The rules on qualified one-way costs shifting (QOCS) do not prevent a successful defendant in a multi-defendant claim recovering their costs from the damages awarded against a different defendant, the Court of Appeal has ruled.
However, it held that this right could not be enforced where the damages were payable under a Tomlin order, as it was not a direct order of the court.
This has led to a call for the Civil Procedure Rule Committee (CPRC) to address the issue, which also affects part 36 offers.
In Cartwright v Venduct Engineering Ltd  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 claimant then settled with the fourth, fifth and sixth defendants, who agreed to pay him £20,000. This was recorded in a Tomlin order. The claimant then served a notice of discontinuance in respect of the claim against Venduct.
Venduct sought its costs of £8,000 from the claimant; under the QOCS rule 44.14(1), a successful defendant can enforce a costs order up to the damages recovered by the claimant.
At first instance, Regional Costs Judge Hale in Nottingham held that the Tomlin order did not meet the requirement of the rule that such costs could only be paid from an “order for damages and interest”.
The schedule to a Tomlin order was not an order of the court, he said.
He also ruled that Venduct would have been entitled under rule 44.14, in principle, to enforce its costs order against the claimant, even though the source of the claimant’s funds was another defendant.
Giving the unanimous decision of the Court of Appeal to uphold this decision, Lord Justice Coulson said the QOCS regime was designed to ensure that a claimant did 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.
“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, 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, 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 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.
He said the authorities were clear that a Tomlin order could not be described as “an order for damages and interest “. 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 rule 44.14(1).
“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.”
The judge did not express an opinion on whether the rules needed to be changed, saying it was a matter for the CPRC – which as deputy head of civil justice he is the de facto chair.
Jeremy Rea, a solicitor in the Leeds office of BC Legal, who acted for Venduct, said the CPRC needed to look at the Tomlin order issue.
“Not unlike tax avoidance, it might be argued this is QOCS avoidance and an anomalous loophole that surely needs to be closed,” he said.
“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.”
But Mr Rea said the ruling was otherwise good news for insurance companies. “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.”
He said the ruling was “a major step in the right direction” towards re-establishing a fair balance between the competing interests of claimants and defendants.
“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.”