QUOCS IN THE COURT OF APPEAL: FOUR IMPORTANT ISSUES: WAGENAAR CONSIDERED

The decision of the Court of Appeal in Wagenaar -v- Weekend Travel Ltd [2014] EWCA Civ 1105 was reported today. It contains important observations  and decisions on qualified one way costs shifting, something that is likely to become a major part of the litigation landscape.

THE ISSUES

There were four issues for the Court of Appeal to determine.

1. Were the QUOCs provisions in the CPR intra vires.

2. Was it appropriate to make the QUOCs provisions retrospective.

3. Was the defendant’s junior counsel’s CFA still effective in a QUOCs case.

4. Did the QUOCs provisions apply to a claims by a defendant against a third party.

THE CASE AND THE PARTIES

The action related to a claim for damages brought by the claimant against the defendant travel company following a ski accident on holiday. The defendant brought the ski instructor into the action as a third party.

At trial the judge dismissed the claimant’s claim against the defendant and the defendant’s claim against the third party.

THE ORDER FOR COSTS AT TRIAL

The judge ordered that the claimant pay the defendant’s costs but these were not to be enforced pursuant to the provisions of CPR 44.13 and 44.14. He ordered that the defendant pay the third party’s costs but, again, these were not to be enforced pursuant to CPR 44.13 and 44.14.

THE FIRST DECISION: THE RULES ARE NOT ULTRA VIRES

In a detailed judgment the Court of Appeal confirmed that the rules are not ultra vires.  The defendant’s arguments were “ingenious but wrong”. Further:-

1. It is worth mentioning also that, as was pointed out in argument, the introduction of the QOCS regime is part of a wholesale reform of the funding of personal injury litigation. It is just one of a raft of interconnected changes. If QOCS were to be struck down, there would need to be a complete rethink of the entire Jackson reform programme as it affects personal injury litigation. It will be noted also that the changes in respect of the recoverability of success fees under conditional fee agreements and of ATE premiums were effected by primary legislation as they needed to be: see sections 44 and 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, which amended the CLSA 1990.
2. In the circumstances, it seems to me that the court’s full power to determine by whom and to what extent the costs of any proceedings are to be paid under section 51(3) of the SCA 1981 is to be read subject to the power of the rules committee to make rules of court applicable to particular circumstances concerning the availability of an award of costs, the amount of such costs, and the exercise of the court’s discretion in relation to costs. CPR Rules 44.13 to 44.17 concerning QOCS were rules that the rules committee was fully empowered to make.

THE SECOND DECISION: QUOCS CAN BE RETROSPECTIVE

The court dealt with an argument that the effect on the defendant of applying QUOCs retrospectively was unfair and prejudicial.  The defendant had taken all its litigation decisions before the new rules were even published.  However this argument was rejected by the Court of Appeal:

1. It is, of course, true that the effect of the introduction of QOCS on the defendant has been unfortunate, since if the matter had been tried 2 months earlier, the costs consequences of the outcome of the litigation would have been quite different. But this unfortunately is an inevitable consequence of procedural reform. There has to be a cut off point and someone will always be on the cusp of it.
2. In my judgment, however, the legal point is unsound. It is well established that the presumption against retrospection does not apply to legislation concerned with matters of procedure, and that provisions of that nature are to be construed as retrospective unless there is a clear indication that that was not the legislature’s intention (see Halsbury’s Laws of England, 5^th edition, volume 96 at paragraph 1189). There is nothing in CPR Rules 44.13 to 44.17 to indicate that they were not intended to be retrospective. Indeed, they show clearly that they were. The amendments are expressed to take effect on 1^st April 2013, and there are transitional provisions in CPR Part 44.17 that apply in particular cases – namely where the claimant has entered into a pre-commencement funding agreement.

THE THIRD DECISIONS: DEFENDANT’S COUNSEL CFA DID NOT SURVIVE THE QUOCS REGIME

A further argument was that the CFA of the  defendant’s junior counsel should survive the QUOCS reform. The CFA had been entered into prior to the 1st April 2013. Again this argument was rejected by the Court of Appeal.

1. The specific QOCS regime has, as I have already mentioned, only one specific transitional provision in Part 44.17, which provides that the regime does not apply to proceedings where the claimant has entered into a pre-commencement funding arrangement. That does not apply to this case since, as the judge found, the claimant had not entered into any such arrangement. Mr Cannon’s point is that the entirety of the new costs regime in CPR Parts 43 to 48 is to be disapplied in respect of the CFA by CPR Rule 48.1.
2. The fallacy in this argument was pointed out by Mr Eaton Hart. It is that CPR Rule 48.1 only disapplies the provisions of CPR Parts 43 to 48 “relating to funding arrangements”, not relating to costs generally. The QOCS provisions in new CPR Rules 44.13 to 44.16 do not relate to funding arrangements at all; they relate to the costs orders that can and should in future be made in personal injuries claims. Accordingly, CPR Rules 48.1 and 48.2 do not have the effect of carving out the defendant’s CFA from the general QOCS regime, and this limb of the defendant’s argument must, I think, be rejected.

THE FOURTH DECISION:  QUOCS PROTECTION  DID NOT APPLY BETWEEN THE DEFENDANT AND THIRD PARTY

Again the defendant was unlucky.  The judge had held that CPR 44.13 – 44.17 applied to a claim between it and the third party. This construction was rejected by the Court of Appeal.

1. Thus, 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. Argument has not been addressed to the question of whether QOCS should apply to a subsidiary claim for damages not including damages for personal injuries made by such a claimant against another defendant in the same action as the personal injury claim. I would prefer to leave that question to a case in which it arises. 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.
2. I am fortified in my view as to the proper construction of the rule implementing the QOCS regime by a consideration of the effect of the judge’s construction on some of the more normal cases which I have already mentioned. In medical negligence claims, a claimant may sue a doctor, a health authority and the manufacturer of some piece of medical equipment. It would be strange if there could be no costs orders enforced between the defendants at the end of a long battle in the cross contribution claims between them where it was ultimately proved that the doctor and the health authority were blameless but the injury was caused by a defective piece of medical equipment. In such a case, the claimant’s damages might be agreed, and the argument might be almost wholly between the defendants – or possibly third parties, if any of them were not originally sued.
3. In road traffic cases, the typical situation is equally revealing. Injured passengers in a car may sue the driver of the car in which they are injured. That driver may seek to pass on the blame in CPR Part 20 proceedings to any number of other insured parties, such as another driver involved in the collision, or a local authority responsible for maintenance of the road. Again, there might be little argument as to the claimant’s entitlement to damages, but significant dispute between the insured parties as to who was to blame. It would be surprising if there could be no effective costs orders made between defendants in their contribution claims (if there was ultimately more than one) and between defendants and the third parties in the additional claims made.
4. The injustice in this case, to which Mr Cannon specifically pointed, was that the third party could not be joined as a defendant by the claimant because of jurisdictional issues, so the defendant had to join the third party if it wanted to make her liable. But that is not a special case. The defendant was a commercial party in the business of supplying packaged skiing holidays. The fact that its insurance was for some reason vitiated in this case is nothing to the point. It chose, in its own commercial interests, to bring the third party into the proceedings as a third party because, no doubt, it thought it commercially to its advantage to do so. In doing so, it would have weighed up the pros and cons including the costs consequences, which, on the defendant’s own case, it expected to be the ones normally to be expected in litigation before these courts (before QOCS were introduced). The defendant could have chosen to resist the claimant’s claim on its merits and saved itself the trouble and expense of joining the third party and the risk of an adverse costs order. It did not do so. Accordingly, I find myself unable to agree with the judge that the outcome, even in this case, of the construction that I have adopted creates a serious injustice for the defendant. The public policy that has led to the QOCS regime cannot be regarded as creating injustice in any sense, whether or not the defendant is in any particular case actually covered by insurance; and the result in relation to the costs of the CPR Part 20 claim is precisely what the defendant ought to have expected when it joined the third party.
5. I did not gain much assistance from the cases that the parties cited that were decided under the Legal Aid Act 1974, where there was a limited right to enforcement of costs orders against legally aided parties. That was a quite different statutory regime. Nor do I think that the cases concerning costs orders that were made generally in third party proceedings (mostly before the CPR) can be determinative of what was essentially a matter of construction of CPR Rules 44.13 to 17.
6. In my judgment, therefore, the judge was wrong to hold that the QOCS regime applied to the proceedings between the defendant and the third party in this case. In these circumstances, the costs order that the judge made as between those parties must be set aside. Mr Cannon submitted that in the event that we reached that conclusion, we should exercise our discretion afresh and conclude that the justice of the case demanded that there be no order for costs, because the defendant was justified in joining the third party, who might have been shown to have been responsible for the accident, the defendant’s liability being purely statutory under the Regulations.
7. I do not see any reason why the normal provisions of CPR Rule 44.2(2)(a) should not apply in this case as between the defendant and the third party. The defendant chose to join the third party and failed in its third party claim against her. The defendant should pay the third party’s costs.

IMPORTANT POINTS TO NOTE: MATTERS TO BE CONSIDERED WHERE A DEFENDANT IS THINKING OF JOINING A THIRD PARTY INTO AN ACTION WHERE THE CLAIMANT HAS QUOCS PROTECTION

That QUOCS are intra vires and apply retrospectively is of no great surprise.  What is of considerable strategic and practical importance now is whether it is sensible for a defendant to join a third party into an action when the claimant has the protection of QUOCS.

1. If the defendant succeeds in defending the action the defendant will not recover its costs but may have to pay the third party costs.

2. The defendant may be better advised to defend the action and await the result. If it fails and is liable it can bring an action for indemnity in any event.

3. The more interesting question (and I do not profess to have a ready answer) is the situation where a defendant succeeds in defending but wants to recover its costs from a third party.  Can the defendant issue against a third party in an attempt to recover the costs of defending the action against the claimant?  The ambiguity on this issue makes the decision on whether to join a third party into the action much more problematic.