Personal injury defendants face potential “double jeopardy” on costs

The application of qualified one way costs shifting (“QOCS”) for personal injury (“PI”) claims under CPR 44.13 (the English and Welsh transferable costs regime) has been clarified in the case of Arabella Wagenaar v (1) Weekend Travel Limited t/a Ski Weekend and Nawelle Serradj [2014] EWCA Civ 1105. The Court held that the QOCS regime was intended only to apply to the costs of the claimant in proceedings including a claim for damages for PI. It had not been the intention of the Jackson reforms to also shift the costs of the main claim defendant and CPR Part 20 claimant in associated Part 20 third party proceedings on to the Part 20 defendant. This is because the Part 20 proceedings do not concern a claim for PI damages, but rather a separate commercial dispute as to how to apportion the damages and costs liability in the main proceedings.

This case is relevant to all PI claim defendants where contribution or indemnity claims are a possibility; either between co-defendants, or a defendant and a third party whom the claimant has decided not to sue.

Background facts

The claim concerned injuries sustained by the claimant (“AW”) in a skiing accident in March 2007 while on a holiday arranged by the defendant (“WTL”). AW issued the claim against the defendant before the expiry of limitation in March 2010. In November 2011 WTL obtained permission under CPR 20.7 to initiate additional third party claims, though only one was pursued to trial: WTL claimed an indemnity and/or contribution on the basis that the third party ski instructor’s (“NS”) negligence was the proximate cause of the injury.

Funding

AW funded her litigation via a pre-existing (“before the event”) insurance policy and did not enter into any conditional fee agreement (“CFA”) or After-the-event (“ATE”) insurance policy. Junior counsel for WTL entered into a CFA with WTL’s solicitors (the “WTL CFA”) days before the Jackson reforms came into effect on 1 April 2013, approximately six months before trial. Accordingly, the successful WTL expected its own costs liability for Junior Counsel’s fees and success fee to be recoverable from the losing claimant, AW.

First instance judgment and costs orders

On 19 September 2013 judgment was delivered dismissing AW’s claim and WTL’s Part 20 claim against the ski instructor. The parties then made written submissions on costs and on 31 October 2013, costs orders were handed down, whereby:

• QOCS rules were given retrospective effect despite the claim having been started and largely pleaded pre-Jackson reforms;
• QOCS was disapplied because the claimant’s pre-existing policy did not qualify as a pre-commencement funding arrangement, e.g. ATE insurance policy;
• An order was made that the losing claimant, AW, should pay WTL’s costs but that the order could not be enforced as QOCS applied; and
• In the Part 20 claim, an order was made that the losing Part 20 claimant, WTL, should pay NS’s costs. Again, this costs order was not to be enforced because of QOCS. The judge relied on the wording in CPR 44.13 stipulating that a claimant for the purposes of QOCS also included a party bringing an additional claim for damages for PI, and the concern that any other result would been a ‘serious injustice for the defendant’ (WTL).

Costs appeals

Both WTL and NS appealed the costs orders. The main appeal was that of the ski instructor, on the basis that QOCS should not apply to an additional Part 20 claim made by the defendant against a third party and that there should not have been a stay on the order for costs. WTL appealed on the basis that (i) the rules on QOCS should not have been retrospective; (ii) the WTL CFA should at least survive the application of QOCS; and (iii) the introduction of QOCS was a fetter on the court’s power to determine by whom and to what extent costs are paid under section 51(3) of the Supreme Court Act 1981 (“SCA”).

Court of Appeal Judgment

Should QOCS apply to an additional Part 20 claim?

Vos LJ considered the first instance application of QOCS surprising in that the judge at first instance had applied QOCS to every part of an action in which anyone makes a claim for damages for PI, even if the parties are actually in dispute regarding the ‘economic consequences of having to fund such damages’. Referring back to the underlying purpose of QOCS (i.e. a way of protecting those who had suffered injuries from the risk of facing adverse costs orders obtained by insured, self-insured or alternatively, well-funded, parties), he found no suggestion that the QOCS regime was intended to extend to the costs of disputes between liable defendants as to how to fund PI damages.

The rules on QOCS were instrumental in determining the scope of relevant ‘proceedings’ for the purposes of CPR 44.13. Overall, CPR 44.13 to 44.17 had the effect of narrowing the potentially very wide meaning of ‘proceedings’ to merely proceedings initiated by claimants who are themselves making a claim for PI damages, irrespective whether the claimants may also be making other claims in addition, such as a claim for damaged property arising out of the same loss incident. A wider interpretation of “proceedings” would be inappropriate in light of the purpose underlying QOCS as this could mean that there would be no effective costs orders made between multiple defendants in a contribution claim. It was not considered to be an injustice that the defendant in this case was penalised on costs - the defendant’s decision to join a third party had been made in its own (perceived) commercial interests and the risk of an adverse costs order in the contribution proceedings was the known corollary.

The remaining appeals

As to WTL’s arguments regarding retrospective application of the rules, the survival of the WTL CFA and ultra vires, the court held:

(i) Retrospective application: the defendant was unfortunate as the case was heard on the cusp of the new QOCS rules coming into effect. However, the presumption against restrospective effect does not apply to legislation concerned with matters of procedure and procedural rules would be construed retrospectively unless an intention to the contrary was made clear;

(ii) Survival of the WTL CFA: fees payable under the WTL CFA were not recoverable from the claimant as it was only a claimant’s pre-commencement funding that mattered for the purposes of disapplying QOCS; and

(iii) Ultra vires: QOCS (and any other analogous rules restricting how the court operates its powers) are not ultra vires. Section 51(2) of the SCA allows the court’s power as to costs to be subject to the rules of the court.

Comment

This decision puts additional commercial pressure on defendants in PI litigation when deciding whether to join another potential wrongdoer to the proceedings via CPR Part 20 contribution proceedings. A defendant in this position needs to carefully weigh the risk and evaluate the chances of success in the main proceedings. If a defendant is successful in defending the claim, it will necessarily lose the Part 20 proceedings as there will be no contribution to be made by the Part 20 defendant. The sting in the tail for a successful defendant in the main proceedings is that:

• It cannot enforce its own costs entitlement against the losing PI claimant (in the absence of abuse of process or fundamental dishonesty of the claimant, for example); and
• It can then be liable for the costs of the winning Part 20 defendant, whether or not initiating the Part 20 proceedings was a reasonable or prudent step to take in the circumstances.

Defendants in PI proceedings post-Jackson do, of course, have another option: to wait for the main claim judgment before pursuing Part 20 proceedings if they are unsuccessful or if settlement is agreed. Limitation for the purposes of claiming contribution only starts on the date on which the judgment is given or settlement is agreed (section 10 Limitation Act 1980) and expires on the expiration of two years from that date. If defendants adopt this approach, courts may start to see fewer Part 20 proceedings being commenced during the main PI action and more cases coming through in sequence, which is unlikely to make for either efficient or cost-effective litigation. If this cautious approach is adopted, it will be interesting to see how the court will then handle costs assessments arising from sequential CPR Part 20 contribution proceedings when those proceedings could in practice have been run concurrently with the main claim.

To read the judgment, please click here.