Costs Corner - obtaining costs from claimant damages paid by another defendant

Ever felt frustrated when you have been brought into proceedings unnecessarily and have no recourse to recover any costs when the claim fails? In particular this can be the case when the claimant proceeds to recover damages from another defendant as Director of Costs, Paul Edwards, explains.

QOCS

The introduction of Qualified One Way Costs Shifting (QOCS) meant that often, where a personal injury claim failed or was abandoned, there was little recourse for the defendant to recover the costs incurred. The big upside was, of course, the end to the recoverability of success fees and ATE premiums, so it made perfect commercial sense.

QOCS operates a regime where costs orders are still made in a successful defendant’s favour but they can only be enforced against the claimant up to the value of any damages recovered (save in circumstances such as fundamental dishonesty). 

Mind the gap

The gap, where a claim fails and the defendant has no way of accessing recovery of costs out of damages paid to another party, has now been addressed. However the practical position is far from straightforward and is potentially subject to abuse.

The issues were addressed in Cartwright v Venduct Engineering Ltd [2018] 4 Costs L0 495. The claimant issued proceedings against six defendants for noise induced hearing loss (NIHL). D3 accepted that it would be responsible for any liability established against D1 and D2. The claims against D1 and D2 were then subsequently discontinued by consent. Prior to trial the claimant compromised his claim against D4–D6 by way of Tomlin order, with the schedule containing the terms of settlement regarding damages and costs.

Shortly before the terms of the Tomlin order were agreed, the claimant served a notice of discontinuance for the claim against D3. D3 understandably sought recovery of its costs of £8,000 out of the £20,000 paid to the claimant by D4-D6.

The claimant argued that he had QOCS protection and therefore one defendant could not take advantage of damages paid by another. Furthermore, the damages had been agreed by a Tomlin Order, which was essentially a contractual agreement and there was no ‘order for damages and interest made in favour of the claimant’. Based on the terms of the settlement the court agreed with the claimant but it was determined that had an appropriate order been made then the successful defendant could have recovered costs from damages paid by another defendant.

Every cloud has a silver lining

The appeal failed, however the Court of Appeal decision provided useful guidance on how a defendant might be able to recover costs against a claimant’s damages obtained from another defendant. A claimant who has an order for damages and interest payable by Defendant A is liable to pay out of that amount any adverse costs orders in favour of Defendant B, but only up to the limit of the order for damages and interest payable by Defendant A. However, if a case is settled by Tomlin Order or by accepting a Part 36 offer, co-defendants cannot enforce their cost orders, as those forms of settlement are not court ‘orders’, for the purpose of CPR 44.14.

Bar the restriction in the rules it was held there was no reason why one defendant should not be allowed to take advantage of sums paid to the claimant by another defendant. It makes sense for the claimant to have some possibility of a liability for costs where damages have been obtained, because if a winning defendant was not able to obtain costs from the claimant’s damages (from a losing defendant) it could result in claimants issuing against a number of defendants unnecessarily with hopeless claims.

The guidance therefore established that, unless the Government revisits the wording of these provisions, a defendant can recover costs from a claimant’s damages paid by another defendant only where a relevant order has been made. This would be a consent order or an order made at trial. There is no ability as it stands to recover costs when a matter settles via Tomlin Order or Part 36.

Open to abuse

So whilst it creates an opening for the recovery of costs in certain scenarios, as is often the case, it is unfortunately not going to be easy. Indeed following the guidance in this case there is clearly scope for the position to be abused. Claimants will seek to settle via Tomlin Order or Part 36 rather than a more traditional consent order.

In order to avoid the side stepping of adverse costs orders by claimants against their damages it may be prudent for insurers and defendant solicitors to discuss with co-defendants before finalising a claim by way of Tomlin order or by accepting a Part 36 offer. There is obviously no obligation for defendants to do this but often a co-ordinated response may lead to a change in claimant solicitor behaviour, so that they stop issuing proceedings and then thinking they can abandon them without consequence when the claim is going to succeed.

The other practical difficulty is that once a defendant has left the proceedings there is no obligation on anyone to keep them informed as to progress. This means that in certain cases files will need to be kept open indefinitely with regular chase ups to co-defendants and claimant solicitors alike in the hope that when the case does settle they are advised. 

Hurdles

So, whilst confirmation of the theoretical ability to recover costs is to be welcomed, the existence of what is known as the ‘Cartwright Exception’ means that there are several practical hurdles to get over before costs can be recovered and claimants will adapt their tactics to take advantage. Indeed they may well be negligent if they don’t! It’s not all doom and gloom, however, as the case was undoubtedly useful and may lead to a gap in the rules being closed.