Set-off and enforcement in QOCS: different beasts in the costs jungle?

Won your case with costs? Good news, but what happens if you slipped up on the way and your opponent has succeeded in obtaining a costs order against you? That might have happened had you made a request to the court for permission to rely on an additional expert’s report, but your application to do so failed with costs. In such circumstances, it would be reasonable to suppose that the costs which your losing opponent is due to pay to you should be reduced by the costs you owe him or her for the failed application. Expressed in legalese, the costs would thereby be set off against each other, simple as that.

The reality, of course, is that, as so often is the case with costs, things are seldom that simple. As a general principle, costs can be set off against other costs. CPR 44.12 gives the court jurisdiction to order just that:

“(1) 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 –
(a) set off the amount assessed against the amount the party is entitled to be paid and direct that party to pay any balance; or
(b) 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”.

However, that is not the last word. The Court of Appeal has just given judgment about set-off in a case which had proceeded within the qualified one-way costs shifting (QOCS) regime in Section II of CPR 44, and applies in actions for personal injury. Whilst the issue was whether CPR 44.12 can apply in QOCS claims, the case is notable for three other reasons, and not just for what it decided.

First, the case was the original appeal to be dealt with remotely via “Skype for Business”, the COVID-19 “Stay home, protect the NHS and save lives” advice having just been given by the government. Second, the court was invited to take the rare step of finding that an earlier decision, Howe v Motor Insurers Bureau, had been decided per incuriam (that is, decided “through lack of care”). Third, having concluded that that was not the case, the court nonetheless agreed that there was a powerful argument for calling the decision in Howe into question, so it gave permission to appeal the judgment directly to the Supreme Court.

But that is to get ahead of ourselves. The case in point is Ho v Adelekun (No. 2). The facts were these. Miss Adelekun had been injured in a road traffic accident. She issued a claim in the pre-action protocol for low value personal injury claims in road traffic accidents against Mrs Ho. The case settled for £30,000 under the terms of a Tomlin order in which the obligation to pay the damages appeared in a schedule, together with a provision for “reasonable costs… on the standard basis to be subject to detailed assessment if not agreed”. Miss Adelekun contended that that meant she was entitled to an assessment of costs, not fixed costs under CPR 45. The Court of Appeal disagreed (see Ho v Adelekun (No. 1)), holding that the fixed costs regime applied, so the amount payable was capped at £16,705.15.

That left the vexed issue. Could Mrs Ho set off against that sum, the costs which Miss Adelekun was liable to pay her in respect of her success in Ho v Adelekun (No. 1)? She could not look to the £30,000 damages for that purpose and deduct from them what Miss Adelekun owed her in costs because of the Tomlin order. The obligation to pay had been recorded in the schedule and was not an order of the court, but rather a contractual agreement to pay. As such, there could be no recourse to the damages for Mrs Ho’s costs (see Cartwright v Venduct Engineering Ltd). Set-off under CPR 44.12 appeared to be her only hope. However, Miss Adelekun’s claim was for personal injury so she had QOCS protection. Did that make a difference?

Yes, Miss Adelekun argued in the Court of Appeal. The whole purpose of QOCS was to protect claimants from having to pay any costs of a defendant in personal injury claims. The QOCS regime had been implemented on 1 April 2013 to give effect to most of the recommendations made by Sir Rupert Jackson in his Review of Civil Litigation Costs: Final Report, and was reinforced under the Civil Procedure (Amendment) Rules 2013 with the intention that “a losing claimant will not pay any costs to the defendant”.

Only in defined circumstances could that protection be lost, specifically under CPR 44.15 if the action had been struck out, or under CPR 44.16 if the court made a ruling that the claim had been “fundamentally dishonest”. In the event that those rules were engaged, there was no limit to the costs which could be sought from the claimant, but that was not the situation in Ho v Adelekun (No. 1), where there had been no striking out nor any suggestion of dishonesty, so neither was relevant.

That left CPR 44.14(1), which allows for an inroad to be made into the concept of full QOCS protection where a losing defendant has obtained an interlocutory order for costs during the conduct of the case. Under the rule:

“(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.”

Thus, where CPR 44.14(1) is engaged, any costs recoverable from a claimant can be enforced, but only where there has been an order for payment of damages or interest, and only against those damages or interest up to the total amount payable and no more. The rule does not mention enforcement against costs. Accordingly, the rule does not permit one costs order to be set off against another where QOCS applies.

In Ho v Adelekun (No. 2), no “orders for damages and interest” had been made because Mrs Ho’s obligation to pay the £30,000 had been a contractual agreement in the Tomlin schedule, and not an order of the court. It followed that any form of set off or enforcement of the Ho v Adelekun (No. 1) costs was impermissible because there had been no order for the payment of damages and interest, and CPR 44.14(1) did not allow set off against costs, only against damages and interest.

In any event, Miss Adelekun argued, Section II of CPR 44 was a self-contained code and recourse could not be made to CPR 44.12 to enable set-off to take place, so Mrs Ho’s application for set-off should be dismissed. To the extent that the Court of Appeal had decided differently in Howe (post), that decision had been reached per incuriam and so did not bind the court in Ho v Adelekun (No. 2).

Not so fast, held the Court of Appeal, albeit with reluctance.

Yes, the court in Howe had decided differently, holding (per Lewison LJ with whom Munby P and McFarlane LJ agreed) that:

“First, under the general law, set-off is not a species of enforcement… Secondly, Part 44.14 enables enforcement without the permission of the court, whereas 44.12 requires the permission of the court or at least a court order in order for one set of costs be set off against another.”

The effect of that was that set-off did not include enforcement. They were separate beasts of the costs jungle. Accordingly, even in a QOCS case, the court had jurisdiction to order one set of costs to be set off against another. In the circumstances of Howe, that had been a just outcome, since the claim had failed at trial and Mr Howe had lost his appeal, albeit due to a change in the law.

Likewise, in Ho v Adelekun (No. 2), such a result was just. Mrs Ho had incurred substantial costs in vindicating her rights; even with an order for set-off under CPR 44.12, she would be left with a large shortfall. If was therefore appropriate to make an order that the costs due from her should be set off against the costs due to her from Miss Adelekun.

That all said, the court found Miss Adelekun’s submissions forceful. At paragraph, 15, Newey LJ gave his view that:

“I find it hard to see how costs set-off can be justified on the basis that CPR 44.14 deals with set-off without the permission of the Court while CPR 44.12 authorises set-off with such permission. As I see it, CPR 44.14 is designed to bar any enforcement of costs orders against claimants in excess of damages and interest unless CPR 44.15 or CPR 44.16 applies, not merely to bar enforcement without the permission of the Court. Were the position otherwise, the protection afforded to claimants by QOCS would be severely curtailed. There would be no evident restriction on the circumstances in which costs orders against claimants could be enforced against them with the Court’s permission”.

However, the court was bound by Howe, as Miss Adelekun’s submission that it had been decided per incuriam also failed. There was no reason to suppose that the judgment had been delivered in ignorance of any relevant statute, CPR provision or decision of a court of co-ordinate or superior jurisdiction. However, in recognition of its concern that the case might have been wrongly decided, permission was given to appeal to the Supreme Court.

Pending that appeal, what should parties in actions covered by QOCS be on the alert for when it comes to costs?

At least or until the Supreme Court overrules Ho v Adelekun (No. 2), it appears that in a QOCS case to which CPR 44.14(1) does not apply, because there has been no order for the payment of damages or interest, a defendant entitled to costs can potentially set off those costs against the claimant’s general costs. That will be so provided the court gives its blessing under CPR 44.12 for that to happen.

Of course, if the obligation to pay damages is contained in an order of the court rather than a contractual agreement to do so set out in a schedule to a court order, there will be no such difficulty because CPR 44.14(1) is available: a losing defendant can enforce any costs order he or she may have up to the amount of the damages and interest payable. The problem for Mrs Ho in her case was that there was no order for damages, only an agreement to pay. As a result, her only hope of “getting” her costs was by way of a CPR 44.12 set-off against the costs otherwise due to Miss Adelekun.

What can Mrs Ho “get” by way of costs in this way? There is no limit under CPR 44.12; contrast CPR 44.14(1), where the most that the defendant can “get” is the total of the damages and interest ordered to be paid. It would therefore appear that Miss Adelekun’s potential liability will be for all the Ho v Adelekun (No. 1) and Ho v Adelekun (No. 2) costs, with only the £16,705.15 to set off against them. However, in Ho v Adelekun (No. 2), the court indicated that in QOCS cases, there can never be a situation in which a losing claimant can have a net liability to a defendant, in other words being required to make a payment (see paragraphs 47 and 48). The outcome, therefore, is that Miss Adelekun will keep her damages of £30,000, but the fixed costs of £16,705.15 must be set off against what she owes in adverse costs to Mrs Ho. That, of course, is to reckon without the costs of Miss Adelekun’s own solicitors, who no doubt will look to the damages for their cut.

At the end of all this, will Miss Adelekun see any of her recovery? Probably not, unless her solicitors let her off or, in two years’ time, the Supreme Court overrules the Court of Appeal, so that everything is reversed in her favour. That is a long time to wait to be told that set-off and enforcement are not different beasts of the costs jungle, and that Section II of CPR 44, is, after all, a self-contained code and that CPR 44.12 does not apply to it.

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