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QOCS and multiple defendants

Cutbacks iStock 000013353612XSmall 146x219A defendant against whom the claimant discontinued was not able to seek to enforce and ‘set-off’ its costs against the damages/interest paid to the claimant by the ‘unsuccessful’ defendants. Caroline Cousins reports.

The case law in relation to the application and effect of QOCS (Qualified One-way Costs Shifting) is still developing, as there are many situations in which the relevant rules need to be interpreted.

A situation where clarification of the QOCS rules has been required is the effect of QOCS in multiple defendant cases. This is particularly common in industrial disease cases and where the claim can be brought against various previous employers. Where the claimant is successful or unsuccessful against all defendants, this does not present any particular issues, and the rules are straightforward to apply in such situations.

Equally, where the claimant loses their QOCS protection, such that a defendant can enforce an award of costs to the full extent of such orders, such should be fairly straightforward. CPR 44.15 deals with the situations where the court’s permission is not required to enforce such an order that the claimant pay costs without reference to the damages/interest paid to the claimant, whilst CPR 44.16 covers where the court’s permission is required to enforce such an award.

But what of the situation in which the claimant is successful against one or more defendants, such that damages are awarded, but unsuccessful against one or more defendants? Can the successful defendant seek to enforce an award of their costs against the damages / interest recovered by the claimant from the ‘losing’ defendant, and is the claimant entitled to QOCS protection against the set-off for the ‘winning’ defendant’s costs?

This issue was considered by HHJ Freedman in the matter of Bowman v 1) Norfran Aluminium Limited 2) R M Easedale & Co Limited 3) Norfran Limited Newcastle County Court, 11th August 2017, B54YJ494. Whilst this is a County Court decision, it is a decision of a well-respected Judge and neither party could identify any direct authority upon the point.  

Case facts

This was a hand/arm vibrating syndrome and carpel tunnel syndrome case, in which the claimant issued proceedings against three defendants, with them all being named upon the HMRC employment schedule. There was a somewhat unusual situation in which the second defendant had purchased the assets of the first defendant, and approximately a month later the third defendant was created as a separate company. The second defendant averred that it had not employed the claimant, and whilst denying employing the claimant averred that its involvement was only for a month between when the assets were purchased from the administrator on 24 June 2009 and when the third defendant started trading on 27 July 2009. The second defendant explained that the reason their details appeared on the claimant’s payslips was because they provided payroll services to the third defendant.

The claim against the second defendant was discontinued after the exchange of witness evidence and the first / third defendants confirming that they did not assert that the claimant was employed by the second defendant.

The claim against the first and third defendants continued to trial, and the claimant was successful in recovering damages of £20,000. The second defendant applied for the trial order (providing no order as to costs as between the claimant and second defendant) to be amended, to provide that the claimant do pay the second defendant’s costs following discontinuance pursuant to CPR 38.6. The claimant issued an application that if such an order was made in favour of the second defendant that the order may not be enforced due to the operation of CPR 44.13 and CPR 44.14, as a result of the operation of QOCS.

The QOCS rules

CPR 44.13 deals with the scope and application of QOCS, and there was no issue that the claim was a damages due to personal injury claim to which the QOCS provisions applied.

CPR 44.14 provides that:

“(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.

(2) 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.

(3) An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record.”

The parties’ arguments

The second defendant argued that it was entitled to set-off its costs against the £20,000 of damages paid by the first and third defendants, as such could operate against any order for damages and interest made in favour of the claimant. It was averred that the proceedings referred to within CPR 44.14 meant the entirety of the claim, which meant the claim against all three defendants. Further, the second defendant argued that permitting recovery would be within the spirit of the Jackson reforms, with the claimant being no worse off than had she not pursued a claim for damages.

The claimant contended that the underlying premise of the QOCS regime was that the claimant never actually paid anything, but instead it was only possible for a set-off against damages paid by the particular defendant. It followed that the ‘set-off’ could only be in relation to proceedings against the second defendant; and since there was no payment by the second defendant there was nothing to set-off against. Furthermore, if the payment by the first and third defendants was taken into account then there was no set-off as opposed to a payment, which is not permitted under the QOCS regime. The second defendant’s interpretation of the word proceedings was not accepted, with reference being made to the Supreme Court’s decision in Plevin v Paragon Personal Finance [2017] UKSC 23.

Findings

HHJ Freedman found that there was no reason to order otherwise and depart from the usual provisions of CPR 38.6, such that the second defendant’s costs were to be paid by the claimant. However, the important issue was the QOCS point, and HHJ Freedman started by reviewing the background and intentions of the implementation of the QOCS rules. The Civil Procedure Rule Committee had expressed the view that QOCS protection would be allowed in claims that were discontinued. As to any unfairness to defendants in the application of QOCS in such cases the committee stated that “the outcome is consistent with the general policy aim of QOCS protecting claimants who are not, in broad terms, successful”.

The fundamental different between CPR 44.14 and 44.15/44.16 was highlighted by the Judge, in that CPR 44.14 permits enforcement of costs against only orders for damages and interest made in favour of the claimant, whilst CPR 44.15 and 44.16 allowed the recovery of costs in toto.

In coming to his decision, HHJ Freedman had regard to the QOCS provisions being a self-contained code, with reference to Wagenaar v Weekend Travel Limited [2015] 1 WLR 1977, and there being no discretion upon the court to make any order other than which flows from QOCS. The decision in Lockley v National Blood Transfusion Service [1992] 1 WLR 492 was taken into account.

It was held that set-off imported the concept of mutuality of liabilities, whereby there were cross claims as between the paying party and receiving party, and “that being the case it is difficult to see how such would be consistent with the claimant in the instant case handing over all of her damages to the second defendant to meet any order for costs.” Reliance was placed upon the comments of Lord Sumption in Plevin¸ such that proceedings in the context of QOCS referred to individual claims and not the entirety of the action. The phrase “any order for damages” was held to mean the type of damages order made (such as periodic payment order, lump sum damages etc), as opposed to damages paid by any Defendant.

Comment

Whilst this is a first instance decision, it is a fully reasoned judgment. The decision sits with the ethos of the implementation of QOCS, with the claimant being protected from financial disadvantage in proceedings which did not result in an order for damages. Whilst it may be perceived to be unfair to the second defendant, the issue of fairness is not the thinking behind the QOCS rules (or looking at the matter on the whole, defendants now avoid paying success fees for the majority of cases so their position has already been taken into account). There is consistency, in that the position is no different to that where the claimant had only brought a claim against the second defendant, or where there had been separate claim forms against each defendant. The judge highlighted that if the second defendant had been able to recover its costs by set-off against damages paid by the other defendants, that would have been a windfall and inconsistent with the ethos of QOCS.

The claimant had the benefit of after the event (ATE) insurance in the case considered. The decision will help to keep premiums lower across the board, as opposed to ATE insurers being required to increase premiums for such multiple defendant cases, with the effect of reducing the damages to be retained by successful claimants where the premiums are self-insured, and the costs to the claimant where a premium is not self-insured. Equally, for claimants without the benefit of ATE insurance it helps to assure them that their damages will not be at risk where there is partial success against multiple defendants.

This can be distinguished from the position as between a claimant and a ‘losing’ defendant, and a situation in which the parties have mutual costs liabilities. Howe v Motor Insurers Bureau is more known for the Court of Appeal’s judgment at [2017] EWCA Civ 932, regarding the application of QOCS in MIB claims. However, there is also a second judgment of 6th July 2017 in relation to costs concerning an application of set-off for the trial on substantive liability and the claimant’s unsuccessful appeal against the judge’s first judgment, which was struck out following the decision in Moreno v the Motor Insurers Bureau [2016] UKSC 52. Again, the decision in Plevin regarding what is meant by proceedings was considered. In that case it was held to be just for the costs awarded to Mr Howe to be set-off against the costs orders in favour of the MIB.

Caroline Cousins is a Costs Lawyer at A & M Bacon, who were instructed by the Claimant’s solicitor, Roberts Jackson Solicitors.

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