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QOCS and the spurious counterclaim
Published: 07/12/2018 | Costs, News, Personal Injury
By Amelia Highnam
The landscape of costs law for personal injury lawyers changed on 1 April 2013 with the introduction of Qualified One-Way Costs shifting (“QOCS”). The change was implemented by the introduction of Rules 44.13-17 in the Civil Procedure Rules. The consequences are that if a Defendant is unsuccessful in defending a claim then they will pay the Claimant’s costs. On the other hand, if the Defendant is successful in their defence then they must bear their own costs.
The QOCS regime has been applied far from consistently since its introduction in 2013 and two recent County Court judgments have reached entirely conflicting decisions on the application of QOCS to a counterclaim, leaving the law in an ambiguous state.
CPR 44.13(1) provides:
“(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.”
Once it has been established that the court is dealing with a claim to which QOCS applies, the effect of this is set out in CPR 44.14, with exceptions to the rule listed in CPR 44.15 and 44.16. The exceptions listed in CPR 44.16 require Court permission to be granted for QOCS to be enforced. In particular, Part 44.16(2) states that
“Orders for costs made against a Claimant may be enforced up to the full extent of such order with the permission of the Court and to the extent that it considers just, where….(b) a claim is made for the benefit of the Claimant other than a claim to which this section applies.”
I accept wholeheartedly that this is not the most accessible or riveting piece of legislation. However, as can be seen from the decisions below, it can have severe costs consequences for clients who are the Defendant in personal injury claims.
II. KETCHION V MCEWAN
Ketchion v McEwan (Newcastle County Court, 28 June 2018) concerned a road traffic accident in which the Claimant sued for financial losses but no personal injury. The Defendant issued a counterclaim under Part 20 for damages for personal injury. Ultimately, the Claimant was successful and the Part 20 claim was dismissed.
When the issue of costs arose, Deputy District Judge Thorn found that the Claimant was entitled to fixed costs but that those costs could not be enforced without the permission of the Court because the Defendant was protected by QOCS. This was appealed and came before HHJ Freedman.
The Claimant sought to argue that “proceedings” should be given a narrow interpretation, such that the Claimant’s initial claim and the Part 20 counterclaim should be seen as two separate proceedings. The Defendant relied on the recent decision in Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654 in which it was established in paragraphs 26 and 30 that a wide meaning is to be given to the word “proceedings” and a claim brought against six defendants should be interpreted as a single set of proceedings as opposed to six separate sets.
The Judge upheld the first instance decision, finding that although the result may be unjust, it is an inevitable result of the wording of CPR 44.13 and 44.14. If Parliament had intended otherwise then this would have been expressly set out in the rules and it is expressly stated that a Claimant includes a person who brings a counterclaim/additional claim.
III. WARING V MCDONNELL
The decision in Ketchion was shortly followed by that in Waring v McDonnell [2018] EW Misc B11 (CC) 6 November 2018. This case involved a collision between two cyclists in which both sued for personal injury by way of claim and counterclaim. The Claimant was successful and the counterclaim was dismissed. The Defendant sought to rely on QOCS to avoid paying the costs incurred by the Claimant.
Counsel for the Defendant submitted that the term “proceedings” must be given a broad interpretation following the decision of HHJ Freedman in Ketchion. He also distinguished the decision in Wagenaar v Weekend Travel Ltd [2014] EWCA Civ 1105 in which the Court concluded that QOCS did not apply to proceedings between a Defendant and a third party, who had been brought in as part of an additional claim for an indemnity/contribution. Counsel for the Defendant submitted that this only carved out proceedings between Defendants and third parties. He also relied upon the wide interpretation given to the term “proceedings” in Cartwright.
Counsel for the Claimant argued that the judgments in Plevin v Paragon Personal Finance Ltd. No.2 [2017] UKSC 23 and Howe v Motor Insurers’ Bureau (no 2) [2017] EWCA Civ 2523 suggested that the word “proceedings” can have different meanings and the term is a malleable concept; it must be interpreted according to the circumstances. In this context, the Court should find that there were two separate sets of proceedings; the Claimant was successful against the Defendant and should be entitled to his costs. Counsel for the Claimant distinguished Cartwright on the basis of choice; a Claimant cannot choose whether or not a counterclaim is pursued against them but they can choose how many Defendants they wish to pursue.
HHJ Venn found that CPR 44.13 applies to a single claim against a Defendant or Defendants and that it concerns Claimants who are making a claim for damage for personal injuries. Part 20 claims are additional claims and CPR 20.3(1) states that an additional claim shall be treated as if it were a claim for the purposes of the CPR. As such, in this case there were two claims and the QOCS protection applies to both. In paragraph 31 of the Judgment it is highlighted that “the underlying purpose of the QOCS regime is, as set out above, to protect those who suffer injuries from the risk of adverse costs orders obtained by insured, self-insured or well-funded defendants. The purpose is not to protect those who are liable to pay damages to an injured party from the risk of adverse costs orders made against them in their capacity as Defendant or paying party.” She distinguished Cartwright on the basis that it was a single claim, albeit it against six defendants, and disagreed with the judgment in Ketchion, noting that it was not binding on her.
Following these two decisions, until an appeal in which we have a binding judgment, the case law at County Court level is in direct conflict over the application of QOCS to Part 20 claims. The ambiguity will not be resolved until such a judgment is handed down, but the following points should be considered by clients often involved in these proceedings.
Potential increase in applications to strike out Part 20 claims
There is a danger that the decision in Ketchion could lead to an increase in applications to strike out Part 20 claims if they include a claim for personal injury. It was suggested in Ketchion that this would be the solution for any spurious or vexatious counterclaims for personal injury, submitted solely in an attempt to benefit from QOCS protection. HHJ Venn was of the opinion in Waring that this was not realistic. However, it is possible for Claimants to make such an application under Part 3 CPR, or for the court to make such a finding on its own initiative. Instructing solicitors will need to gather as much information and evidence about the personal injury as possible before issuing such a counterclaim in order to protect the Part 20 claim from such an attack; the threshold is low in that the claim needs to disclose no reasonable grounds or be an abuse of process for it to be struck out.
Conflict of interest with third party clients
In some cases the Claimant will bring the Insurer into the proceedings as an interested party to a counterclaim made the Defendant. Frequently, counsel are asked to represent both the Claimant and the Insurer at the hearing. However, there is now a potential conflict of interest arising from this position until the issue of QOCS and counterclaims in resolved. It is evident that if the Claimant is unsuccessful and the counterclaim is successful then counsel for the Claimant will want to argue that they are protected by QOCS. This would most probably mean distinguishing the decision of Wagenaar, hence jeopardising any argument on behalf of the insurer that they also form part of the single set of proceedings as a third party. It would be very difficult to represent the best interests of both clients in that situation, given that they will both want to argue that they are protected by QOCS and the arguments made on behalf of one client will potentially undermine the interests of the other.
Distinguishing the Judgments
Finally, it could be possible to distinguish between the two judgments on the basis of the underlying purpose of the QOCS regime. The notable difference between the two cases is that the Claimant in Ketchion did not bring a claim for personal injury, whereas the Claimant in Waring did. As such, the decision in Ketchion did not go against the underlying purpose of the QOCS regime, as set out in paragraph 31 of Waring. In Ketchion the Claimant did not suffer from injury and therefore did not need protection from the risk of adverse costs orders; their loss was purely financial. It may be that distinguishing the cases on this very basic principle is the best tactical approach to take at any hearing on the issue until there is a binding decision handed down.
It is evident that we now need a binding judgment to be handed down to resolve the conflicting county court decisions on the application of QOCS to counterclaims. The protection given to Defendants issuing a Part 20 claim for personal injury damages is unclear and at present it appears that a spurious claim, which doesn’t quite reach the threshold of being vexatious or an abuse of process, may protect a Defendant from any costs order.