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QOCS: refusal of permission to appeal suggests parties counterclaiming for personal injuries may be able to escape costs liabilities

Steven Dawson and David Brown look at the recent QOCS case of Ketchion v McEwan (2018) and the implications for defendants.

Summary

HHJ Freedman sitting in the Newcastle County Court was recently asked to determine whether an unsuccessful defendant in a road traffic accident claim, who also failed to succeed in his Part 20 claim for damages for personal injuries, was nevertheless entitled to the benefit of Qualified One Way Costs Shifting (“QOCS”) to avoid paying the successful claimant's costs of the main action.

In upholding a decision at made by Deputy District Judge Thorn at the conclusion of a fast-track trial, and refusing permission to appeal, HHJ Freedman found that QOCS applied – leaving the successful claimant unable to recover his costs of the claim.

The decision, if correct, highlights the potentially far reaching costs consequences which might arise in the common situation whereby defendants, including individuals represented by firms acting principally on instructions for insurers in defence of high-value injury claims, decide to pursue their own injury claims by counterclaim.

Facts

The claimant brought proceedings for financial losses but did not bring a claim for damages for personal injuries.  The defendant brought a Part 20 claim for damages for personal injuries and so became the Part 20 claimant in the usual way.

The claimant succeeded in his claim in full, obtaining judgment for £7,674.24. The defendant/Part 20 claimant's own claim was unsuccessful.  Although the claimant was entitled to an order for costs of both the main action and of the Part 20 claim, the trial judge ruled that none of those costs could be enforced without the permission of the court by virtue of QOCS. The claimant sought permission to appeal.

QOCS

CPR 44.13 provides as follows (the key provisions are underlined):

(1) This section applies to proceedings which include a claim for damages

      (a) for personal injuries;

 (2) In this section ‘claimant’ means a person bringing a claim to which this section applies… and includes a person making a counterclaim or an additional claim

CPR 44.14(1) also states:

(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.

In the present case, it was found that none of the exceptions to QOCS set out at CPR 44.15 and 44.16 applied.  

First instance decision

The claimant accepted that QOCS applied to protect his opponent, the defendant/Part 20 claimant, from an adverse costs liability in bringing his own personal injury claim; but argued that such protection did not extend to shield that counterclaiming defendant from a liability for the successful claimant's costs in the main action.

Deputy District Judge Thorn held that QOCS applied to both aspects, a decision which rested upon the interpretation of "proceedings" in CPR 44.13; in particular, a finding that it should be taken to include the whole of the proceedings, encompassing both the claim and Part 20 claim.

Whilst it was acknowledged that the QOCS scheme may not have been intended to cover a situation such as this, so as to prevent a successful claimant from recovering his or her costs, the Deputy District Judge was constrained by the rules to find against the claimant.

Permission to appeal

In a short decision, refusing the claimant's request for permission to appeal, HHJ Freedman accepted that the counterclaiming defendant in this case had the full protection of QOCS, both in respect of the main action and the costs arising out of his Part 20 counterclaim. In light of the Court of Appeal decision in Cartwright v Venduct Engineering Limited (2018), the term, "proceedings" should be read widely and the claim and counterclaim should not be viewed separately when determining whether a counterclaiming defendant should have QOCS protection in one but not the other part of the proceedings.

By reference to the Cartwright decision which concerned QOCS protection for personal injury claimants pursuing multiple defendants in a single set of proceedings, HHJ Freedman accepted "without hesitation" that it would be "patently absurd and illogical if the word proceedings were deemed to cover all of the claims brought against six separate defendants, but not a claim and Part 20 claim, both of which arise out of the same accident and are joined in one action". 

HHJ Freedman acknowledged that such an outcome may appear "unjust", so that by bringing a Part 20 claim a defendant could avoid payment of costs in the main action, but on HHJ Freedman's analysis that was an "inevitable" result of the wording of the Rules.  

Comment

The Ketchion decision is an interesting illustration of the problems thrown up by a QOCS scheme with a clear legislative aim but with rules which leave scope for arguments upon the 'proper' interpretation of them where there are still relatively few decided authorities. It should though be recognised that as a judgment on an application for permission to appeal, under the Practice Direction (Citation of Authorities) 2001 it does not amount to binding authority.

It is notable that both sides in Ketchion drew support for their competing interpretations from the principal Court of Appeal authorities, Wagenaar v Weekend Travel Ltd (2014), and Cartwright.

In particular, the argument focused upon the question of whether those decisions supported a "narrow" or "broad" interpretation of the term "proceedings", in order to decide whether QOCS should properly apply to the entirety of the action, or to the Part 20 claimant's personal injury claim only. HHJ Freedman felt constrained to follow the latter approach: "In my judgment, therefore, the proper interpretation of CPR 44.13 is that the reference to proceedings is to both the claim and the counterclaim; and that since it is expressly stated that a claimant includes a person who brings a counterclaim/additional claim, it follows that the defendant/Part 20 claimant has the protection of QOCS". 

It is surprising, however, that despite the "careful analysis' of the Cartwright judgment said to have been undertaken (in light of which, HHJ Freedman's earlier decision in Bowman v Norfran Aluminium Ltd (2017) must now be considered to be wrong), that little attempt appears to have been made either to expressly acknowledge (other than in a brief recital of the claimant's "general observations") nor to reconcile the literal interpretation of the rules with the purpose of the QOCS scheme.

HHJ Freedman appears to have believed that his finding was no more or less than a "logical" application of the Court of Appeal decision in Cartwright to an alternative, though relatively common, set of facts. A number of distinctions however can be drawn between the facts and reasoning in Ketchion and the earlier authorities, when attempting to deduce the proper scope of the QOCS scheme; and it should be expected that claimants' representatives will continue to attempt to do so.

Readers may find it useful to reflect upon the leading judgment given by Lord Justice Voss in Wagenaar, paragraphs 35-45 (recited by Coulson LJ in Cartwright) through the lens of this recent county court decision in Ketchion as set out below in which the key parts are again underlined:

"Suffice it to say that the rationale for QOCS that Sir Rupert Jackson expressed in those sections came through loud and clear. It was that QOCS was a way of protecting those who had suffered injuries from the risk of facing adverse costs orders obtained by insured or self-insured parties or well-funded defendants….

Against that background, the first and fundamental issue is as to the correct construction of CPR Rules 44.13 to 44.17. It is here that, in my judgment, the judge fell into error. His starting point seems to have been a search for an applicable definition of the word "proceedings" in CPR Rule 44.13….

It is true, however, that the word "proceedings" in CPR Rule 44.13 is a wide word which could, in theory, include the entire umbrella of the litigation in which commercial parties dispute responsibility for the payment of personal injury damages. I do not think that would be an appropriate construction. Instead, I think the word "proceedings" in CPR Part 44.13 was used because the QOCS regime is intended to catch claims for damages for personal injuries, where other claims are made in addition by the same claimant. ….

In my judgment, CPR Rule 44.13 is applying QOCS to a single claim against a defendant or defendants, which includes a claim for damages for personal injuries or the other claims specified in CPR Rule 44.13(1)(b) and (c), but may also have other claims brought by the same claimant within that single claim. ….. CPR Rule 44.13 is not applying QOCS to the entire action in which any such claim for damages for personal injuries or the other claims specified in CPR Rule 44.13(1)(b) and (c) is made.

Voss LJ was referring in those sections of the judgment to circumstances in which 'mixed claims', for both personal injury and for other types of damages or remedies are made (a situation later considered by the Court of Appeal in Commissioner of Police of the Metropolis v Brown (2018) which we looked at in this update), but the point remains that whilst the broad language of the rules may logically sustain a wide, all-encompassing QOCS scheme, capable of capturing a range of distinct claims pursued within a single set of proceedings, that would not be consistent with the rationale of the rules, as can be seen on Voss LJ's analysis.

Looking ahead

The consequences of the decision of HHJ Freedman, if correct, would be extremely serious: a successful claimant, potentially with a high value personal injury claim, would be unable to recover his or her costs against a counterclaiming defendant who was also pursuing a claim for damages for personal injuries, even if the counterclaim were comparatively very small. While the judgment is not by itself binding as a result of the position set out in the PD, the judgment of the DDJ might be of some value and of course the argument behind it could be run in other claims. It remains to be seen to what extent the argument as presented in Ketchion will be used more widely and whether it will be tested at a higher level; and if so, whether HHJ Freedman's assessment of where the "patent absurdity" lies will find support elsewhere.

One interesting factor about this case is that at no point within the judgment are details of the costs order provided. It would not be unusual in the circumstances of this case for the defendant to be ordered to pay the claimant's costs of the action. If this was the case then there is an argument that in accordance with Part 44.14(1) no "order for costs" has been "made against a claimant" and therefore the QOCS provisions do not apply. This argument appears not to have been put.

In any event it would be open to a claimant faced with similar circumstances to either issue proceedings against or to bring into proceedings the defendant's insurer and so circumventing these arguments given that the insurer would not be able to put forward a counterclaim for personal injuries.

It therefore the view of the writers of this article that the argument accepted by the judgment is either unlikely to be upheld on any appeal to the Court of Appeal and further that even if the Court of Appeal was to uphold that argument it would be open to and would indeed become the practice that claimants would bring the defendant's insurer into the proceedings thus negating the judgment's effect.

For the sake of completeness it should be noted that it is open to the court to find in appropriate cases that a failed counterclaim was, pursuant to Part 44.15, struck out on the basis that the Part 20 claimant disclosed no reasonable grounds for bringing the counterclaim, that the counterclaim was an abuse of process or that the Part 20 claimant's conduct was likely to obstruct the just disposal of proceedings. In any of these scenarios the claimant would be free to enforce an order for costs.

Therefore it appears that it is "business as usual" in this arena: that is to say that if there is a genuine counterclaim that would have been presented prior to the handing down of this judgment then it should still be presented. In turn, insurers should not expect to gain from presenting counterclaims on every case as a matter of routine in order to attempt to fit the circumstances of the Ketchion claim.

 

Contact

For further information, please contact Steven Dawson on 0113 261 6118 or Steven.Dawson@dwf.law or David Brown, Associate on +44 20 7220 5225 or at David.Brown2@dwf.law to discuss this further.

By Steven Dawson and David Brown

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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