In this piece we discuss what is to be referred to as ‘The Cartwright Exception’. This strategy is likely to be of serious interest to defendants and their insurers when settling cases where costs orders have been made against a claimant.
In Jeffrey Cartwright v Venduct Engineering Ltd  EWCA Civ 1654 the Court of Appeal has upheld a decision of a Regional Costs Judge, setting out how a successful defendant may enforce costs against a claimant’s damages obtained from another defendant. However, if a case is settled by Tomlin Order or by accepting Part 36 offer, co-defendant’s cannot enforce their cost orders, as those forms of settlement are not court ‘orders’, for the purpose of CPR 44.14.
A ‘Tomlin order’ is a particular type of consent order, created by the Learned Tomlin J in Practice note  W.N. 290, which allows parties to settle a matter by filing a consent order with a schedule. The consent order is in effect the court order. However, the schedule is not within the court’s order and so cannot be directly enforced. Rather a party must apply to the court for permission to enforce the terms of the schedule as discussed by the Privy Council in Horizon Technologies International Ltd v Lucky Wealth Consultants Ltd  UKPC 36.
Qualified One-Way Costs Shifting (QOCS) was introduced over five years ago as part of the Jackson reforms, preventing successful defendants in personal injury claims from enforcing costs orders except in clearly defined circumstances. In particular defendants can enforce costs orders up to the limit of any damages a claimant receives, in effect reducing what a defendant may have to pay out.
In Cartwright the outcome rested on the interpretation of CPR rule 44.14(1) and what is meant by ‘orders for damages and interest made in favour of the claimant’. This provision enables a ‘winning’ defendant to enforce costs against claimant’s damages. However, it was held that in a case settled by a Tomlin order, it would be wrong to apply, what has been called a ‘liberal interpretation’. The Court of Appeal concluded that the rule should not cover all the circumstances in which a claimant recovers something from a defendant.
On 19 November 2015 the claimant issued proceedings against six defendants for noise induced hearing loss (NIHL). Venduct Engineering (D3) accepted that it was responsible for any liability established against D1 and D2 and the claimant therefore discontinued the claims against D1 and D2 by consent.
A preliminary trial to deal with limitation was fixed for 18 January 2017, but the claimant compromised its claim against the D4 – D6 on 12 December 2016, by way of Tomlin order. All further proceedings against D4 - D6 were stayed, aside from carrying out the settlement terms.
The schedule for the terms of settlement stated as follows:
“The claimant do accept the sum of £20,000 in full and final settlement of his cause of action against the fourth, fifth and sixth defendant, inclusive of general damages, special damages, costs of the action, interest, and CRU.”
Shortly before the terms of the Tomlin order were agreed, the claimant served a notice of discontinuance for the claim against Venduct. Following this, Venduct sought costs in the sum of £8,000 to be paid from the £20,000 that had been paid by D4 – D6 to the claimant in damages.
The claimant argued that it had the protection of QOCS and therefore one defendant could not take advantage of damages paid by another defendant. Furthermore, the damages had been paid by a Tomlin order, which was essentially a contractual agreement and there was therefore no ‘order for damages and interest made in favour of the claimant’.
The County Court decision
Regional Costs Judge Hale sitting in the Nottingham County Court, held that the claimant’s entitlement to damages arose by agreement, embodied in a Tomlin Order, and not through a court ‘order’ for damages, following the principle that although a Tomlin order is enforceable before the court, the schedule is not an order of the court (see Horizon). However, Hale J. did determine that if the court had made an appropriate order, a successful defendant could recover costs from damages paid by another defendant.
Venduct appealed against the Tomlin order point and it was leapfrogged straight to the Court of Appeal. The claimant sought to uphold the previous decision and also to argue that the Hale J. was wrong to find that one defendant could recover costs from damages paid by another defendant.
The Court of Appeal decision
The Court of Appeal upheld Hale J.’s original decision, describing it as ‘impressive’.
Issue 1: the general principle
It was determined that there was no reason why one defendant should not be allowed to take advantage of sums paid to the claimant by another defendant. The Court rules that the QOCS regime was introduced to ensure a claimant does not incur a net liability as a result of a personal injury claim and at worst a claimant should ‘break even’. 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. It therefore makes sense for the claimant to have some possibility of a liability for costs where damages have been obtained. The court gave the claimant’s argument that the existence of multiple defendants created multiple proceedings for the purposes of QOCS short shrift.
Issue 2: Tomlin order and QOCS rules
In delivering judgment, Coulson LJ, Deputy Head of Civil Justice, refused to entertain what was termed ‘the defendant’s invitation to ‘rewrite’ CPR 44.14’. It was made clear that the wording of the provision, fortified by the express requirement that enforcement must be made against an order made by the court, did not include either Tomlin Orders or an accepted Part 36 offer.
In determining that there was no lacuna or oversight in the outcome created by the Civil Procedure Rules, it was emphasised that any potential issue as to amendment of the C.P.R. was a matter for the government and the Rules Committee and not the Court of Appeal.
What this means for you
The Court of Appeal has ruled that a defendant can obtain costs from a claimant’s damages even when those damages are paid by another defendant. However, in relation to the Tomlin order and QOCS exception issue, this will undoubtedly enable claimants to rely on Tomlin Orders as a way to avoid the QOCS exception in CPR 44.14(1). This will result in claimants continuing with QOCS protection with no liability for adverse costs.
In order to avoid claimant’s side stepping adverse costs orders 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. On an individual case basis, defendants and their insurers may have no interest in assisting rival defendants to recover costs. However, the bigger picture is a longer term view where all insurers will at some point potentially benefit from recovering costs and this tactic will serve as a deterrent to claimant lawyers to pursing claims against multiple defendants with no merit. With that in mind it will be wise for settlement tactics to be discussed between defendants before any final settlement is reached in most disease cases involving multiple defendants.
This decision is likely to make Part 36 offers more appealing to claimants where a defendant has interim costs orders in its favour. The judgment has not addressed whether a claimant accepting a Part 36 offer out of time falls within or without the scope of a r. 44.14 ‘order’ and this poses the question of whether a defendant can enforce its costs within such a settlement.
This result should also be an alert to defendants and their insurers of the value of Calderbank offers rather than Part 36 offers, as those are settled by way of consent order and fall within what is being called the Cartwright Exception.
BLM is currently exploring with its insurer clients the best methods of protecting their interests when offsetting costs orders against claimant’s damages. If you have any questions regarding this feel free to contact Adam Burrell, Nick Pargeter, or Marie Ingoe.