Case law update: Multiple Defendants and QOCS
“…the Costs Judge was right to exclude from the QOWCS regime sums payable pursuant to a Tomlin order.”
Lord Justice Coulson: Cartwright v Venduct Engineering Limited  EWCA Civ 1654 http://www.bailii.org/ew/cases/EWCA/Civ/2018/1654.html
The lead Judgment in Cartwright is a barrier for successful Defendants who wish to recover the costs of defending personal injury claims.
Qualified one-way Costs Shifting applies to medical negligence claims. Its impact is that a successful Defendant cannot recover their costs from an unsuccessful Claimant, except in very narrow circumstances as governed by r.44.14 and r.44.15 of the Civil Procedure Rules.
A Tomlin Order is a Court order under which a claim is stayed, on terms agreed between parties as set out in an accompanying Schedule. Whilst the Order staying the claim is treated as a Court order, the accompanying Schedule is not. Parties to litigation regularly use a Tomlin order to agree terms of settlement whilst keeping those terms confidential between themselves.
CPR r.36 sets out a regime for settlement proposals which parties can make to seek to settle claims.
In Cartwright, Lord Justice Coulson upheld the Cost Judge’s decision that that sums payable under a Tomlin order by the First Defendant (D1) to the Claimant were not covered by CPR r.44.14(1), discussed below. On that basis, the successful Second Defendant (D2), could not recover their legal costs from the damages paid by D1 to the Claimant under the Tomlin order.
Unfortunately for Defendants, settlements reached under CPR r.36 are not covered by the QOWCS regime either.
An overview of CPR r.44.14 and the impact of Lord Justice Coulson’s Judgment are discussed below.
The impact of CPR r.44.14:
- Subject to rules 44.15 and 44.16, orders for costs made against a Claimant may only be enforced without the Court’s permission to the extent the aggregate amount does not exceed the aggregate amount of any orders for damages and interest made in favour of the Claimant.
- Orders for costs made against a Claimant may only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.
The Court of Appeal’s Decision
Lord Justice Coulson concluded that:
- “…Whilst the Tomlin order itself is enforceable, the schedule is not an order of the Court at all.” [paragraph 16]
- “A Tomlin order cannot be described as “an order for damages and interest made in favour of the Claimant”. It is no such thing. It is a record of a settlement reached between the parties which is designed to have binding effect. In that sense, as the parties agreed in the present case, it is no different to the settlement that arises when there is an acceptance of a Part 36 offer. Such acceptance does not require any order from the court, so a settlement in consequence of an acceptance of a Part 36 offer would also be outside the words of r.44.14(1). [paragraph 45]
- “…in a case like this, where each defendant’s liability is several, not joint, it may well be that a successful Defendant with a costs order in its favour is not entitled even to see the Tomlin order. If the QOWCS rules had intended the contrary, they would have said so.” [paragraph 48]
- “If it had been the intention for r.44.14(1) to cover settlements of whatever kind, different words and greater guidance would have been required. It goes without saying that whether the CPR should be amended so as to make changes of this kind is a matter for the Ministry of Justice and the CPRCC. It is not a matter for the Court.” [paragraphs 51/52]
The Court of Appeal’s decision is problematic for Insurers and Indemnifiers who represent multiple Defendants in the same action.
The lack of any automatic costs protection for non-Part 36 offers means the Courts have pushed Defendants into making formal Part 36 offers in recent years.
- Assume an Insurer represents two Defendants; one with poor prospects at Trial, and one with strong prospects.
- If an Insurer seeks to make a Part 36 offer for D1, conditional upon the Claimant discontinuing against and paying the costs incurred by D2, it is unlikely to be considered a valid Part 36 offer for D1’s benefit.
- If the Insurer seeks to make a Part 36 offer for D1 which contains provision for D2 to recover costs from the damages offered by D1, it is unlikely to be considered a valid Part 36 offer for D1’s benefit. The Claimant could easily counter with a “true” Part 36 offer against D1 alone (+/- a separate offer to Discontinue against D2).
- If the Insurer, instead of making a Part 36 offer, proposes a Tomlin order in the above terms, it could again be met with a Part 36 offer against D1 for the same amount and a subsequent Notice of Discontinuance against D2.
- Supposing D1 settles their involvement, a successful D2 can still apply to enforce a costs order under r.44.15 although there is a high threshold to be met in demonstrating the claim meets the necessary criteria. If D2 is served with a Notice of Discontinuance then time is short: they have 7 days to apply to the Court to have the Discontinuance set aside and to seek an order based on the r44.15 criteria below.
Exceptions to qualified one-way costs shifting where permission not required 44.15
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 –
- the claimant has disclosed no reasonable grounds for bringing the proceedings;
- the proceedings are an abuse of the court’s process; or
- the conduct of –
- the claimant; or
- a person acting on the claimant’s behalf and with the claimant’s knowledge of such conduct, is likely to obstruct the just disposal of the proceedings.”
One option available to Insurers is to forego the use of a Tomlin order, and to instead seek settlement through a Court order with no Schedule attached. Broaching such a suggestion could prove difficult and would likely require negotiations by telephone given the acceptance of a written offer could crystallise the terms of settlement before this strategy is deployed.
It may be the above strategy is best suited for higher value claims involving settlement at a Joint Settlement Meeting, although it is still contingent on the Insurer and D1 agreeing to forego the confidentiality of a Tomlin order and setting out the full terms of settlement in the Court’s main order. Whether the Claimant would be agreeable (perhaps unlikely in PPO claims where the use of a Schedule is the norm) is unclear.
There is logic in the Court’s decision that a Tomlin order is not a Court order, but to expand the principle to settlement reached under CPR r.36 provides Claimants and their Solicitors with a very powerful tool in their kit. It contradicts the use of the Part 36 regime which the Courts have pushed parties to use over recent years.
It may seem counterintuitive for the Ministry of Justice to keep settlements made under r.36 outside of the QOWCS regime under r.44.14(1) in Multi-Defendant actions. It appears clear however that as per Lord Justice Coulson’s Judgment, whether the CPR should be revised is not a matter for the Court, much to Insurers’ misfortune.