QOCS does not stop one defendant recovering costs from damages paid by another

A successful defendant in a multi-defendant personal injury claim can enforce a costs order in its favour against the damages awarded against a different, unsuccessful defendant, the Court of Appeal has decided in a significant ruling on the operation of qualified one-way costs shifting (QOCS).

However, it held that this right could not be enforced where the damages are payable under a Tomlin order, rather than a direct order of the court.

In Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654, the claimant issued proceedings against six named defendants for noise induced hearing loss (NIHL). The third defendant, Venduct, accepted that it was responsible for any liability that was established on the part of the first and second defendants. The claims against those defendants were discontinued by consent.

Ahead of the fast-track trial in Leicester, the claimant compromised his claim against the fourth, fifth and sixth defendants. This took the form of a Tomlin order, under which they agreed to pay him £20,000, including costs.

At about the same time, the claimant served a notice of discontinuance in respect of the claim against Venduct.

Venduct’s solicitors asserted that, as per CPR 38.6(1), they had the right to recover the costs (approximately £8,000) they had incurred. Under the QOCS rules in CPR 44.14, a defendant with an order for costs made against a claimant can enforce it only to the extent that the damages received by the claimant.

Giving what Lord Justice Coulson described as an “impressive” judgment, Regional Costs Judge Hale in Nottingham concluded that the claimant’s entitlement to damages arose, not by reason of an order of the court for damages – as required by rule 44.14(1) – but by reason of an agreement.

While the Tomlin order itself was enforceable, the schedule was not an order of the court at all, he said.

Though it was academic, Judge Hale ruled that Venduct was, in principle, entitled to enforce its costs order against the claimant, even though the source of the claimant’s funds was another defendant.

Giving the unanimous ruling of the Court of Appeal, Lord Justice Coulson – the deputy head of civil justice – agreed with this. “Let us assume that the claimant issued proceedings against two defendants, A and B, which went all the way to trial. The claimant recovered £100,000 against defendant A, but the claim against defendant B failed, leading B to incur £40,000 by way of costs,” he said.

“In circumstances where the claimant had freely sued B (so that a Bullock or Sanderson order was inappropriate), I can see no reason in principle why B should not recover the £40,000 from the £100,000 payable by A to the claimant.

“The QOCS regime is designed to ensure that a claimant does not incur a net liability as a result of his or her personal injury claim: that, at worst, he or she has broken even at the end of the action. In the example I have given, the QOCS regime will have facilitated his recovery of £100,000 against A. But there is no reason why that regime should prevent B from recovering its costs out of the damages payable by A.

“Any other result would give a claimant carte blanche to commence proceedings against as many defendants as he or she likes, requiring those defendants to run up large bills by way of costs, while remaining safe in the knowledge that, if the claim fails against all but one defendant, he or she will incur no costs liability of any kind to the successful defendants, despite the recovery of sums by way of damages from the unsuccessful defendant.

“That seems to me to be wrong in principle, because it would encourage the bringing of hopeless claims.”

Coulson LJ said this was in line with the wording of rule 44.14(1) and with the intention of Sir Rupert Jackson’s recommendation to introduce QOCS.

He added: “I understand of course that in NIHL claims, it is often necessary for a claimant to consider carefully which of his or her former employers may be liable and why. I understand too that, because it is a divisible injury, there may be times when a claimant may have to issue proceedings against a number of such employers, even if it is known that the claim against employer A is likely to be stronger than the claim against employer B.

“But none of that can override the need to ensure that defendants such as Venduct are not faced with a hopeless claim, in respect of which they have to incur costs, only for that claim to be discontinued shortly before trial.”

He rejected the claimant’s argument that this decision would encourage a claimant to sue one defendant at a time: “Such a strategy would immediately run into limitation difficulties, and may also founder on the principles derived from Henderson v Henderson. So in a NIHL case, it is a much better course for a claimant to consider the position carefully at the outset, and issue one set of proceedings against those former employers against whom he or she is advised that they have an arguable claim.

“In addition, the claimant should also make appropriate part 36 offers to all of the defendants as soon as reasonably practicable.”

Coulson LJ also upheld the decision on the Tomlin order, even though he was “acutely aware” that it may encourage a claimant to use this approach to avoid having to pay a successful defendant’s costs order.

The wording of rule 44.14(1) could not, “on even the most liberal interpretation”, be construed like so widely. The authorities made it clear that a Tomlin order could not be described as “an order for damages and interest made in favour of the claimant”. As a record of a settlement designed to have binding effect, it was no different from part 36, which Coulson LJ said would also be outside the words of rule 44.14(1).

“I do not consider that this is merely a technical point, which could be cured by adding a few words to rule 44.14(1). It would in truth require a wholesale recasting of the rule because, among other things, it would require a mechanism to allow the court to consider the terms of a confidential schedule in order to try and identify the sum payable to the claimant by way of damages and interest (which may not be expressly identified in the schedule)…

“These complexities may explain why settlements were not a part of the simple QOCS rules.”

The judge said there were also “insurmountable practical difficulties which also militate against a conclusion that rule 44.14(1) was designed to cover Tomlin orders, or out-of-court settlements, or that the absence of the necessary words was a simple oversight or omission”.

One was the fact that a Tomlin order was often confidential, meaning a successful defendant with a costs order in its favour was often not entitled even to see it. “If the QOCS rules had intended the contrary, they would have said so.” Another was how a court could identify the relevant figure when there was a global settlement.

“It does not seem to me to have been an oversight or a lacuna in the CPR: if it had been the intention for rule 44.14(1) to cover settlements of whatever kind, different words and greater guidance would have been required.”

Benjamin Williams QC (instructed by BC Legal) for the defendant/appellant; Andrew Hogan (instructed by MRH Solicitors) for the claimant/respondent.

 

 

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Costs News
Published date
19 Jul 2018

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