The Court of Appeal in Cartwright v Venduct Engineering Ltd has ruled that, where sums have been paid to a claimant under the schedule to a Tomlin order, CPR 44.14(1) could not apply, as the schedule was not part of the court’s order but merely reflected the parties’ agreement.
The court also confirmed that the acceptance by a claimant of a defendant’s CPR 36 offer which achieves settlement by payment of damages without the need for a court order, puts such damages outwith CPR 44.14 and so beyond the reach of qualified one-way costs shifting (QOCS).
While the judgment does not address the acceptance of damages by a claimant in correspondence pre-issue, it must be the case that those damages would also be immune to QOCS on the same basis; that is that the agreement does not result in a court order.
The court is undoubtedly right about all of this and for the reasons given at paragraphs 48 to 51 of the judgment, which needn’t detain us here. What is crucial following this judgment, however, is that lawyers factor these consequences in to the decision about the form in which any settlement agreement is recorded.
Parties (and defendants in particular) like Tomlin orders because they are confidential. This may particularly be the case in multi-party claims where the settling parties may not want the other parties to know the terms upon which settlement has been reached. Defendants now need to balance the advantages of this privacy against the certainty that QOCS will not apply to any damages paid to the claimant if a Tomlin order is used, rather than the settlement being recorded as a consent order and approved by the court.
It will almost certainly be clear to the parties, at the time that settlement is reached, whether there are any costs orders against the claimant which that defendant may want to try and enforce. Thus, this judgment is likely to have the biggest impact on defendants in multi-defendant cases, who are seeking to enforce costs orders against damages paid by their co-defendants. Of course, they will not have been involved in any negotiation as to the form in which the agreement between claimant and co-defendant was recorded.
For this reason, it is difficult to predict quite how the consequences of this judgment are going to play out:
- On the one hand, if a defendant wants to settle a claim, and there is a costs order in its favour that it wants to set off against the claimant’s damages under the QOCs regime, the defendant cannot settle the claim via the CPR 36 route as it loses the right to apply QOCS to the damages.
- The defendant can make a CPR 44 offer and insist that the terms of any agreement are set out in a court order. It would be a brave claimant who turned down a reasonable offer of settlement purely because he or she did not agree to the terms being set out in a consent order, rather than a Tomlin order, with a view to trying to put his or her damages beyond the reach of QOCS, but at the same time, the defendant does not have the costs protection of a CPR 36 offer.
- Certainly, claimants would be wise to insist on any settlement agreements being recorded in Tomlin orders, particularly where the claimant has ongoing claims against co-defendants that will survive any agreement.