...or at least that is what the Court of Appeal have given us.
In the recent decision of Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654, the issues were succinctly set out in the opening paragraph -
1. This 'leap-frog' appeal raises two issues arising out of the rules concerned with Qualified One Way Costs Shifting ("QOWCS"). They are:
i) Issue 1: 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;
ii) Issue 2: If the answer to Issue 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.
In response to the first issue, the Court had no hesitation in finding that QOCS does not displace the usual position that a successful defendant can look to the claimant to pay its costs, but capped at no more than the amount of damages and interest payable by the unsuccessful defendant.
This part of the judgment confirms what I always believed to be the case and one I have successfully argued on several occasions. In fact, the Court reinforced one line of argument I have always deployed, namely that the costs protection afforded by the QOCS regime does not enable a claimant to bring proceedings against whoever he chooses with impunity. Rather, a claimant still has to give careful thought about who he chooses to sue, otherwise -
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. [see para 25 of the judgement]
The decision on issue one part of the judgment is helpful to defendants, and claimants must be alive to the need to give consideration to the strength of any claim against a potential defendant before embarking upon speculative litigation.
So far so good - in principle, Venduct were able to recover its costs from the claimant against any order for damages and interest the claimant obtained against the other defendants in the matter.
Here is where Venduct came unstuck.
The Court of Appeal upheld the decision below where the claimant had successfully argued that there was no order for damages and interest in his favour; rather, his settlement with the other defendants was on terms that were recorded in a schedule contained within a Tomlin order and it is trite law that such schedules are not treated as an order of the Court. Absent any order for damages and interest, there was nothing for Venduct to enforce its own costs order against.
The Court went further and pointed out that any type of settlement which does not provide for an order for damages will maintain the protection of QOCS. It cited Part 36 settlements as an example. I confess my surprise to the Court's reasoning here, namely that the exclusion of such settlements was by design rather than any error or omission in the drafting of the rules and that the ability of a successful defendant to recover its costs was to be determined solely by the terms of any settlement between the claimant and the unsuccessful defendant.
To illustrate this, let's take a closer look at a settlement under Part 36. Take this example -
A claimant issues proceedings against two defendants, A and B. The claimant accepts a Part 36 offer of £100,000 from defendant A, and discontinues his claim against defendant B, who has incurred £40,000 by way of costs.
Given the Court of Appeal's judgment, B cannot recover its costs from the £100k the claimant has recovered from A because a settlement under Part 36 does not give rise to any order for payment of those damages.
However, let's look at a slight variation on the above example. If defendant A fails to pay the £100k within 14 days then CPR 36.14(7) permits the claimant to apply for judgment for the unpaid sum. Undoubtedly, that then gives rise to an order for payment, which would then appear to open the door for defendant B to enforce it costs.
Why would the rules have been drafted in a way that is detrimental to the claimant simply because a defendant has failed to pay the due damages?
What about a situation where neither defendant A nor B make any offers, causing the claimant to run his case to trial where he is successful against A but not B. Why should he be penalised by having to pay B's costs in such circumstances?
True it is that there may be an opportunity for the claimant to seek a Sanderson or Bullock order but, absent that, he appears to be in a far worse due to A's failure to offer to settle.
It strikes me that the answer to these anomalies is simple - it really cannot have been the intention of the draftsman for the rules to operate in such wildly differing ways. Surely, the intention of the rules is to maintain the starting positon that a successful defendant is able to recover its costs, subject only to them being capped to any damages and interest recovered elsewhere in the claim.
So what does this all mean?
One can only admire the ingenuity of the argument deployed, the effect of which enables a claimant to escape a potential costs liability by carefully choosing the terms of settlement with the unsuccessful defendant in a multi-defendant action.
Absent any amendments to the rules we now have a binding decision that will in all likelihood lead to satellite litigation in multi-defendant matters - woe betide the solicitor who settles his or her client's claim in a way that provides for an order for the payment of the damages (until now, I would suggest that covers the majority of settlements). In doing so, the door would appear wide open to a potential negligence action.
What about defendants - how should they go about settling matters, particularly if common insurers are behind those defendants? Do they collude to ensure that none of them settle in a way that deprives the others from recovering their costs?
How does the decision apply to matters where the defendants are sued jointly, as opposed to severally - there are fundamental differences between the two and how the CPR applies to them.
One thing is certain - this decision has to be given careful consideration before embarking upon any kind of settlement in multi-defendant matters.
There was an interesting post script the judgment, one that is not mentioned in the transcript - Gordon Exall's excellent blog here points out that Venduct was able to set-off its liability for the costs of the appeal against the costs order in its favour in the substantive action. That brings into play the ability to set-off costs against costs notwithstanding QOCS but that is a topic for another day!
Finally, a bit of self-promotion. One of my specialisms is the formulation and impact of Part 36 offers. If you need any advice on the same, then please do get in touch here.
