Chappell v Mrozek [2022] EWHC 3147 (KB) – Part 36 offers, QOCS and cost consequences

Background of the case

After the claimant accepted a Part 36 offer well-outside of the 21-day relevant period for acceptance, the usual order for costs was made that meant the claimant was to pay the defendant costs incurred after the relevant period had expired.  Although some costs were agreed for the defendant between the parties, the claimant sought to rely on Qualified One-Way Costs Shifting (QOCS), to limit their liability to pay costs. 

The defendant brought an application in the hopes of enforcing its entitlement to costs through set-off of damages, whereby it would retain some portion of the claimant’s £250,000 settlement sum to cover its costs. 

The parties’ disagreement came down to the interpretation of the Governments policy reforms introduced in 2013 regarding QOCS and enforcement of costs orders in proceedings concerning personal injury. For all that there had been subsequent case law to assist with the interpretation, the dispute remained.

Key Arguments

As well as two recent judgments in their favour in the matters of Cartwright v Venduct Engineering Limited [2018] EWCA Civ 1654 and Adelekun v Ho (Association of Personal Injury Lawyers intervening) [2021] UKSC 43 that were binding on the High Court, the claimant argued that the wording of CPR 44.14 is very clear and only allows enforcement of costs orders by way of set-off against any orders for damages and interest made in favour of the claimant. The claimant argued that as the claimant had accepted the Part 36 offer out of time, the consequential effect of such acceptance requiring the defendant to pay to the claimant the sum of £250,000 was not an order for damages and interest – it likened it more to a Tomlin Order and suggested that the wording of CPR 44.14 should not be taken to mean set-off can be applied against a sum of money payable as a result of an acceptance of a Part 36 offer.

Furthermore, the claimant argued a paying party deliberately breaching their obligations under the CPR in order to secure an order for damages and interest against which it can use to enforce costs orders was contrary to the overriding objective – it would allow the defendant, in this case, to be financially rewarded for their actions, to the detriment of the claimant. 

Finally, the claimant suggested that the case of MRA v The Education Fellowship Limited ( aka Rushden Academy) [2022] EWHC 1069 (QB) relied on by the defendant should not be construed as turning a court order for approval of settlement into an order for damages and interest in order to allow the set-off mechanism to be utilised. Whilst this case also involved a Part 36 offer to settle being accepted out of time, it involved protected parties and there the court noted (but did not decide on) the fact that due to the claimant’s lacking capacity, they were potentially more exposed to the adverse effects of the QOCS rules. 

The Defendant argued that a Tomlin Order should be covered under CPR 44.14 as it states ““a sum payable by way of damages which is compellable by court order”, meaning that a Tomlin Order should be considered an “an order for damages and interest” proper, thus subject to the terms and effect of the QOCS regime.

The Judgment

Master Stevens determined the arguments in the claimant’s favour, concluding there was “no hint that Part 36 offers accepted out of time should be subject to enforceable adverse costs set-offs”. Master Stevens pointed out that she recognised the unfairness to the claimant if she found against him and further stated that it was unfortunate that the defendant’s decision to challenge the position, noting that the claimant had still not received any of the damages.

Takeaways

Master Stevens’ decision can only be considered the most just and sensible one under the circumstances based on the QOCS rules in their current format. Had she found in favour of the defendant then this would, no doubt, have opened the doors for defendants to refuse to pay the damages in time, resulting in an increase in court orders being sought to enforce the payment. 

However, the effect of this judgment is set to be relatively short-lived as the most recent CPRC minutes indicate that the effect of the decisions in Cartwright and Ho will be reversed by amendment to the QOCS provisions. In particular, CPR 44.14 (1) will, when proposed amendments are adopted, read:

“(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for, or agreements to pay, damages, costs and interest made in favour of the claimant.”

Whether one views this as a necessary change, or an unjustified erosion of the protection afforded to claimants by the QOCS provisions, will depend largely on which side of the fence one views the issue from. If you regularly act for claimants, then you will no doubt see this as a step backwards. However, if you regularly acting for defendants, then this will be seen as a welcome step that redresses the balance between protecting legitimate interests of claimants and ensuring defendants are allowed to enforce costs orders by way of set-off, both against costs and also against sums payable following agreement, rather than court order.