Kerry Underwood

QOCS AND SET-OFF BY SUCCESSFUL DEFENDANT IN MULTI-DEFENDANT CASES

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I am grateful to Jeremy Rea, Solicitor of BC Legal Leeds, for information and assistance concerning this piece.

Kerry is undertaking a 10 city Autumn Tour with his new course – Getting the Retainer Right.

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In Cartwright v Venduct Engineering Limited [2018] EWCA Civ 1654

the Court of Appeal held that under CPR 44.14(1), which provides that in a QOCS case orders against a claimant may be enforced without the court’s permission up to the value of damages and interest, a defendant can enforce against damages payable to the claimant by another defendant.

Any other result would allow a claimant to bring proceedings against as many defendants as it wanted, knowing it was safe from costs and causing successful defendants to run up costs.

That is not an entirely logical finding in the sense that that is exactly what the QOCS regime allows a claimant to do, and was so designed, in relation to a single defendant, and it is hard to see why the principle should be different in relation to multiple defendants.

By running a claim against several defendants a claimant would in any event be incurring its own, extra, irrecoverable costs, if any of those defendants was not held to be liable.

The Court of Appeal went on to hold that acceptance of a Part 36 offer was outside the provisions of CPR 44.14(1), so a claimant can accept a Part 36 offer from one defendant, safe in the knowledge that any other defendants will not be able to take costs out of those damages.

It also held that Tomlin orders were not covered by CPR 44.14(1) as the schedule to a Tomlin order, setting out the damages and interest payable to the claimant, was not part of the court’s order, but merely reflected the agreement between the parties.

In any event it will be impossible to bring Tomlin orders within the scope of QOCS as such orders were often confidential and/or provided for a global settlement where damages were not separately identified, or where terms included a benefit which could not be quantified.

The Court of Appeal held that it was not dealing with a technical point, but one which would require a wholesale rewriting of the rule, and that was a matter for the Ministry of Justice and the Civil Procedure Rules Committee.

 

The Court of Appeal endorsed the principle in

 

Howe v Motor Insurers’ Bureau (No 2) [2017] EWCA Civ 2523,

 

allowing the successful defendant to offset the costs it would normally receive on discontinuance against it against the costs it had been ordered to pay in respect of the appeal.

Here it lost on appeal as the Court of Appeal found that, as this was a Tomlin order case, the successful defendant, on the facts, could not get its costs.

Although it does not feature in the judgment, except by being mentioned, the rationale of the decision in Howe v Motor Insurers’ Bureau (No 2) [2017] EWCA Civ 2523 was accepted by the Court of Appeal here in its order which provided, in part:

 

“(4) The appellant may set-off the costs payable to the respondent under paragraph (3) above against     the costs payable by the respondent by virtue of his discontinuance of the claim against the appellant.”

  CPR 44.14(1) reads:

 

“(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.”

 

It was common ground that whilst a Tomlin order is itself enforceable, the schedule to a Tomlin order is not a court order – see

 

Community Care North East v Durham County Council [2012] 1 WLR 338; and

 

Watson v Sadiq [2013] EWCA Civ 822 .

 

The decision will cause significant problems for claimants as recognised here by the Court of Appeal:

 

“34. I understand of course that in NIHL[Noise Induced Hearing Loss] 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.”

 

The Court of Appeal also said that a claimant should make appropriate Part 36 offers to all of the defendants as soon as reasonably practical.

Well, yes, except that in Hislop v Perde, the Court of Appeal itself, just six days later on 23 July 2018, held that a claimant was only entitled to ordinary costs, and so gains nothing, where a defendant accepts a Part 36 offer out of time, so there is now little incentive for a claimant to make a Part 36 offer.

Jeremy Rea of BC Legal of Leeds, solicitors for Venduct Engineering Limited, the appellant in relation to the set-off point, has published a very useful and interesting commentary on how this decision may affect the personal injury litigation landscape, which I set out at the end of this piece.

QUALIFIED ONE-WAY COSTS SHIFTING AND COSTS – SET-OFF

In Howe v Motor Insurers’ Bureau No. A2/2016/1904

the Court of Appeal considered the question of set-off in the context of Qualified One-Way Costs Shifting (“QOCS”).

Mr Howe lost his claim against the MIB and, as is usual, a costs order was made against him and in favour of the MIB and his appeal on the issue of substantive liability was struck out by the Court of Appeal, following the decision of the Supreme Court in

Moreno v The Motor Insurers’ Bureau [2016] UKSC 52.

The trial judge held that QOCS did not apply and thus the order for costs against Mr Howe was enforceable.

Mr Howe succeeded in his appeal to the Court of Appeal on that point and thus was entitled to his costs on that issue in the Court of Appeal and below before Mr Justice Stewart.

Thus the issue before the court here was whether there could be set-off of the costs awarded to Mr Howe against the costs orders in favour of MIB in relation to the substantive case.

The Court of Appeal said that the court’s power to award costs arises under Section 51 of the Senior Courts Act 1981 and that subject to rules of court, the court has a wide discretion, and that the power to allow one set of costs to be set off against another set of costs is a discretionary power recognised by CPR 44.12, which appears immediately above the Civil Procedure Rules dealing with QOCS, which are contained in CPR 44.13 to CPR 44.17.

The circumstances in which a set-off of costs may be ordered owes nothing to the detailed rules about legal or equitable set-off as substantive defences, although those rules may give guidance as to how the discretion should be exercised – see

Burkett, R (on the application of) v London Borough of Hammersmith & Fulham [2004] EWCA Civ 1342.

That decision also held that there was no objection to a set-off of costs awarded to a non-legally aided party against a legally aided party and emphasises that set-off does not require the person against whom the set-off is ordered to pay anything.

The Court of Appeal rejected the submission that that rule precludes set-off, and that a set-off is enforcement and that set-off is only permitted against orders for damages and costs.

The Court of Appeal held that under the general law, set-off is not a species of enforcement and that the decision in

Vava and others v Anglo American South Africa Ltd [2013] EWHC 2326 (QB)

did not hold otherwise.

That case involved the construction of a contract rather than a rule and the reference in CPR 44.14 concerns enforcement against a claimant and limits enforcement by reference to damages and interest.

The Court of Appeal held that “enforcement” in that context means enforcement in accordance with all the rules of the court, which includes the various powers that the court has to compel compliance with its orders.

CPR 44.14 enables enforcement without the permission of the court, whereas CPR 44.12 requires the permission of the court, or at least a court order to allow for one set of costs to be set off against another.

Consequently it held that the court does have jurisdiction under CPR 44.12 to order a set-off of costs.

Nothing in the Civil Procedure Rules setting up the QOCS regime disapplies the court’s power to order set-off.

The Court of Appeal held that it would be just for the costs awarded to Mr Howe to be set-off against the costs awarded to the MIB.

The MIB went further and sought to enforce the costs order on the ground that Mr Howe’s appeal was struck out, relying on CPR 44.15(1) which provides:

Orders for costs made against the claimant may be enforced to the full extent of such orders, without the permission of the court where the proceedings have been struck out on the grounds that (a) the claimant has no reasonable grounds for bringing the proceedings.”

The Court of Appeal held that the appeal on liability was part of the same proceedings as the original claim, and quoted from the Supreme Court decision in

Plevin v Paragon Personal Finance Ltd. No.2 [2017] UKSC 23 :

“The starting point is that as a matter of ordinary language one would say that the proceedings were brought in support of the claim and were not over until the court had disposed of that claim one way or the other at whatever level of the judicial hierarchy. The word is synonymous with action.”

 

Here the Court of Appeal said that in some contexts “proceedings” can have a narrower meaning, but this was not one of them, and even if one were to chop up the various stages in the overall action, Mr Howe had reasonable grounds for bringing the appeal in the first place as it was not until after the appeal was brought that the law was changed.

Consequently the MIB was not entitled to rely on CPR 44.15(1) and Mr Howe should have his costs of the costs issue, here and below, but that order in his favour should be set off against the costs orders existing in favour of the MIB in relation to the substantive issue.

 

Commentary – Jeremy Rea

 

How is Cartwright likely to change the landscape?

 

A claimant should now be nervous if he goes to trial with more than one defendant. If he wins against one but loses against another his damages could be wiped out.

 

In circumstances where there is a final settlement that involves a court order, for example a provisional damages award or a periodical payments order, enforcement will be possible by a successful co-defendant, as will be the case if a claimant receives an interim payment.

 

The show cause (why judgment should not be entered) procedure in asbestos litigation is now applied in cases of divisible asbestos disease. One defendant may show cause and the other not. An interim payment is routinely ordered when judgment is entered. If the defendant who is given leave to defend is ultimately successful, enforcement of the successful defendant’s costs is possible up to the amount of the interim payment, whether or not the claimant settles by a provisional award.

 

Pre-trial, until any change is implemented by the CPRC (see below) we will no doubt see the claimant world falling in love with Tomlin orders.

 

The reason for using a Tomlin order in a personal injury action is not usually because of any confidentiality; in most cases the parties do not give a moment’s thought to that and the Courts routinely send out copies (complete with “confidential schedule”) to all other parties in an action.

 

However, Tomlin orders historically are how the majority of settlements are concluded. A benefit of this (for the defendant) is that there is no judgment, as that can only follow if the damages are not paid.

 

Where there is a vertical relationship with a paying defendant who has some costs orders against the claimant in his bag he should make it clear in the schedule to any Tomlin order that he can net off those liabilities. Even then all is not lost. He can simply not pay and he will get his order eventually.

 

Alternatively, defendants could refuse to settle their actions by Tomlin orders and simply consent to judgment against them. That would preserve their position in relation to any costs liabilities and assist other successful defendants seeking to recover costs when a claimant has discontinued against them, in accordance with the main principle established by Cartwright. A paying insurer in one action may be a successful insurer in the next action and looking to take advantage of Cartwright.

 

In relation to Part 36, defendants who have a costs entitlement should be astute to ensure that any Part 36 Offers they make (or accept) make provision for any costs liabilities in their favour to be enforced but again, if overlooked all is not lost, as Cartwright tells us that a defendant can default on payment and have a judgment entered against him which remedies the ill.

 

On the same principle that a paying insurer in one action may be a successful insurer in the next action and looking to take advantage of Cartwright, an alternative approach may be for a defendant to make a Part 36 offer to submit to judgment in a specific sum, or when faced with a claimant’s Part 36 offer which they would otherwise simply accept, to immediately make a Part 36 offer to submit to judgment in the same terms as the offer.

 

These may be theoretical solutions since, aside from an innate aversion by defendant lawyers to judgments, there are obvious commercial reasons why submitting to an immediate judgment may not be attractive for a defendant.

 

The case for reform and the urgent need for the CPRC to revisit

 

If the principle and rationale (both of which were accepted by the Court of Appeal) are that:-

 

  1. a) If a claimant recovers damages in the proceedings, a defendant (whether the defendant who has paid him those damages or a different, successful defendant) who has a costs order in his favour can enforce that liability to the extent of those damages; and

 

  1. b) The reason for that principle is that the risk of an adverse costs order as a deterrent against bringing frivolous claims or applications and as an incentive to accept reasonable offers is at the heart of QOCS; then,

 

to an objective bystander (it is suggested) there can be no logical difference whatsoever, whether that sum of damages be received by an order or a pre-trial settlement, achieved by a Tomlin order, Part 36 offer, or otherwise.

 

Moreover, it would appear to be the case, whether or not within an order, that a claimant can make damages he has manifestly recovered disappear by throwing a blanket of costs over them so there is no readily distinguishable sum of damages.

 

We now have a situation where the principle is championed but then a signpost shown for a route that a claimant can take to hide those damages from view and put them beyond the reach of defendants so as to thwart the principle. Not unlike tax avoidance, it might be argued this is QOCS avoidance and an anomalous loophole that surely needs to be closed.

 

Not only do we have the oddity of damages payable under a plain Consent order being caught by 44.14 but damages payable under a Tomlin order not so, but also a settlement achieved by a Part 36 mechanism is not covered.

 

That is startling not only for the reason that it is opposite to the approach advocated by Sir Rupert Jackson (and also contrary to the Court’s implicit acceptance that a purpose of the QOCS regime was to provide incentives for claimants to accept reasonable offers) but it is clear that the contrary position was that envisaged by both the MOJ in its Commissioning Note and the response of the Civil Justice Council, as the Jackson reforms went through their genesis.

 

Moreover, the applicability of QOCS to Part 36 was heralded in the Explanatory Memorandum to the Civil Procedure (Amendment) Rules 20135 that gave rise to the changes, where the following passage appears.

 

 “Introducing rules for a new system of qualified one way costs shifting (QOCS) in personal injury cases, devised as an alternative to after the event (ATE) insurance. The effect of QOCS is that a losing claimant will not pay any costs to the defendant, and a successful claimant against who a costs order has been made (for example, where the claimant does not accept and then fails to beat the defendant’s “part 36 offer” to settle) will not have to pay those costs except to the extent that they can be set off against any damages received”

 

In consequence, damages recovered by a claimant under a Part 36 settlement are out of sight from a different, entirely successful defendant. Not only that, a defendant who makes a Part 36 offer who has accrued some interlocutory costs along the way or, more importantly, where there is late acceptance of a defendant’s Part 36 offer by a claimant (perhaps years after it was made) which gives rise to a costs liability in the defendant’s favour in respect of the post offer period, is unable to enforce that liability to the extent of the claimant’s damages. This is an impediment unforeseen and unimagined.

 

We then have a yet further anomaly in that if a defendant does not comply with a Part 36 offer as to payment then the claimant can apply to enter judgment and then of course CPR 44.14 is engaged as we have an order. Thus the default of a defendant can enhance his and a co-defendant’s position! The same applies to a Tomlin; if the defendant does not pay the damages then the claimant can apply to enforce that order and judgment will be entered, such that 44.14 is engaged.

 

Although this appeal was pursued by insurers in an attempt to change irresponsible claimant litigation behaviour in the context of relatively low value divisible disease claims, it may be thought incongruous that such claimants have the ability to insulate themselves from the effect of QOCS by a Tomlin order but not so those claimants who have sustained far more serious injuries and have no choice but to submit to an order to compromise their claim, such as where a provisional damages order is sought or where a periodical payments order best serves a claimant’s needs.

 

What also of a case where a claimant settles his action by means of a Tomlin order or by the Part 36 mechanism but has received one or more interim payments along the way? The interim payments are caught by 44.14 but the final damages receivable by Tomlin or Part 36 are not. The quality of those damages are no different and there can surely be no sensible reason for the application of QOCS to be different.

 

It is suggested that the question should be simply whether a claimant has recovered damages in the action whether by an agreed settlement (enforceable by order) or under an order itself and that to treat damages received as having a different quality for the purposes of QOCS depending upon the mechanism by which they are received is wholly incoherent and leads to absurd consequences. It is to be hoped that this issue will be considered by the CPRC at the earliest opportunity and appropriate amendments made to the rules.

 

Concluding remarks

 

In multiple defendant disease cases, particularly NIHL, there is dismay at the irresponsible attitude of some claimant firms to litigation, adopting a scattergun approach, suing very many employers with what very often appears to be little heed for the merits, in the Micawberish hope that “something will turn up”. Only too often, that manifests itself in an unmeritorious claim being pursued up until the very last before a notice of discontinuance is served.

 

Cartwright is an important victory as it establishes the principle that a claimant who has recovered damages by order is vulnerable to enforcement of a costs order by a different successful defendant. QOCS is not a free lunch.

 

Whilst it is disappointing that the impact has been diluted and it will not necessarily modify claimant behaviour as much as hoped, the insurance industry now needs to build on this victory by agitating for change through the CPRC in a cause that is built on solid and sensible foundations so that QOCS applies to all forms of settlement where a claimant receives damages.

 

The decision in Cartwright takes a major step in the right direction towards re-establishing a fair balance between the competing interests of claimants on the one hand to be held harmless from costs, in the sense of not exiting the proceedings a net debtor, and defendants, on the other hand, not to be faced with unmeritorious claims.

 

Cartwright has brought us half-way across the finishing line in terms of addressing the imbalance.

We now need the CPRC to ensure that the undercarriage follows along!

 

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Written by kerryunderwood

August 9, 2018 at 8:10 am

Posted in Uncategorized

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