Appeal court urges rethink over set-off in QOCS cases

Hayman: Heading to the Supreme Court

The Court of Appeal has urged the Civil Procedure Rule Committee to consider preventing defendants setting off costs in cases covered by qualified one-way costs shifting (QOCS).

The court ruled last week that it was bound by a 2017 decision to allow a set-off, even though Lord Justice Males said there was “powerful case” for saying it was wrongly decided.

It has also granted the claimant/respondent in Ho v Adelekun [2020] EWCA Civ 517 permission to appeal to the Supreme Court.

In the substantive case last November, the Court of Appeal decided that a defendant who settles a claim that leaves the RTA 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 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. At issue was whether the claimant should be ordered to pay the costs of the hearing before the DDJ and, in particular, whether the defendant could set off her entitlement to costs against her liability for Ms Adelekun’s costs of the claim.

The claimant argued that QOCS was a self-contained code that provided a claimant with protection from having to bear a defendant’s costs other than in the particular circumstances specified, which did not apply here.

Her counsel, Roger Mallalieu QC submitted that a defendant could enforce a costs order, whether by set-off or otherwise, only up to the amount of any damages awarded, in accordance with CPR 44.14.

However, the Court of Appeal had taken a contrary view in Howe v Motor Insurers’ Bureau (6 July 2017, unreported in this respect), deciding that costs awarded to the claimant should be set off against costs orders in favour of the defendant.

The present court suggested that this had been wrongly decided. Giving the main ruling, Lord Justice Newey said: “In all the circumstances, were there no authority on the issue, I would be inclined to accept Mr Mallalieu’s submission that, where QOCS applies, the court has no jurisdiction to order costs liabilities to be set off against each other.

“I would find convincing Mr Mallalieu’s contention that section II of CPR part 44 represents a self-contained code and that, accordingly, a defendant can recover costs he has been awarded only by set-off against damages and interest under CPR 44.14 or, where appropriate, by invoking CPR 44.15 or CPR 44.16.”

Newey LJ said this would accord with the conclusion of His Honour Judge Dight at Central London County Court in Darini v Markerstudy Group in 2017.

He said Judge Dight expressed the view that “where a costs order is made against the claimant, it can be set off against damages and interest only”, a set-off of costs against costs being “a means of giving effect to an order in favour of the defendant and therefore… enforcement within the meaning of [section II of CPR part 44]”.

However, Newey LJ said the court was bound by the decision in Howe unless it was given per incuriam, which he found – despite Mr Mallalieu’s arguments – that it was not.

“There is no reason to suppose that the court decided Howe in ignorance of any relevant statute, CPR provision or previous decision of its own, of a court of co-ordinate jurisdiction, or of the House of Lords or Supreme Court.”

Having decided that set-off could be ordered in principle, the judge went on to so order in this case.

The remaining question was whether the claimant should be ordered to pay the costs of the first instance hearing.

While accepting that the fixed-costs regime applied, the DDJ made no order as to costs on the basis that the defendant had been the “author of her own misfortune” because of the “ambiguity or irregularity” in the wording of a consent order which provided that she pay the claimant’s reasonable costs on the standard basis.

Newey LJ said this was wrong as the Tomlin order had not been a significant issue in the case – it was an earlier letter that was key. He ordered the claimant to pay the costs of the DDJ hearing.

He concluded: “I would add finally that the Civil Procedure Rules Committee may wish to consider whether costs set-off should be possible in a QOCS case.”

In a concurring judgment, Lord Justice Males said he was “considerable force in Mr Mallalieu’s submission that, in the specific context of CPR 44.14, the term ‘enforced’ should be understood as extending to the exercise of a right of set-off, with the consequence that set-off of costs orders against each other is precluded”.

This and other factors added up to “a powerful case” for calling into question the decision in Howe.

He added: “I agree that the question whether costs set-off should be possible in a QOCS case could usefully be considered by the Rules Committee. Regardless of whether Howe v Motor Insurers Bureau (No. 2) was correctly decided, there are powerful arguments on each side of the issue as to what the law should be.”

Sir Geoffrey Vos, Chancellor of the High Court, agreed with both of his colleagues.

Sam Hayman, head of costs at London firm Bolt Burdon Kemp, who acted for the claimant/respondent, said: “The issue of set-off in a QOCS context is of prime importance in ensuring the protection of claimants’ personal assets in a personal injury context.

“With Howe still standing, albeit subject to doubts as to its correctness by the Lord Justices here, it is vitally important that we continue the battle to address the potential injustice of personal injury claimants being at risk of losing their homes or personal assets in the pursuit of much-needed compensation for life-changing injuries.

“We are therefore taking this matter to the Supreme Court in pursuit of the wider aim of ensuring access to justice is not further eroded.”

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