Recovering costs following settlement and discontinuance

In two recent appeal cases have clarified the position of a defendant wishing to recover its cost from a claimant following discontinuance.

In Cartwright v Venduct [2018] EWCA Civ 1654 the Claimant sued two defendants. The Claimant settled against D1 by way of a Tomlin order. The Schedule of the Tomlin order provided for D1 to pay the Claimant a global sum for interest and costs. The Claimant then discontinued the claim against D2. Although D2 was entitled to its costs under CPR 38.6(1), the Claimant relied on QOCS protection. D2 sought to enforce its costs against the sums the Claimant would receive from D1 under the Tomlin order, relying on CPR 44.14(1).

At first instance, the costs judge held that D2 could not enforce its costs order, as the sums due to the Claimant were payable under the Schedule of a Tomlin order and this was not “an order for damages and interest made in favour of the claimant” for the purposes of CPR 44.14(1).

The matter went to the Court of Appeal. The Claimant sought to argue that, as a matter of principle, claims against multiple defendants were separate and that costs a claimant was ordered to pay D2 could not be enforced against damages received from D1. The Court of Appeal disagreed.

This makes clear that had the case gone to trial, and the Claimant had won against D1 and lost against D2, D2 could have enforced its costs order against the Claimant’s damages from D1.

However, the next issue was whether this applied when the Claimant settled with D1 by way of a Tomlin order. The answer to this question was “No”:-

1. The Court of Appeal agreed that a Tomlin order is not an “order for damages and interest made in favour of the Claimant”. Rather, it is “a record of a settlement reached between the parties which is designed to have binding effect”.
2. In this sense, a Tomlin order is akin to the settlement arising when there is acceptance of a Part 36 offer, which would also be outside the words of CPR 44.14(1).
3. There also practical difficulties in the way of CPR 44.14(1) covering Tomlin orders: the Schedules to these orders might be confidential, or provide for a global settlement for damages and costs which would have to be disentangled.

The Court of Appeal concluded that sums payable pursuant to the schedule of a Tomlin order were excluded from CPR 44.14(1) and so D2 could not enforce their costs.

In this situation, the only way for D2 to recover its costs would be to argue that one of the exceptions to QOCS applied. To do this, the defendant would need to apply to set aside the notice of discontinuance, and then get the claim struck out for one of the reasons set out in CPR 44.15 (no reasonable grounds for bringing the claim, abuse of process, conduct likely to obstruct the just disposal of the proceedings); or alternatively, for the court to find that the claim was fundamentally dishonest within CPR 44.16.

In Alpha Insurance A/S v Roche [2018] EWHC 1342 (QB), on appeal, Yip J explained the test to be applied when a defendant seeks to have fundamental dishonesty determined after a claimant has discontinued.

The claim was brought by a mother and her son (a minor), following a road traffic accident. The Defendant admitted breach of duty, but denied that the son was in the car. The Defendant’s case was that the mother’s claim was dishonest, and the son’s claim was fraudulent.

The Claimants discontinued their claims the day before trial, with no explanation. The Defendant applied to have the allegations of fundamental dishonesty determined, notwithstanding the discontinuance. The judge at first instance refused: his reasons were that there might be nothing dishonest about the claims; that there were many reasons why the Claimants might have decided to discontinue; that there was nothing exceptional about the case; and that it would not be a proportionate use of court time to have the issue determined.

On appeal, Yip J agreed the judge had made an error of law. Nothing “exceptional” was required for the court to direct that allegations of fundamental dishonesty be determined despite the Claimants discontinuing. The judge must weigh up the relevant factors and take a decision in accordance with the overriding objective.

So far as the question of proportionality was concerned, whilst the underlying claims themselves were modest, the judge was clear that there is a strong public interest in identifying false claims and requiring claimants to pay the cost of such claims.

The judge proceeded to decide the question afresh, considering the relevant factors in that case to be:-

1. Proving fundamental dishonesty depended on how the judge resolved the parties’ conflicting witness evidence. In short, the question was whether the Defendant’s witnesses were mistaken, or whether the Claimants were dishonest.
2. The judge considered the Defendant’s case was “not particularly strong, but based on evidence that was capable of being accepted”.
3. The claims were discontinued at a very late stage, in circumstances where, apart from the allegation of fundamental dishonesty, liability was admitted. This called for an explanation.
4. No explanation had been provided.
5. One of the Claimants was a minor. This was a factor but not an overwhelming one.

The judge concluded that the question whether the claim was fundamentally dishonest should be determined, although this was “finely balanced” and “any reasonable explanation for the late discontinuance may have tipped the balance the other way”.

Overall, this is good news for defendants: particularly the court’s reminder of the public interest in identifying false claims, notwithstanding that they are low value; and the fact nothing “exceptional” is required, over and above an allegation of fundamental dishonesty. The onus is now on Claimants who discontinue late to provide an explanation for this conduct – and if this is a good explanation it may tip the balance in their favour.