The Supreme Court gave judgment today in the case of Ho v Adelekun  UKSC 43. The judgment and other information about the case may be found on the Supreme Court’s website.
In proceedings to which Qualified One-Way Costs Shifting (“QOCS”) applies, CPR 44.14 provides that costs orders made against a claimant may only be enforced to the extent that they do not exceed the amount of any orders for damages and interest made in the claimant’s favour. The issue on this appeal was whether this precludes a defendant setting off a costs order in its favour against an order for costs made in the claimant’s favour, given the court’s well-established jurisdiction to order a set off opposing costs orders, as enshrined in s51 of the Senior Courts Act 1981 and CPR 44.12.
The issue would arise in any case where a defendant has a costs order made in its favour (for example on an interim application, or where the claimant fails to beat a defendant’s Part 36 offer) but there is no award of damages, or an award of insufficient damages and interest, to be used to satisfy that costs order. This is given particular piquancy by the fact that no order for damages is made in the extremely common situation where the claimant’s claim is compromised by means of a settlement, even one in the form of a Tomlin order (as confirmed in Cartwright v Venduct Engineering Ltd  EWCA Civ 1654).
The outcome of the appeal will therefore be of keen interest for insurers of defendants in such claims – who will often be unable to recover costs orders in their favour unless they can set them off against costs in the claimant’s favour – and for claimants’ lawyers – who will want to know whether or not the claimant’s costs are protected or may be impacted by any costs orders in favour of the defendant: one can readily see, for instance, how that might affect the decision on whether or not to accept a defendant’s Part 36 offer. The Association of Personal Injury Lawyers had been given permission to intervene in the appeal by written submissions.
A definitive ruling on the point has been awaited for some time because differently constituted Courts of Appeal have expressed contradictory views in this case and in Howe v Motor Insures’ Bureau  Costs LR 297.
The precise terms of CPR 44.14(1) are as follows. Much of the argument has revolved around the use of the word “enforced”:
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.
The facts of the present case
The Claimant, Ms Adelekun, was injured in a road traffic accident. She brought a personal injury claim against the Defendant, Ms Ho. The claim was settled by the Claimant accepting the Defendant’s Part 36 Offer to pay her damages of £30,000 and her costs to be assessed.
There was then a dispute about whether or not the Claimant’s costs were fixed costs pursuant to CPR Part 45 Section IIIA. Following an appeal to the Court of Appeal, that issue was determined against the Claimant (so that her costs were fixed, at a sum of about £16,700) and she was ordered to pay the Defendant’s costs of that issue, said in total to be about £48,600.
Because the entitlement to damages in the Claimant’s favour resulted from a settlement and Tomlin order, rather than a court award of damages, the Defendant was unable to set off the costs order in its favour against those damages. The Defendant, therefore, wished to be able to set off its costs of the fixed costs issue against the Claimant’s costs of the proceedings.
In Howe, the Court of Appeal (Sir James Munby P, MacFarlane and Lewison LJJ) decided that set-off of opposing costs orders was permitted as it was not affected by QOCS, on the basis that set-off is not a type of enforcement.
In the present case, the Court of Appeal (Sir Geoffrey Vos C, Newey and Males LJ) indicated that had there been no authority on the issue, it would have been inclined to hold that where QOCS applies the court has no power to order a set-off of costs liabilities against each other, but that it was bound to follow the decision of the Court of Appeal in Howe that set-off was not a form of enforcement and so the court did have the power to order such a set off.
The Supreme Court’s decision
In a single opinion given by Lord Briggs and Lady Rose (with Lady Arden, Lord Kitchen and Lord Burrows agreeing) the Supreme Court held that an opposing costs order can, in principle, be enforced by set-off against another costs order in a case to which QOCS applies, but, crucially, only to the extent that the opposing costs order does not exceed the amount of any orders for damages in costs made in favour of the Claimant.
This was for reasons including the following:
(a) the Court did not find that any assistance in interpreting CPR 44.14 was to be derived from Sir Rupert Jackson’s Review of Civil Litigation Costs since the consequent rules did not entirely correspond with his proposals; other materials were of greater value, including the Explanatory Memorandum prepared by the Ministry of Justice for the Joint Committee on Statutory Instruments, which said that:
“a successful claimant against whom a costs order has been made (for example, where the claimant does not accept and then fails to beat the defendant’s ‘part 36 offer’ to settle) will not have to pay those costs except to the extent that they can be set off against any damages received”
(b) the Court accepted that QOCS was intended to be a complete code about what a defendant in a personal injury case could do with costs orders obtained against the claimant, ie 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. That is what the Explanatory Memorandum stated in terms;
(c) a set off of costs against damages in a claim subject to QOCS was a form of enforcement. A defendant must bring into account the monetary benefit of setting off costs against the claimant’s damages, despite the fact that this may not generate actual cash but only save the defendant from having to put his hand in his pocket to pay the damages and interest to that extent. If the defendant had already paid the damages before its costs are assessed, then it could enforce its costs orders by any other available means, but only up to the amount of the claimant’s damages and interest;
(d) if set-off of costs against damages was therefore a form of enforcement in this context, set-off of costs against costs was equally a means of enforcement. Both achieved a recovery measurable in money terms for the defendant on account of its costs entitlement, and by the same self-help means of appropriating an asset of the claimant (his damages entitlement, or his costs entitlement) to the part satisfaction of the defendant’s entitlement against the claimant for costs;
(e) real assistance on the contextual meaning of enforcement could be gained by reflecting on the language and structure of rule 44.14(1). The requirement is to calculate the aggregate amount in money terms of all the defendant’s costs orders made against the claimant, not the net amount arrived at by netting off opposing costs orders and striking a net balance. Costs orders in favour of the claimant are not even mentioned in the formula, and the aggregate expressly referred to is a gross not a net amount;
(f) if results in particular cases appeared to be anomalous or unfair, that was part and parcel of the overall QOCS scheme devised to protect claimants against liability for costs and to relieve defendants’ insurers of 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; no one has claimed that the QOCS scheme was perfect.
The result in the present case was therefore that Ms Adelekun gets to keep her damages in full (since they were agreed by a settlement) and to recover her fixed costs of the claim, plus her costs of the present appeal, without having to pay the costs order that had been made in the Defendant’s favour. The Defendant’s insurer will be unable to recover those costs ordered in the Defendant’s favour, and will also now also have to pay the costs of this appeal. In future, Defendants will be unable to set off opposing costs orders, save to the extent of any damages and interest awarded by the court, and, that will be a significant factor in the balance of power in such claims.
One may speculate as to whether defendants’ insurers will be comforted by the Supreme Court’s observations that, in effect, these are the swings to be offset against the roundabouts for insurers under the overall QOCS scheme.
Finally, it should be noted that this was an extremely rare instance of the Supreme Court hearing an appeal on a procedural/costs point, as a result of permission to appeal having been given by the Court of Appeal. As the Supreme Court ruefully observed, these are matters where the Civil Procedural Rule Committee is better placed to review and if necessary put right any ambiguities. It remains to be seen whether the CPRC will consider that the Supreme Court’s decision best reflects the purposes of QOCS and the Overriding Objective, or will decide to amend rule 44.14.
From 4 New Square Chambers, Roger Mallalieu QC acted for the Claimant, Nicholas Bacon QC for the Defendant and Ben Williams QC for the Intervener.
Disclaimer: This article is not to be relied upon as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.
© Stephen Innes 4 New Square, 6 October 2021