Part 1: Qualified One-way Costs Shifting and Counterclaiming Defendants

Qualified One-way Costs Shifting and Counterclaiming Defendants – Part One: On the view of HHJ Freedman CPR r. 44.13 is broad enough to cover the costs of proceedings as a whole

Christopher McClure explores another interesting development in the applicability of QOCS following the decision of HHJ Freedman in Ketchion v McEwan (C87YJ176, Newcastle-upon-Tyne, 28 June 2018).

Readers of our inaugural edition of COSTS will recall our article entitled ‘Qualified One-way- Costs Shifting and Multiple Defendants’ in which we examined the decision of the Court of Appeal in Cartwight v Venduct Engineering Limited [2018] EWCA Civ 1654. The implications of that decision may be summarised as follows:

• A successful defendant may enforce an award for costs in its favour against damages recovered by a claimant from an unsuccessful defendant;

• The extent to which a successful defendant may so enforce is limited by CPR 44.14(1) to ‘the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant’; and

• Settling against a liable defendant either by way of Tomlin Order or Part 36 acceptance will protect a claimant’s damages from exposure

Whereas the issue in Cartwright turned on the interpretation of CPR r. 44.14(1), the court in Ketchion was concerned with the interpretation of CPR r. 44.13, as stated:

“[I]s a defendant in a road traffic accident claim, who loses in the main action and, equally, is unsuccessful in his Part 20 claim for damages for personal injuries, entitled to the benefit of QOCS in relation to the costs of the main action, pursuant to CPR r. 44.13.”

To put the question another way: are defendants who bring a counterclaim/Part 20 claim which includes an element of personal injury (for the purposes of CPR r. 44.13(1)(a)) entitled to costs protection against the claimant’s costs of bringing the claim against them?

In answering this question in the affirmative, HHJ Freedman relied upon the decision in Cartwright to find that ‘proceedings’ for the purposes of r. 44.13(1) must be given a broad interpretation and thus construed to include, as a single set of proceedings, both a claim and counterclaim. It was accepted that, prior to Cartwright, it was “at least arguable that it would be possible to divide up proceedings into, on the one hand, a claim and, on the other, a Part 20 claim, i.e. two sets of proceedings [but that] in light of the decision in Cartwright […] proceedings must be given a wide definition.”

The court went onto say that:

“[T]he 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.”

Thus HHJ Freedman found that the term “proceedings” within the QOCS regime was broad enough to circumscribe into its ambit not only the claim and counterclaim, but also the defence to the claim (and presumably defending the counterclaim). Thus according to Ketchion counterclaiming defendants – who fail in both their defence and counterclaim – enjoy the benefit of QOCS protection in proceedings which involve an element of personal injury.

The immediate and obvious concern for claimants is that unscrupulous defendants may now seek to avail themselves of QOCS protection simply by bringing a counterclaim which includes an element of personal injury. The potential for injustice was acknowledged by HHJ Freedman in the following terms:

“Whilst, on one view, it may seem unjust that the defendant can avoid payment of costs in the main action, purely as a result of bringing Part 20 proceedings for damages for personal injuries, it seems to me that that is an inevitable result of the wording of CPR 44.13 and 44.14.”

Of course, claimant-centred concerns may, in principle, be allayed by reference to CPR rr. 44.15 and 44.16, i.e. where the (counter)claim is struck out or found on the balance of probabilities to be fundamentally dishonest, respectively.

Whilst this may be fine in principle, the practical application of the rules is, as ever, a different matter altogether and has, quite arguably, left claimants in something of an invidious position.

The thresholds for striking out a statement of case or achieving a finding of fundamental dishonesty are, of necessity, high and claimants who are confronted with counterclaims which include an element of personal injury must now expend costs investigating the merits of the same in the knowledge that such costs are unrecoverable in the likely event that, firstly, there is no strike out or finding of fundamental dishonesty; and secondly, that the claim succeeds at trial.

Please contact Christopher McClure to discuss any query relating to this article. Christopher is based at our Manchester office and can be contacted on 0161 835 4087. Alternatively, click the make an enquiry button to the right.