to the DWP. It is assumed that the "damages awarded" will be treated as the gross figure for the purposes of calculating 75%; but this may be an issue which will need to be clarified by the courts in due course.

There remains a further question, as to how an additional charge under the Taxation of Judicial Expenses Rules 2019 may be considered in this context. The new Rules specifically state there should be no offsetting of the pursuer's liability for expenses against the defender's award; but, no mention is made of provision for an additional fee, and how this may interact with the 75% cap. This will require further clarification and again, will likely come up as an issue before the courts in future.

3. Thirdly, the Rules specifically require the court to order that the pursuer's liability in expenses is not to exceed that 75% cap. This is to apply even if the Auditor of Court assesses a greater sum being due, or if there has been any modification of an award of expenses.

This point is expressly made in the new rules; but, at this stage it is unclear what this is intended to add to the 75% cap rule set out above, if the pursuer's exposure to the defender's expenses is never to be more than 75% in any event. Clarification by the courts is likely to establish whether, in practical terms, this rule adds any further restriction to the application of the 75% cap.

4. Finally, where there is more than one defender, the court is to apportion the award of expenses recoverable between them, failing agreement between the defenders.

At this point, it is unclear whether the defenders would be expected to have agreed a specific apportionment between them (e.g. 50/50), or simply to confirm to the court that they would be content to agree matters between them at some later date.

However, a word of caution to the defenders in such cases: if parties are left to discuss matters between themselves and no agreement can be reached, there will be no opportunity to return to court for a further hearing to decide the matter. The question of expenses in this scenario must be dealt with as part of the final disposal of the case – and after the final interlocutor, there is no going back.

What happens now?

The extent to which QOCS will impact on personal injury cases in Scotland remains to be seen. For pursuers and defenders alike, consideration should be given to the new exceptions provided for in the Rules, particularly surrounding Minutes of Tender.

It is inevitable given the potential questions of interpretation, and the court's discretion, when applying the provisions of the 2018 Act and the new Rules, that we will soon see expenses arguments on the application (and disapplication) of the QOCS provisions in the coming months and years. QOCS is happening, but this is by no means the end of the story.