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England and Wales High Court (King's Bench Division) Decisions
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Cite as:  EWHC 3147 (KB)
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KING'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| Mr Aidan Chappell
|- and -
|Mr Bartlomiej Mrozek
Nicholas Bacon KC (instructed by DWF Law LLP) for the Defendant
Hearing dates: 30th September 2022
Crown Copyright ©
Master Stevens :
Case law precedent
i) The recent Court of Appeal decision in Cartwright and Supreme Court decision in Adelekun are both binding upon this court and I must therefore resist any temptation to draft an order permitting the defendant to enforce the claimant's agreed adverse costs liability against his settlement sum.
Correct interpretation of CPR Parts 36 and 44
ii) If I do not consider myself bound by case law, that I should not strain the clear wording of CPR 44.14 which only provides for enforcement of costs orders against claimants by way of set-off against "any orders for damages and interest made in favour of the claimant" to construe that such a set-off can apply equally against a "sum of money" tendered in a settlement offer under the CPR Part 36 regime. Such a "sum", it was submitted, reflects the commercial value a party has placed on resolving a dispute which is markedly different to a judicially determined award of damages supplemented by a judicial calculation of interest.
iii) I was taken to the rules whereby a written notice of acceptance under CPR Part 36.11, results in a stay of proceedings and automatic obligations on the offeror to pay the settlement sum in a specified timeframe. If there is a breach of those obligations, the claimant contended that whilst the offeree can apply to enter judgment for the unpaid sum under CPR 36.14 (7), the resultant court order is not an "order for damages and interest" for the reasons set out in the paragraph above, but is a completely different species of order, with a DNA more analagous to that of a Tomlin order.
Application of the overriding objective and Human Rights Act considerations
iv) As a matter of common sense and basic justice, the claimant submitted, it cannot be fair or right that a paying party is financially rewarded (by securing an order for damages and interest) against which it can enforce costs orders, only through the deliberate breach of an obligation imposed by the CPR to pay an agreed sum.
v) Furthermore, it was suggested that another case authority relied upon by the defendant, MRA v The Education Fellowship Limited ... aka Rushden Academy) EWHC 1069 (QB), involved discriminatory treatment of protected parties, and should therefore not be followed (i.e. by suggesting that cases requiring court approval of a settlement due to the vulnerability of a party should not involve the elevation of the resulting court order into one for damages and interest such that enforcement of adverse liabilities could apply through the set-off mechanism).
No binding case authority
i) It was submitted that the ratio decidendi relied upon by the claimant in the leading cases of Cartwright and Adelekun does not assist him in avoiding an enforceable set-off of adverse costs against his damages.
Appropriate purposive construction of the CPR in the light of stated Government policy intentions
ii) The defendant was also at pains to contend that the correct interpretation of CPR 44.14 requires not simply reading the words, " .. an order for damages" without applying any purposive construction to those words, which takes account of both the statutory purpose of the relevant civil procedure rules and the context within which those few words are situated. Part 36 acceptances are, it was submitted, quite naturally orders for damages, as are judgments for the unpaid sum under CPR 36.14 (7), such that costs orders in the defendant's favour can be offset against damages under QOCS rules.
iii) The defendant also reminded me that the procedural reforms introduced in 2013 were designed to incentivise settlement in personal injury cases, such incentivisation being lost, it was submitted, if on the claimant's interpretation of the rules, they can delay accepting reasonable settlement offers without adverse consequences; such behaviour, it was argued, puts defendants to the expense of further case preparation without any redress and is a waste of court resource which cannot be the intention or purpose of either Part 36 or Part 44.14. The defendant also asserted such an interpretation renders the making of offers futile unless claims go all the way to trial, which is rare in injury litigation.
Making orders which are just in the light of the overriding objective
iv) The position the defendant finds itself in, on the facts of this case it was further submitted, if the court accepts the claimant's interpretation of the CPR, is one that " any even-handed bystander would consider ..most unjust and unfair". That situation was described as one whereby they are required to hand over £250,000 damages without any set-off for the further 20 months' work incurred by them in defending the claim after their offer was made, such costs being in the region of £152,000 to the date of acceptance, and continuing to accrue to the time of the hearing.
v) I was encouraged to find a way through the current impasse, by being reminded that the court can make an order for damages now under CPR 36.14 (7), or indeed under the court's inherent jurisdiction and/or case management powers pursuant to CPR 3.1 (2)(m) which states that the court may:
" take any other step or make any other order for the purpose of managing the case and furthering the overriding objective, including hearing an Early Neutral Evaluation with the aim of helping the parties settle the case".
THE POLICY-MAKING BACKGROUND BEHIND QOCS
"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."
As Coulson LJ observed in Cartwright v Venduct Engineering Limited  EWCA Civ 1654 ("Cartwright") at , it "seems to have become an almost compulsory detour in disputes about the costs sections of the CPR,…(to go) to various elements of the preparatory materials leading up to CPR rr 44.13-44.17 coming into force", before a conclusion can be reached on the correct interpretation.
Sir Rupert Jackson's Review of Civil Litigation Costs 2009 ("the Review")
The Government's Response to the Review presented to Parliament in March 2011 ("the Response")
Government consultation on changes to QOCS May 2022
My conclusions on the policy background
THE RELEVANT CASE LAW
Cartwright v Venduct Engineering Limited  EWCA Civ 1654 ("Cartwright")
i) Whether the third defendant could enforce its costs order from sums payable to the claimant as damages and interest from another defendant
ii) If the answer to issue i) above is "yes" whether enforcement was still possible under the QOCS provisions where sums due to the claimant were payable by way of Tomlin order rather than a direct order of the court for damages.
i) Nothing in CPR r 44.14 (1) prevented Venduct from enforcing its costs order out of the damages and interest payable to the claimant from other defendants to the claim (this finding is included for contextual completeness but is not strictly relevant to the issues before me).
ii) A Tomlin order was a record of settlement and not an "order for damages and interest made in favour of the claimant" within the meaning of CPR r 44.14 (1) such that Venduct's order for costs could not be satisfied from the sums paid by others pursuant to the Tomlin order.
The claimant's submissions
44. These authorities make it clear that 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 rule 44.14(1).
45.Mr Williams pointed out that, although the schedule to a Tomlin order is not part of the original order, if one or other party does not comply with the terms in the schedule, the court can eventually enforce those terms pursuant to the words of the Tomlin order itself. Thus, he said, even if not at the outset, the schedule to a Tomlin order may eventually be enforced by order of the court.
46.That is right as far as it goes, but it does not get around the fact that this is not what rule 44.14(1) is referring to. In order to allow for this, Mr Williams had to rewrite the rule to refer to "a sum payable by way of damages which is compellable by court order". That is not what the rule says. Indeed, no matter how he put his case, Mr Williams needed to add further words to rule 44.14(10. At the very least, on his case, the rule would have to refer, not only to an order, but to an agreed settlement. In my view, the absence of the necessary words is fatal to his case on interpretation.
The defendant's submissions
"Statements which are not necessary to the decision, which go beyond the occasion and lay down a rule that is unnecessary for the purpose in hand are generally termed "dicta"; they have no binding authority on another court, but they may have some persuasive efficacy".
My conclusions on the correct interpretation of Cartwright
i) The fundamental principles underlying QOCS
Whilst Coulson LJ considered this point in relation to issue one before the court (see paragraph 26 i) above), it is relevant to his findings on issue two and to this case. At paragraph 23 he said, " The QWOCS regime is designed to ensure that a claimant does 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….But there is no reason why that regime should prevent B from its costs out of the damages payable by A". After considering Sir Rupert Jackson's recommendations contained in the Review at paragraph 31 and the need to provide incentives for claimants to accept reasonable offers, at paragraph 32 he noted that one-way cost shifting "requires a claimant, in the appropriate case, to pay to a successful defendant the amount of a costs order made in favour of that defendant, out of the sums payable by way of damages and interest to the claimant..". He further noted at paragraph 30 that the final QWOCS rules were substantially different to those proposed by Sir Rupert and that the Explanatory Memorandum "was technically incorrect when it talked about set off, an error now corrected by the Court of Appeal in Howe v Motor Insurers' Bureau (No 2)".
ii) The appropriate technical construction of the CPR wording "any orders for damages and interest made in favour of a claimant" and its implication for forms of order not containing those words
Having set out why it is good and well-established policy that defendants should be able to set off costs orders, the court turned to consider types of order which might fall outside the rules. The tenor of the judgment is one where it is seen as regrettable, against the policy background, if claimants are able to carve out exceptions to the rules to avoid liabilities. The defendant in Cartwright had submitted " it would be absurd if a claimant was liable to meet a defendant's costs order if the damages and interest were the subject of a simple court order, but not so liable if they were the subject of a Tomlin order. He said that would elevate form over function and could not be what the rules intended". The court noted that an essential component of a Tomlin order is the schedule which is not a court order, but an agreement of the parties (at paragraph 41).
At paragraph 44 it was clearly set out that a record of settlement reached between parties and intended to be of binding effect is not an order for damages and interest. Furthermore, "Such acceptance does not require any order from the court". The practical difficulties of a court trying to identify sums agreed by way of damages and interest, "(which may not be expressly identified in the schedule…..may explain why settlements are not part of the QOWCS rules" was also mentioned at paragraph 40. It is noteworthy that the latter point impliedly accepts that, on occasion, a schedule may dissect damages from interest, but would not necessarily do so. I mention this because counsel for the defendant spent some time taking me to clauses in CPR 36 concerning provisional damages where acceptance of a Part 36 offer requires damages to be specified as well as interest, such that some of the issues in this case over the definition in CPR 44.14 fall away. However, this is not a provisional damages case, so just as Coulson LJ had to ignore the fact that some schedules to Tomlin orders may specify damages, rather than a globalised settlement sum, to focus on the specifics of the case before the Court of Appeal, so do I in reaching my determination. All of the points noted in the judgment on the issue of orders which reflect a settlement, rather than a matter on which a court has tried the issues, whether expressly by analogy to Part 36 settlements or not, would apply to the Part 36 settlement before me, by their very reasoning. The fact that Part 36 is referenced at paragraph 44 is illustrative of the nub of the problem, when considering the difficulty for the court in permitting enforcement of terms under Part 44.14, where those terms have been negotiated by the parties directly, and do not contain the precision of a judgment which identifies specific heads of damage.
iii) How the words, "any orders for damages and interest made" could be construed to include Tomlin orders or settlement agreements.
The court rejected submissions that the addition of wording, (whether implied or express) in CPR 44.14(1)to include, "a sum payable by way of damages which is compellable by court order", would fulfil the original purpose of the rule and indeed encompass Tomlin orders as well. A conclusion was reached at paragraph 46 "At the very least,…the rule would have to refer, not only to an order, but to an agreed settlement". Once again, the line of reasoning, even though it did not reference Part 36, would naturally encompass it.
iv) Whether the choice of wording in the QOCS rules was an oversight by the CPRC when drafting policy intentions, such that an improved purposive construction can now be adopted.
Coulson LJ was particularly concerned about the practical implications of allowing an expanded construction of the rule, as sought, which would cover "Tomlin orders, or out-of-court settlements" at paragraph 47. He referred to the fact that a judge does not expressly approve the terms of such an order and discussed at paragraph 48 that in some settlements the component parts are never articulated, such that the court could not identify the relevant figures for damages and interest. The practical difficulties of interpreting the rule more widely to incorporate settlements were stated at paragraph 50 to be far too numerous, absent more detailed guidance, for the courts to apply it. I consider it helpful to set out that concluding paragraph in full, with my own emphasis highlighted in bold; " It is these practical difficulties which have confirmed my view that Mr William's liberal interpretation of rule 44.14 (1) is wrong. Essentially, he has to argue that the CPRC intended that the rule should cover any circumstances in which a claimant recovers something, by whatever means, from a defendant. But not only does the rule not say that, but if that is what was intended, the rule would have needed to contain much fuller guidance as to what should happen to settlements and Tomlin orders: whether they were to remain confidential; the circumstances in which confidentiality would be removed; the way in which any global sum was to be apportioned, and so forth. In the absence of that sort of guidance, it cannot be said that this is a situation which the rules were intended to cover. So, 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".
Adelekun v Ho (Association of Personal Injury Lawyers intervening)  UKSC 43
In the Court of Appeal
In the Supreme Court
The defendant's submissions
The claimant's submissions
My conclusions on the correct interpretation of Adelekun
i) The fundamental principles underlying QOCS
The judgment commences with a review of the "inherent inequality of arms between claimants and defendants in personal injury claims and the evolution of procedural schemes to try and ameliorate the situation. At paragraph 4 the Supreme Court made plain that a court is in no way restrained from making any type of costs order it considers appropriate by the advent of QOCS, but enforcement of such orders is constrained by the rules. The judgment is permeated by references to the strict wording of the QOCS rules as being determinative of the approach towards enforcement of costs orders rather than any other source, even where this may produce unpalatable results. So at paragraph 37 it was held, " ..we would accept that QOCS is intended to be a complete code about what a defendant in a PI case can do with costs orders obtained against the claimant". And at paragraph 45, " No one has claimed that the QOCS regime is perfect. It is, however, the best solution so far that the opposing sides in the ongoing debate between claimant solicitors and defendant insurers have been able to devise. It works to achieve the aims for which it was introduced in the great majority of straightforward cases in which one side or the other is entirely successful".
ii) The interaction between CPR 36 and CPR 44
On the specific point about the interaction between Part 36 and QOCS, and whether QOCS constrains a set off, the court expressly recognised at paragraph 7 that there "are at least three types of case where it may be critical. They went on to describe one of these types of case as "where the claimant succeeds, but by way of settlement rather than at trial. In such a case there is no court order for damages or interest, even if the settlement agreement is annexed to a Tomlin order, and therefore no headroom below the cap available under QOCS for the defendant's costs enforcement" and went on to cite Cartwright. Having recognised the issue, the court proceeded to determine it, having regard at paragraph 31 to "the decision in Cartwright…that damages and interest payable under a settlement did not count for the purposes of rule 44.14 (1)". There was no discussion or finding that Cartwright had been decided wrongly, or was confined to a Tomlin order only case, even though the opportunity was there and the situation in that case was one of importance in setting the foundation for the ruling in Adelekun. In this, my interpretation accords with that of the claimant in this case.
iii) Policy intention and the overriding objective
At paragraph 9 the court had acknowledged "this court must decide the question of construction, leaving it to the CPRC to consider whether our interpretation best reflects the purposes of QOCS and the overriding objective, and to amend the relevant rule if, in their view, it does not." Further, at paragraph 31 within its analysis, the court dealt with the respondent's submissions as summarised at paragraph 30, that in a case where there has been no court order for damages, by following a purist interpretation of CPR 44.14 the court "would be giving a green light to the pursuit by claimants of weak interim applications and unmeritorious points. It would also remove any real incentive to settle before trial, if the adverse costs consequences of losing at trial (or failing to beat a part 36 offer) led to a purely unenforceable costs sanction." At paragraph 31 the court held " it is not necessary or appropriate to describe or examine those policy considerations in detail. First, as already emphasised, this court is not well placed to assess them reliably. If the true construction of the QOCs scheme … has adverse policy consequences, that is a matter for the CPRC to put right."
MRA v The Education Fellowship Board  EWHC 1069 "MRA"
- The headnote clearly states that "the parties had not agreed who should pay costs after its expiry, the court had to decide whether it would be unjust to order the Claimant to pay costs after expiry". CPR Part 36.13 (5) contains clear provisions about how the parties should approach the court to determine a costs order if they cannot reach agreement themselves. That is not the situation in the case before me.
- At paragraph 40 there was a brief reference to argument between the parties that had the claimant not been a minor or lacking in capacity, the court would not need to have approved damages and would not necessarily have been exposed to the QOCS risk of set-off of any costs order against such damages. Whilst counsel for the claimant suggested a form of wording that might avoid a QOCS set-off arising "It was generally agreed between counsel that perhaps this aspect of argument was not one which needed at this stage to be considered further".
- At paragraph 65 under the heading "Decision", the Master clearly stated, " I am not here going to decide the effectively "parked" argument……to the effect that there were differences in treatment of protected parties versus non-protected parties which rendered them more exposed to the situation here under QOCS. This was not fully argued before me…".
- As a matter of pure precedent I am not bound by the decision in any event.
Terms of my Order
Note 1 CPRC Minutes 2.11.12 at paragraph 6, “The Chair reported that whilst discussions were continuing a letter had been received from APIL pointing out that the drafts had departed from the Written Ministerial Statement (WMS), and asking what instructions the Committee had received from the MoJ. A response had been sent indicating that the drafts were a work in progress to be finalised. A similar point had been made in a letter from the President of the Law Society which noted that the draft rules had departed from the WMS in two respects. The President did not have the current draft but raised two points based on a previous draft:
(1) “the current drafting of the rule does not introduce one way costs shifting as envisaged by Lord Justice Jackson, or indeed the Government statement. The draft now appears to maintain the two way costs shifting rule for unsuccessful claimants but with a provision that the costs can only be enforced with the leave of the court…” and
(2) “the stated government policy was that any set off of costs (for example because of a claimant failing to beat a Part 36 offer) would be limited to the amount of damages only. We understand that the draft rule provides that all costs orders during the case (e.g. interlocutory hearings) will be set off against each other and against any final costs orders at the end of the case.”
The Chair posited that at the time of writing both points were relevant, particularly as the WMS not fully expressed the Part 36 set off position, but that the policy had since been resolved and the issues dealt with in subsequent drafts. William Featherby confirmed that the WMS had not addressed all aspects of the Part 36 set off position particularly the whether it was set-offable and that the second point was a matter of government policy.” [Back]
Note 1 CPRC Minutes 2.11.12 at paragraph 6, “The Chair reported that whilst discussions were continuing a letter had been received from APIL pointing out that the drafts had departed from the Written Ministerial Statement (WMS), and asking what instructions the Committee had received from the MoJ. A response had been sent indicating that the drafts were a work in progress to be finalised. A similar point had been made in a letter from the President of the Law Society which noted that the draft rules had departed from the WMS in two respects. The President did not have the current draft but raised two points based on a previous draft: (1) “the current drafting of the rule does not introduce one way costs shifting as envisaged by Lord Justice Jackson, or indeed the Government statement. The draft now appears to maintain the two way costs shifting rule for unsuccessful claimants but with a provision that the costs can only be enforced with the leave of the court…” and (2) “the stated government policy was that any set off of costs (for example because of a claimant failing to beat a Part 36 offer) would be limited to the amount of damages only. We understand that the draft rule provides that all costs orders during the case (e.g. interlocutory hearings) will be set off against each other and against any final costs orders at the end of the case.” The Chair posited that at the time of writing both points were relevant, particularly as the WMS not fully expressed the Part 36 set off position, but that the policy had since been resolved and the issues dealt with in subsequent drafts. William Featherby confirmed that the WMS had not addressed all aspects of the Part 36 set off position particularly the whether it was set-offable and that the second point was a matter of government policy.” [Back]