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A shift in case law? Set-off and qualified one-way costs shifting

Case law on qualified one-way costs shifting (QOCS) is beginning to appear. However, it is safe to say that we do not have the final word on some of its more difficult provisions.

CPR 44.12 (Set Off) provides that where a party entitled to costs is also liable to pay costs, the court may assess the costs which that party is liable to pay and either:

  • Set off the amount assessed against the amount the party is entitled to be paid and direct that party to pay any balance (CPR 44.12(1)(a)).
  • Delay the issue of a certificate for the costs to which the party is entitled until the party has paid the amount which that party is liable to pay (CPR 44.12(1)(b)).

But the set-off provisions appear in CPR 44 Section I General, not in CPR 44 Section II Qualified One-Way Costs Shifting. This raises the question as to whether CPR 44.12 applies in a case to which QOCS applies? CPR 44.14, of course, expressly provides only for set-off of costs against a claimant’s damages and interest.

In Darini and another v Markerstudy Group, HHJ Dight considered this question. He held that CPR 44 Section II was a self-contained code and was to be contrasted to Section I of CPR 44, which necessarily created a different procedural environment for the costs of personal injury claims. He concluded that, under the QOCS regime, a defendant can only enforce a costs order (which includes setting off of that costs order) in the manner indicated in CPR 44.14, 44.15 and 44.16, and that these rules limited the court’s discretion and the power to order set-off contained in CPR 44.12 in the context of QOCS. Because the circumstances in CPR 44.15 and CPR 44.16 were not in play, and the court was not seeking to set off costs against damages and interest, it had no power to order set-off.

However in Howe v Motor Insurer’s Bureau the Court of Appeal held that a (failed) claim against the Motor Insurance Bureau (MIB) under the untraced drivers’ agreement was a claim for damages for personal injuries and so fell within the QOCS regime, overturning the first instance judgment. But relevant in this context is the fact that the Court of Appeal held in a second judgment that, whilst Mr Howe should recover his costs of the costs issue both in the Court of Appeal and at first instance, it was just to set off those costs against the costs owed to the MIB, following his failed claim on substantive liability and his unsuccessful appeal to the Court of Appeal against that decision. So set-off was permitted as between identical parties.

In Bowman v (1) Norfran Aluminium Limited (2) R M Easedale and Co Limited (3) Norfran Limited (unreported), HHJ Freedman was asked to consider a case where a successful defendant argued that it was entitled to have the costs order in its favour set off against the damages the claimant recovered from a losing defendant. The claimant discontinued against one defendant, having discovered that it had never in fact employed her. HHJ Freedman held that the rule in CPR 38.6 applied and the discontinuing claimant should be ordered to pay that defendant’s costs. QOCS applied but the winning defendant asserted that its costs order could be set off against the claimant’s damages from the other defendants, who had employed her.

HHJ Freedman considered Darini and Lockley v National Blood Transfusion Service. He held that a losing defendant was not entitled to set off its costs against damages paid, not by it, but by other defendants. CPR 44.14(1) intended a set-off of costs against damages, but the concept of set-off envisaged a mutuality of liabilities where there were cross-claims between a paying party and receiving party, which was not the case where the defendant sought to enforce its costs order against damages paid by other defendants. To make the order sought would be to order that the claimant paid costs to the winning defendant, not that the winning defendant’s liability was reduced. In HHJ Freedman’s view, the CPR would have said if a defendant could enforce its costs order against damages paid by another defendant.

But we hear that there is another case involving set-off as between multiple defendants in which the judge reached a different decision and in which permission to appeal has been given… More anon!

39 Essex Chambers Judith Ayling

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