QOCS: A Harsh Law of Unintended Consequences?
Ketchion v McEwan, Newcastle upon Tyne CC, HHJ Freedman, 28 June 2018
1. This recent costs case, if correctly decided, has dramatic and far reaching implications for personal injury litigation.
2. This article will consider the decision itself, its implications and how those implications might be addressed.
3. The claimant brought a claim against the defendant for financial losses arising out of a road traffic accident. He did not bring a claim for damages for personal injuries. The defendant denied liability and brought a Part 20 counterclaim for personal injuries.
4. The matter came before DDJ Thorn as a fast track trial. He decided that the accident was entirely the defendant’s fault. He accordingly entered judgment on the claim and dismissed the counterclaim.
5. The claimant was therefore in principle entitled to an order for his costs. However, the DDJ ruled that the Qualified One Way Costs Shifting (“QOCS”) regime applied in respect of those costs. This precludes enforcement of costs save in limited circumstances, none of which applied here.
6. The result was therefore that, despite succeeding in full, the claimant could recover no costs.
7. The claimant, aggrieved, sought permission to appeal. This came before HHJ Freedman as a rolled up hearing of both permission and the full appeal in the event that permission was granted. The judge heard full argument from both sides.
8. The claimant’s arguments were rejected. The judge placed heavy reliance on the wording of CPR 44.13, which 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. (the judge’s emphasis).
9. It should be noted that the claimant did not dispute that QOCS applied to counterclaims. He argued rather that the claim and the counterclaim were separate proceedings, with the result that QOCS applied only to protect the defendant of any adverse costs liability in respect of pursuing his counterclaim and not to protect him from the costs of defending the claimant’s claim.
10. The judge however ruled that a restrictive interpretation of the term “proceedings” which meant that it did not apply to the whole of the action was precluded by authority; Wagenaar v Weekend Travel Ltd  EWCA Civ 1105;  1 WLR 1968 and Cartwright v Venduct Engineering Ltd  EWCA Civ 1654.
11. In Wagenaar, the defendant to a personal injury claim brought Part 20 proceedings against a third party and unsuccessfully sought to invoke QOCS against that third party when it lost. In Cartwright, a successful defendant to a personal injury claim sought to enforce its costs against the damages recovered by the claimant against a co-defendant. The claimant’s recovery against the co-defendant had been by way of settlement under a Tomlin order. It was held that this would have been open to the defendant if the claimant had obtained an order for damages against the co-defendant, but was not on the basis of settlement by way of Tomlin order.
12. The judge derived the following from these cases:
(a) A wide meaning was to be given to the word “proceedings”.
(b) A claim brought against six defendants could not be interpreted as six separate sets of proceedings as opposed to a single set of proceedings.
(c) Only very limited attention should be paid to the preparatory materials leading up to implementation, including the Final Jackson Report of December 2009.
13. In the judge’s view this provided a decisive answer to the claimant’s arguments. He held at  that it would “be patently absurd and illogical if the word proceedings is deemed to cover all of the claims brought against six separate defendants, but not a claim and Part 20 claim”. Whilst acknowledging the potential injustice of this result, he held that this was an inevitable result of the wording of the rules. He agreed with the defendant that, if had been intended that a Part 20 claimant’s QOCS protection were to be limited in such ways, the rules would have expressly said so.
14. The judge came to this conclusion “without hesitation”. Not only did he dismiss the appeal; he refused permission on the basis that the appeal stood no real prospect of success.
15. The consequences of this judgment, if correct, are surprising if not alarming. Any counterclaim for personal injury would (unless an exception to QOCS could be invoked) preclude costs recovery even if the claim is wholly successful.
16. Thus, for example, a claimant who successfully established a claim for catastrophic injuries could would not recover a penny of costs if the defendant happens to have even weak a counterclaim for minor whiplash.
17. Such a scenario is far from uncommon. In many if not most serious road traffic accidents the defendant will also have suffered some injury, be it physical or psychiatric.
18. All such a defendant would need to obtain QOCS protection is an arguable case that the claimant was also negligent. Any material degree of contributory negligence would suffice, even if the defendant has no defence to the lion’s share of liability for the claimant’s claim. Further, the defendant’s case that the claimant was more minimally at fault would merely have to be sufficiently arguable to survive a strike-out application.
19. As road traffic claims largely turn on disputes of fact, they will hardly ever be susceptible to a strike-out. As long as this undemanding threshold is met the claimant will be precluded from recovering any costs.
20. Given the importance of this point and its potential to generate satellite litigation, resolution by either binding authority or the intervention of the rules committee is required as a matter of some urgency.
21. However, parties and their advisers will need to consider how to deal with this point in the interim.
Addressing the implications
22. The first point to note is that Ketchion is of course not a binding authority. Indeed, by reference Practice Direction (Citation of Authorities)  1 WLR 1001 at 6.1-6.2 it probably not even capable of being cited.
23. However, the first instance decision could presumably be obtained and relied upon. In any event, the arguments that so impressed HHJ Freedman to the point that he considered that those to contrary lacked any real prospect of success are now out there for defendants to adopt should they choose to do so.
24. Defendants and their advisers will doubtless wish to give careful consideration as to if, when and how to take the point. As discussed below, its merits are debatable to say the least. There would be a high risk that the point would be lost, in which case the defendant would have to pay the costs of pursuing it.
25. That said, in many cases a cost/risk/benefit analysis might well lead to the conclusion that the point is one worth running. In a large case, it provides a potential knock-out blow against what would be a correspondingly large costs liability, and might for that reason by worth pursuing at the very least for leverage in negotiations. Conversely, in smaller cases where costs are going to argued at the end of trial in any event a defendant would have nothing to lose by taking the point, at least at first instance.
26. For claimants, there are two possible solutions; directly challenging Ketchion or circumventing it.
27. The direct challenge entails establishing that the result in Ketchion is wrong. There are good grounds to mount this.
28. Firstly, it is well arguable that it is wrong by reference to the rules themselves and existing authority and without the need to invoke heavy purposive considerations.
29. The starting point is that where there is a claim and a counterclaim the court can make separate orders as to costs in respect of each; Medway Oil and Storage Co Ltd v Continental Contractors Ltd (1929) AC 88 HL et seq.
30. The conventional approach of treating the cost of a claimant and those of a counterclaiming defendant as distinct arguably gives rise to a distinction as to how such parties should be treated for the purposes of QOCS. Whilst a defendant is a “claimant” for the purpose of his counterclaim, in relation to the original claim he remains a defendant. QOCS only protects him against an order made against him as a claimant (i.e. in respect the costs of the counterclaim) and not in relation to and order made against him as a defendant (i.e. in respect of the costs of the claim). This is not inconsistent either Wagenaar or Cartwright. It does not depend on a narrow interpretation of “proceedings”; the breadth or otherwise of this concept does not come into play.
31. It could in any event be said that HHJ Freedman’s analysis proceeds upon a misreading of Wagenaar. In that case Vos LJ said this at  (emphasis added):
It is true, however, that the word “proceedings” in CPR Rule 44.13 is a wide word which could, in theory, include the entire umbrella of the litigation in which commercial parties dispute responsibility for the payment of personal injury damages. I do not think that would be an appropriate construction. Instead, I think the word “proceedings” in CPR Part 44.13 was used because the QOCS regime is intended to catch claims for damages for personal injuries, where other claims are made in addition by the same claimant. There may, for example, in the ordinary road traffic claim, be claims for damaged property in addition to the claim for personal injury damages, and the draftsman would plainly not have wished to allow such additional matters to take the claim outside the QOCS regime.
32. The court therefore did not rule that broad interpretation of proceedings was mandated in the context of QOCS irrespective of whether or not that led to a sensible outcome which was consistent with the regime’s purpose. To the contrary, it ruled that whilst a broad construction could be supported as a matter of language, such purposive considerations could (and in Wagenaar did) support a narrow interpretation. Thus, as explained at , QOCS applied only “to a single claim against a defendant or defendants and excluded a third party claim”.
33. Whilst Cartwright did adopt a wide definition of proceedings, as expressly recorded at , it did so in respect of “a single claim against a defendant or defendants”. There is crucial distinction between such claim and a counterclaim. Even though in substantive terms there were multiple claims in Cartwright (the claimant had a separate cause of action against each defendant) in procedural terms there was a single claim. There was a single set of proceedings originating and subsisting by way of the same process (the same claim form).
34. The counterclaim in Ketchion by contrast was a separate claim. Such a counterclaim has a separate originating process; the defendant has to issue a separate claim form. The need to issue a separate claim reflects the need for sperate proceedings. The purpose of a claim form is to start proceedings; CPR 7.2. If the relevant proceedings were already in existence in form of the claimant’s claim, there would be no need to issue a further claim form for the counterclaim.
35. The act of issuing that claim thus creates separate set of proceedings. Once issued, those proceedings are a sperate procedural entity. They have a procedural identity and life of their own independent of the claimant’s claim.
36. Moreover, not only is a counterclaim thus arguably distinct from the claim by the same claimant against another defendant in Cartwright, it is arguably indistinguishable for the third party claim in Wagenaar which was held to fall outside QOCS. Both the third party claim and the counterclaim had their own distinct procedural identity, separate from the claimant’s claim. Both began and subsisted by way of a standalone originating process (a separate claim form). In both cases the need to issue a separate claim form reflected that the need for separate proceedings. In both cases the issuing of the Part 20 claim form created those separate proceedings.
37. The rules themselves support this distinction. CPR 20.2 is clear that a counterclaim and third party claim are both species of additional claim. There is no material difference between them. See in particular CPR 20.2(2)(a): ‘”additional claim” means any claim other than the claim by the claimant against the defendant’. Here one sees very clearly the distinction between: (i) claims brought by the claimant and (ii) claims brought by any party other than the claimant. The claim against multiple defendants in Cartwright plainly falls into the first category. The third party claim in Wagenaar equally plainly falls into the second category. It is difficult to see how a counterclaim does not likewise fall into the second category.
38. It is therefore highly arguable that HHJ Freedman misconstrued both the rules and the authorities. On proper analysis they could be said to lead to the opposite conclusion.
39. Moreover, insofar as these arguments are insufficient, it could be suggested that the purposive imperatives which tell against HHJ Freedman’s decision are truly compelling.
40. The central point here is that the purpose of QOCS is to facilitate access to justice to those who suffer personal injuries. This was acknowledged in Cartwright at .
41. The interpretation adopted in Ketchion would positively impede access to justice. Lawyers will not act for claimants if they are not going to recover their costs. This interpretation is thus not be inconsistent with the regime’s purpose; it is wholly antithetical to that purpose. It is therefore difficult to avoid the conclusion that this interpretation simply cannot be right.
42. A consideration of trite principles of statutory construction tends to confirm this:
(a) The interpretation must find the legal meaning of the enactment, which is not necessarily the same as its grammatical meaning. The legal meaning is the meaning that correctly conveys the legislative intention. The intention here was clearly not to impede access to justice.
(b) Such an informed interpretation requires the legislation to be considered in context. This context includes the legislative history and any preparatory materials. Such a contextual consideration weighs heavily against the interpretation adopted in Ketchion.
(c) A given rule will have been enacted to remedy a particular mischief. The proper interpretation should endeavour to apply the remedy provided by it in such a way as to suppress that mischief. Here the mischief is the difficulties injured persons face bringing claims. The interpretation in Ketchion, far from remedying that mischief, adds to it.
(d) Likewise, the court is required to further the legislator’s aim adopting a construction that advances the object of providing a remedy for the mischief in question rather than one which attempts to finds some way of circumventing it. The interpretation in Ketchion does not advance the legislative attention. It enables a defendant to evade the remedy that QOCS seeks to provide.
(e) The court should avoid a construction that produces an absurd result. Absurd is a very wide concept here. It encompasses virtually any result which is unworkable or impracticable, inconvenient, anomalous or illogical, futile or pointless, artificial, or productive of a disproportionate counter-mischief. For the reasons already set out, the result in Ketchion could be said to fall squarely within this definition. Further examples of absurdity are readily identifiable;
i. If there had been no counterclaim the claimant would definitely have recovered his costs. It is difficult to see any logical or principled basis as to why he should be in a worse position (or the defendant a better one) because he was not just won his claim but also defeated a counterclaim.
ii. A defendant who settles his personal injury claimant just before a counterclaim would have been issued would receive no QOCS protection. The same defendant who settles on the same terms the day after issuing a counterclaim would receive full QOCS protection. This again would be illogical and unprincipled. It would also create a perverse incentive to delay settlement of a counterclaim until after proceedings
(f) This last anomaly tells at another level. The perverse incentives HHJ Freedman’s interpretation would create (i.e. to bring a weak counterclaims and/or to avoid pre-action resolution of counterclaims) would be contrary to the furtherance of the overriding objective. This is in addition to the more fundamental manner in which this interpretation undermines the overriding objective by potentially placing the parties on a highly unequal costs footing. By CPR 1.2(b) “The court must seek to give effect to the overriding objective when it … interprets any rule”. The rules themselves thus explicitly mandate a purposive approach.
43. Absent binding authority to the contrary, it would certainly be possible to construe the relevant rules in this fashion. It might be suggested that these policy considerations provide more than ample grounds for taking a narrower definition of proceedings in this context, even though a wider one was appropriate in Cartwright.
44. It might be emphasized that the context of Cartwright was entirely different. The approach adopted therein in did not undermine the primary purpose of the QOCS regime. To the contrary, one of the principal rationales of adopting a (relatively) wide definition of “proceedings” which encompassed all claims by a claimant against multiple defendants brought under the same action was that any other definition would undermine the purpose of the regime. See per Coulson LJ at [23-25, 29, 32-34].
45. Moreover, even if the rules in question could not be read in such a way, it is arguable that the result is so absurd that it must reflect a drafting error which the court is empowered to correct. See Qader v Esure Services Ltd  EWCA Civ 1109;  C.P. Rep. 10.
46. It might be noted here that the court in Qader gave great, and indeed it would appear decisive, weight to the preparatory materials, in particular the Jackson Final Report. To put it mildly, this sits uneasily with HHJ Freedman’s interpretation of Cartwright that such materials should receive little attention. In fact the Jackson Report was also given considerable weight in Wagenaar at . Cartwright itself contains no statement to the effect that those materials should receive little attention. Their use was deprecated on the narrower basis that they made no difference to the analysis on the particular problem confronting the court in Cartwright itself. Even then (and perhaps not entirely consistently) Coulson LJ at [32-34] went to consider the materials in question and found that they did in fact support his analysis. It might therefore be said with considerable force that HHJ Freedman’s rather dismissive approach to these materials was in error, and that this caused him to give insufficient weight to purposive considerations.
47. The other possible solution is to circumvent Ketchion by way of CPR 3.1.2(e). This provides that “the court may … direct that part of any proceedings (such as a counterclaim) be dealt with as separate proceedings”.
48. There appears to be no obvious reason in principle why a claimant could not apply that the counterclaim be dealt as separate proceedings albeit to be tried and case managed alongside the primary claim.
49. It must immediately be recognized that his would be highly contrived. However, if the only other option is the result which Ketchion would otherwise mandate, such a contrivance is arguably by some distance the lesser of two procedural evils.
50. A crucial practical imperative for claimant’s advisers is to have the point determined one way or another before significant costs are incurred. The best approach might be for the claimant to write to the defendant asking him to agree that QOCS does not apply to the claimant’s costs (i.e. that Ketchion is wrong). If the defendant does not so agree the claimant could at the outset of proceedings make an application in the alternative for (a) an order under CPR 3.1.2(e) which explicitly records that as the reason why QOCS will not apply to the claimant’s costs; or (b) a declaration that as a matter of law QOCS does not apply to the claimant’s costs.
51. There would however remain a problem with pre-action costs. The only solutions here appear to be either (1) to issue Part 8 proceedings for a declaration that as a matter of law QOCS does not apply to the claimant’s costs; or (2) to issue Part 7 proceedings and make the same application in the alternative with an additional application for stay immediately thereafter. There are however obvious downsides, especially in relation to the second option.
52. Moreover, these “pre-emptive strike” options will in practical terms only be available once the other party has intimated an injury claim. Often this will not happen until after proceedings are issued. Raising a query pre-emptively would run the risk of prompting a claim which might not otherwise be made.
53. Whatever route is taken, those acting for the claimant would probably need to be geared for a potential appeal.
54. With due respect HHJ Freedman, both the reasoning and the result in Ketchion are very difficult to sustain. In fairness to the judge, many of the points against his decision as identified above do not appear to have been advanced by the claimant in Ketchion.
55. Nevertheless, a hare has now been set running. It will likely be some time before it is stopped.
56. In the interim defendants and their advisers will wish to consider if and how this point might be deployed to their advantage. Conversely, those acting for claimants need to be ready to address the point proactively.
Andrew Roy is a member of the 12KBW Costs Team specialising in personal injury, costs, clinical negligence and professional negligence.