Multi-party actions - a win for QOCS is bad news for defendants
Cartwright v Venduct Engineering [17.07.18]
The Court of Appeal confirmed that a successful defendant can enforce an order for costs out of sums payable to the claimant by way of an order for damages made against a different defendant. Unfortunately the court also decided that a Tomlin order would not amount to such an order and so this potentially positive outcome for defendants is unlikely to lead to cost recovery in practice.
On November 2015, the claimant issued proceedings against six named defendants (D1-D6) for noise induced hearing loss. The third defendant, Venduct Engineering Limited (Venduct) accepted that it was responsible for any liability that was established on the part of D1 and D2. The claims against those defendants were therefore discontinued by consent.
On 12 December 2016, the claimant compromised its claim against D4-D6 in the form of a Tomlin order. At about the same time the claimant served a notice of discontinuance in respect of the claim against Venduct. Venduct’s solicitors claimed they had the right to recover the costs, approximately £8,000, which they had incurred as a result of the claimant’s claim. They maintained that this could be paid out of the £20,000 paid by D4-D6 pursuant to the terms of the Tomlin order. The claimant responded by suggesting that it had the protection of qualified one-way costs shifting (QOCS) and as such one defendant could not take advantage of sums payable by another defendant to the claimant. In addition, since the sums from D4-D6 were paid by way of a Tomlin order there had been no order for damages and interest, so Venduct could not rely on CPR44.14 in any event.
At first instance the costs judge decided against Venduct. He decided that the claimant’s entitlement to damages arose, not by reason of an order of the court for damages, but by reason of an agreement with D4-D6. He did confirm, albeit redundantly, that Venduct would be able to enforce payment against another defendant’s payment if it was contained within a court order made within proceedings.
Venduct appealed the decision, and the claimant appealed the primary decision on the application of QOCS.
This leap-frog appeal raised two issues arising out of the rules concerned with QOCS:
- Whether defendant B can enforce an order for costs out of sums payable to the claimant by way of damages and interest by defendant A.
- If the answer to 1 is yes, whether enforcement is possible if those sums are payable to the claimant by way of a Tomlin order, rather than a direct order of the court for damages and interest.
Both parties’ appeals were unsuccessful. Lord Justice Coulson firmly rejected the claimant’s. He favoured the defendant’s argument that ‘proceedings’ under CPR 44.13 encompassed claims against multiple defendants. The defendants therefore were, in principle, entitled to enforce a costs order against the claimant, even though the source of the claimant’s funds was another defendant. There was no reason why QOCS should prevent this.
On the Tomlin order issue, they agreed with the cost judge that he was right to conclude that a Tomlin order is not an order for damages and interest payable. Coulson LJ did not find this second decision easy and was aware that this may encourage claimants trying to avoid paying out defendant costs by the use of the Tomlin order mechanism, but that he was bound by the wording of the rules.
This decision, whilst a positive outcome in terms of QOCS protection, is bad news for defendants. It seems that it will now be very difficult for successful defendants in multi-party actions to recover costs, a common scenario in noise induced hearing loss claims and medical negligence claims.
Settlement by way of Part 36 was not considered in detail by the court but was confirmed to also fall outside the definition of an ‘order for damages’. Whilst a Part 36 acceptance does lead to a deemed order for costs, we believe that a successful defendant cannot enforce, or offset, an entitlement to costs, against costs recoverable by a claimant against another defendant.
The only likely avenue of pursuit of costs in such instances will occur on judgment, or where steps have been taken to enforce agreements arising from Part 36 agreements or judgment. If a claimant is considering discontinuance on the basis of concurrent settlement against another defendant, we may be able to influence matters by putting pressure on all parties to agree an appropriate consent order.
The concern is that claimants can commence proceedings against as many defendants as they like, requiring those defendants to run up large bills by way of costs, whilst 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 is they settle by way of a Tomlin order – and why would they choose any other way?
This seems wrong in principle because it would encourage the bringing of hopeless claims. This seems to fly in the face of what the current civil justice reforms are trying to achieve and the MOJ and Rules Committee need to consider an amendment.