Defendants unable to offset 'costs against costs' in QOCS cases

In a blow to Defendants, the UK Supreme Court in the case of Ho v Adelekun (2021) UKSC 45 unanimously agreed with the appellant Claimant that a Defendant cannot automatically off set 'costs against costs' under the Qualified One-Way Costs Shifting (QOCS) regime.

QOCS applies to most personal injury claims and ordinarily has the effect of limiting the amount of costs payable by a Claimant to a Defendant where the Claimant loses on part or all of their claim. In some circumstances this allows the Defendant to recover their costs up to a certain limit.

CPR 44.14 deals with the effect of qualified one-way costs shifting:

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.

2. Orders for costs made against a claimant may only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.

3. An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record

For example, a Defendant makes an early offer that the Claimant does not accept. The case proceeds to trial and the Claimant is successful but is awarded less than the Defendant had originally offered. The usual costs order from the Court in this scenario would be for the Defendant to pay the Claimant's costs up to the expiration of their offer and for the Claimant to pay the Defendant's costs from that date onwards. If a Defendant has made their offer early enough the amount of costs payable to them may exceed the sum awarded to the Claimant. In this scenario the Defendant would only be able to enforce the costs order up to the limit of any damages and interest they were ordered to pay to the Claimant.

In the case of Ho v Adelekun the Claimant/appellant (Adelekun), had been injured in a road traffic accident. The Defendant/respondent (Ho) had offered to pay her damages of £30,000 and pre-settlement legal costs which Adelekun accepted. Thereafter there was a dispute as to the amount of pre-settlement costs owed by Ho.

The Court of Appeal upheld Ho's argument that she was only liable for Adelekun's pre-settlement costs of £16,700 and, as Ho was successful, made a costs order that Adelekun should pay Ho's legal costs of £48,600.

In terms of CPR 44.14, it was agreed that the QOCS regime does not seek to "constrain the court from making costs orders, but merely the use which Defendant's can make of costs orders in their favour."

Adelekun had argued that she was protected from paying any of Ho's costs by the QOCS regime which was designed to ensure a Claimant did not incur a net liability as a result of a personal injury claim.

CPR 14.14(1) allows a Defendant to off-set a cost award against awarded damages (and interest thereon). This only applies however to Court orders and does not include settlement by way of Part 36 or Tomlin Order.

Damages of £30,000 had in this case been agreed by way of settlement agreement rather than the Court ordering Ho to pay that amount so, following the Court of Appeal decision in Cartwright v Venduct Engineering, there was no order for damages and interest for the purposes of CPR 44. There was nothing against which Ho could enforce the Court of Appeal costs order of £48,600.

Ho had argued that the opposing costs orders could be set off against each other, with the net effect that the £16,700 payable to Adelekun would be wiped out by the £48,600 awarded to Ho. The Court of Appeal was bound by the earlier decision of Howe v MIB (2020) Costs LR 297 and found for Ho.

The Supreme Court unanimously allowed Adelekun's appeal and held that a costs order made in a Claimant's favour should not be taken into account when determining the limit up to which a Defendant may enforce an order for costs in its favour. The setting off of costs against costs was found to be a form of enforcement covered by the QOCS regime just as the setting off of costs against damages is. The effect of this ruling is that Ho must pay Adelekun the pre-settlement costs of £16,700 on top of the agreed damages of £30,000 and she cannot enforce the Court of Appeal costs order against Adelekun at all.

What does this mean for Defendant's?

The Supreme Court acknowledged that "this conclusion may lead to results that at first blush look counterintuitive and unfair." A Defendant's early Part 36 offer would previously have offered some protection whereas this decision seemingly favours Claimant's by lessening the threat of them failing to beat said offer.

If the Supreme Court has misinterpreted the rules, then the Supreme Court said it is for the Civil Procedure Rules Committee to amend them so as to best reflect the purpose of QOCS and the Overriding Objective.

From a Defendant's perspective, the desire to bring appeals that may be 'won' on paper but that ultimately lead to an unenforceable cost order is likely to be diminished.