Costs News

07 October 2021
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Supreme Court says defendants cannot set off costs orders in QOCS cases

The Supreme Court has held that defendants cannot set off opposing costs orders in cases covered by qualified one-way costs shifting (QOCS), indicating it should be a matter for the Civil Procedure Rule Committee to address.

The decision in Ho v Adelekun [2021] UKSC 43 may be a rare example where the Court of Appeal was happy to be overruled – in its decision in April 2020, the court felt it was bound by an earlier decision to allow a set-off, even though Lord Justice Males said there was “powerful case” for saying it was wrongly decided.

The Court of Appeal also suggested that the Civil Procedure Rule Committee should look at the issue and the Supreme Court began its ruling by doubting “the appropriateness of a procedural question of this kind being referred to this court for determination”.

It explained: “The very fact that two eminently constituted Courts 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 the purpose of keeping the CPR under constant review. It is better constituted and equipped than is 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.”

However, as permission to appeal was granted, the court would go on to decide the question of construction, leaving it to the rule committee “to consider whether our interpretation best reflects the purposes of QOCS and the overriding objective, and to amend the relevant rule if, in their view, it does not”.

In the substantive case, the Court of Appeal decided in November 2019 that a defendant who settles a claim that leaves the road traffic accident protocol with a part 36 offer including the usual wording about paying costs on the standard basis was not contracting out of fixed costs.

The claim here settled for £30,000 plus costs. The claimant, Seyi Adelekun, lost at first instance before Deputy District Judge Harvey at Central London County Court, but His Honour Judge Wulwik's reversed this decision, before the appeal court reinstated it.

It was common ground that Siu Lai Ho should be awarded the costs of her successful appeal, said to be about £48,600. At issue was whether she could set off her entitlement to costs against her liability for Ms Adelekun’s costs of the claim, which were £16,700. She accepted she would have to bear the rest of the costs herself.

The Court of Appeal had said that, but for its ruling in Howe v Motor Insurers' Bureau (6 July 2017, unreported in this respect), it would have decided that a defendant could recover costs awarded only by set-off against damages and interest under CPR 44.14.

The Supreme Court unanimously allowed the appeal. Giving the ruling, Lord Briggs and Lady Rose said the issue was one of construction, not policy – the claimant and APIL, intervening, argued that the real effect of a costs against costs set-off in the QOCS context was to deprive the claimant’s solicitor of the means of payment for work done on credit in parts of the case in which the client had been successful and recovered costs.

This would, they said, undermine the whole economic basis upon which PI litigation under QOCS could be undertaken by solicitors for deserving clients of modest or non-existent means.

While it did not accept the claimant’s argument that QOCS was a complete costs code, or that it wholly excluded set-off of costs against costs under rule 44.12, the Supreme Court said: “We would accept that QOCS is intended to be a complete code about what a defendant in a PI case can do with costs orders obtained against the claimant, i.e. about the use which the defendant can make of them.

“The defendant can recover the costs ordered, by any means available, including set-off against an opposing costs order, but only up to the monetary amount of the claimant’s orders for damages and interest.”

The court recognised that this conclusion may lead to results “that at first blush look counterintuitive and unfair” – why, it asked, 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?

But that was the “true construction of the wording used in part 44”. It continued: “Any apparent unfairness in an individual case such as this dispute between Ms Ho and Ms Adelekun 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.

“We also recognise that this construction of rule 44.14 may lead to results that appear anomalous…

“No one has claimed that the QOCS scheme is perfect. It is, however, the best solution so far that the opposing sides in the ongoing debate between claimant solicitors and defendant insurers have been able to devise.

“It works to achieve the aims for which it was introduced in the great majority of straightforward cases in which one side or the other is entirely successful.”

Sam Hayman, partner and head of costs at London firm Bolt Burdon Kemp, which acted for Ms Adelekun, said that to have ruled otherwise would have exposed personal injury claimants to “potentially ruinous liabilities”.

He said: “This judgment puts right a significant watering down of one of the core protections of the Jackson reforms. Howe v MIB was wrongly decided and that was clear from the decision of the Court of Appeal in this case…

“Thankfully, the Supreme Court Justices unanimously agreed with our case that permitting a set-off of costs versus costs was opening a back door to QOCS protection and exposing personal injury claimants to potentially ruinous liabilities.”

Jonathon Tetley, a partner at defendant firm Plexus Law, described the decision as “hugely disappointing” for defendants and their insurers.

He noted that the Supreme Court did not interfere with the Court of Appeal’s 2018 judgment in Cartwright v Venduct Engineering.

“The combined effect [is] that if defendants want to recover any costs from claimants for late acceptance of their part 36 offers in QOCS cases, they now need to secure the claimant’s agreement to include a figure for the claimant’s damages in the main body of a consent order or actually apply for judgment for the amount of the agreed damages, as late acceptance of a part 36 offer or settlement by Tomlin order will not allow the defendant to enforce up to the amount of damages (per Cartwright) and they can no longer look to set off their costs against the claimant’s costs (per Adelkun).

“This will make cases more difficult to settle for defendants and their insurers by removing some of the teeth from their part 36 offers and result in their having to pay out more in costs to claimants in cases involving late acceptance of part 36 offers.”

Bolt Burdon Kemp instructed Roger Mallalieu QC. For Ms Ho, Taylor Rose MW instructed Nick Bacon QC and Andrew Roy. APIL instructed Ben Williams QC.

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