Ho v Adelekun


QOCS – to set off or not to set off?

This was the last stop in a long running case that dealt with the operation of the QOCS regime.

If you hadn’t been following the case, the journey up to this point has been as follows.

Act 1 – The road to the Court of Appeal

The substantive case

The Claimant (A) was injured in a RTA in 2012, suffering injury as a result. The Defendant (H) made a Part 36 offer to settle the claim in April 2017 for £30,000. That offer was accepted. So far so good.

So, what started it all?

From a costs perspective the case started with a dispute about whether or not fixed costs or assessed costs should apply. The confusion lay in the way the offer was made, which was:

In accordance with Part 36 rule 13, such costs to be subject to detailed assessment if not agreed, if the offer was accepted within 21 days.’

The Claimant argued that the Defendant had offered to pay assessed costs, and not fixed costs. The Defendant disagreed (unsurprising given that the difference was some £25,000 or so).

And so, it began…

In February 2018 DDJ Harvey held that fixed recoverable costs applied.

In October 2018 HHJ Wulwik overturned that decision, holding that assessed costs should apply.

And then in November 2019 the Court of Appeal overturned that decision again. Normality was restored, and fixed costs were to apply after all.

However, and to coin a famous lyric – we’ve only just begun.

Act 2 – the Court of Appeal

The argument did not stop there. What then happened was that the Court of Appeal made a costs order in the Defendant’s favour, including the costs for the hearings before DDJ Harvey and HHJ Wulwik.

Importantly, the Defendant requested that the Court of Appeal set off her obligation to pay the fixed costs (£16,700) against the much larger costs of ‘the assessment dispute’ (c. £48,600). It was a costs v costs set-off.

(N.B. – in case you were wondering why the costs order could not be set off against damages, it is because the matter settled by way of Part 36. There was therefore no ‘order’ from the court for damages – see Cartwright v Venduct [2018] EWCA Civ 1654.) Therefore, without being able to set off the costs against costs, the Defendant would effectively recover nil, despite having been successful in the appeal).

The central issue was therefore whether QOCS constrained the court’s power to set off opposing costs orders made in favour of the Claimant and Defendant respectively.

The Claimant’s central argument was that CPR 44.14 was intended to operate as a complete code, and to bar any enforcement of costs orders in excess of orders for damages and interest, unless an exception in CPR 44.15 or CPR 44.16 applied. Set-off against costs was a type of enforcement and was therefore inimical to the rule and purpose of the regime as a whole.

Newey LJ thought that these were ‘compelling reasons’ for not allowing set-off. Males LJ thought that there was ‘considerable force’ in the point made, and Sir Geoffrey Vos C agreed.

But (and there is always a but) the Court of Appeal had been here before. In Howe v Motor Insurers’ Bureau [2020] Costs LR 297, a differently constituted Court of Appeal came to a different conclusion, namely that costs could be set off against costs.

Therefore, whilst the Court of Appeal appears to have wanted to find for the Claimant, it was bound by Howe.

The Finale – the Supreme Court

Whilst the issue of set off might seem like a discrete topic to some, the case is of huge significance to all of those involved in PI litigation.

It is true that on cases where the orders for damages and interest in the Claimant’s favour are large, and where the Defendant’s costs orders are comparatively small, there will be no issue. In those cases, the Defendant is entitled to set-off its costs orders, as per CPR 44.14.

However, there were many cases that were not so straightforward. The Supreme Court cited the following as examples:

  • Where the Claimant fails at trial and is ordered to pay costs, but has been successful (with costs orders in its favour) at various interlocutory stages. Would the Defendant be able to enforce the (likely large) costs order in its favour against the (likely smaller) interlocutory costs order made against it?
  • Where the Claimant succeeds by settlement rather than at trial, and therefore where there was no court order for damages or interest.
  • Where the aggregate of costs that the Claimant is ordered to pay the Defendant substantially exceeds the damages order for the Defendant to pay the Claimant.

Given the large number of cases that could fall into any one of the above scenarios, the Supreme Court started by expressing their frustration that any confusion had arisen at all, and by putting the CPRC on the proverbial naughty step:

‘The very fact that two eminently constituted Court of Appeal have differed profoundly over the interpretation of a provision of the CPR suggests that there must be an ambiguity which practitioners need to have sorted out. The CPRC exists for keeping the CPR under constant review. It is better constituted and equipped than this court to put right such ambiguities, all the more so where, as here, the outcome is suggested by both parties and by the Association of Personal Injury Lawyers (‘APIL’) intervening, to have potentially profound policy consequences for the maintenance of a reasonably fair and level playing field in PI litigation, something which this court is much less well equipped than is the CPRC to assess.’

Indeed, any decision made would have wide ranging policy implications.

For Claimants, the real impact of a ‘costs against costs’ set off would be to deprive a Claimant’s solicitor of the means of payment for work done on credit in parts of the case where the client had been successful. Such an effect would be devastating to the economic basis on which PI litigation under the QOCS regime is conducted.

Conversely, for Defendants, depriving them of any fund against which they might recover some of their costs would equally give a green light to weak applications and bad points. It would also do away with any incentive to settle before trial, given that there would be no real costs consequences of losing.

When one considers the above, it is no wonder that one detects a slight sense of frustration that the CPRC has not grappled with the matter.

The decision

QOCS is not a complete costs code, nor does it wholly exclude set-off against costs.

However, QOCS is intended to be a complete code about what a Defendant could do with costs orders made in its favour. CPR 44.14 ensures that the Defendant can recover the costs ordered by any means available, but only up to the monetary amount of the Claimant’s costs orders for damages and interest.

The exercise one must therefore undertake is to:

  1. Calculate the aggregate in money terms of all costs orders made in D’s favour (A).
  2. Calculate the aggregate in money terms of all damages and interest ordered (B).
  3. If A is less than B (i.e., costs are less than damages) then there shouldn’t be a problem.
  4. If B is more than A, then one can set-off against B and only up to the level of B.

However, in the case of the second scenario, one cannot then take any further amount (i.e., ‘net’ of set-off) unpaid and set-that off against costs orders made in in the Claimant’s favour.

The fall out

The above inevitably involves some fall out that does appear unfair. Indeed, the court recognised that that might well be the case:

‘Why should a defendant which has a substantial costs order in his favour have to pay out costs to a Claimant under an order made against him, when the two costs orders would net off against each other, leaving both sides to meet their own solicitor’s costs themselves?

However, rather than stepping in as the adjudicator on what were the rights and wrongs of set-off in a QOCS case, the Supreme Court responded that that was a matter for the CPRC and not them.

As far as they were concerned, the answer lay in a simple question of statutory construction:

Any apparent unfairness in an individual case…is part and parcel of the overall QOCS scheme devised to protect Claimants against liability for costs and to lift from defendants’ insurers the burden of paying success fees and ATE premiums in the many cases in which a Claimant succeeds in her claim without incurring any cost liability towards the defendant.’

In other words – ‘them’s the rules’, and although it’s not perfect, it will have to do for now.

Furthermore, insofar as there was any ‘wrong’ caused by the result, that fell at least in part to the decision in Cartwright, which had a much ‘larger effect on the levelling process…’.

It is perhaps worth noting that in that case the Court of Appel also urged the CPRC to grapple with the matter, and which to date it has not done so.

Perhaps the request from the Supreme Court might nudge the committee to look at the rules again and to examine whether the ‘levelling up’ has gone either too far, or not far enough. We shall have to see.

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