The Supreme Court has held that defendants cannot set off opposing costs orders in cases covered by qualified one-way costs shifting (QOCS), in what has been hailed as a significant win for claimants.
It overturned what the Court of Appeal’s reluctant conclusion that it was bound by an earlier decision to allow a set-off, even though Lord Justice Males said there was “powerful case” for saying it was wrongly decided.
It will now be for the Civil Procedure Rule Committee (CPRC) to decide whether any change to the CPR is required.
In the substantive case of Ho v Adelekun, the Court of Appeal decided in November 2019 that a defendant who settles a claim that leaves the road traffic accident protocol with a part 36 offer including the usual wording about paying costs on the standard basis was not contracting out of fixed costs. Here it settled for £30,000 plus 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. She accepted that she had to pay the damages and interest to Ms Adelekun but contended that she should not have to pay over the £16,700 because they should be set off and absorbed by the £48,600 costs that Ms Adelekun owes her.
Ms Ho accepted that she could not enforce her costs order for the assessment dispute against Ms Adelekun beyond that.
The Court of Appeal in April 2020 said that, but for its ruling in Howe v Motor Insurers’ Bureau (6 July 2017, unreported in this respect), it would have decided that a defendant could recover costs awarded only by set-off against damages and interest under CPR 44.14, and not costs.
The Supreme Court unanimously allowed the appeal, with Lord Briggs and Lady Rose giving the ruling. Lady Arden, Lord Kitchin and Lord Burrows agreed.
The court put aside the policy issues around QOCS and said it was a question of construction.
While it did not accept that QOCS was a complete costs code, or that it wholly excluded set-off of costs against costs under rule 44.12, the court said: “We would accept that QOCS is intended to be a complete code about what a defendant in a PI case can 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.”
The court recognised that this conclusion may lead to results “that at first blush look counterintuitive and unfair” but that was the “true construction of the wording used in part 44”.
It continued: “Any apparent unfairness in an individual case such as this dispute between Ms Ho and Ms Adelekun is part and parcel of the overall QOCS scheme devised to protect claimants against liability for costs and to lift from defendants’ insurers 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.
“We also recognise that this construction of rule 44.14 may lead to results that appear anomalous…
“No one has claimed that the QOCS scheme is perfect. It is, however, the best solution so far that the opposing sides in the ongoing debate between claimant solicitors and defendant insurers have been able to devise.
“It works to achieve the aims for which it was introduced in the great majority of straightforward cases in which one side or the other is entirely successful.”
The Court of Appeal suggested that the Civil Procedure Rule Committee should look at the issue and the Supreme Court ruling began by doubting “the appropriateness of a procedural question of this kind being referred to this court for determination”.
It explained: “The very fact that two eminently constituted Courts of Appeal have differed profoundly over the interpretation of a provision of the CPR suggests that there must be an ambiguity which practitioners need to have sorted out.
“The CPRC exists for the purpose of keeping the CPR under constant review. It is better constituted and equipped than is this court to put right such ambiguities, all the more so where, as here, the outcome is suggested… to have potentially profound policy consequences for the maintenance of a reasonably fair and level playing field in PI litigation, something which this court is much less well equipped than is the CPRC to assess.”
It continued that, permission having been given, it had to decide the question of construction, “leaving it to the CPRC to consider whether our interpretation best reflects the purposes of QOCS and the overriding objective, and to amend the relevant rule if, in their view, it does not”.
Sam Hayman, partner and head of costs at London firm Bolt Burdon Kemp, which acted for Ms Adelekun, said: “This judgment puts right a significant watering down of one of the core protections of the Jackson reforms.
“Howe v MIB was wrongly decided and that was clear from the decision of the Court of Appeal in this case…
“Thankfully, the Supreme Court justices unanimously agreed with our case that permitting a set-off of costs versus costs was opening a back door to QOCS protection and exposing personal injury claimants to potentially ruinous liabilities.”
The defendant’s solicitor, Matthew Hoe, director of litigation and dispute resolution at Taylor Rose MW, said: “There are two particularly alarming things for PI defendants, insurers and compensators in the decision. The first is the approach to the construction of the CPR. The second is likely effect on litigation and the costs of defending claims.
“The decision means, essentially, unless there is an order for damages or a finding of fundamental dishonesty, a claimant will not have to pay a successful defendant’s costs.
“Reaching the decision by focusing only on the words of the QOCS rules and not wider usages in the CPR will make the outcome of future cases about the CPR harder to predict.”
Mr Hoe, who is a member of the Forum of Insurance Lawyers’ costs sector focus group, added: “Concerningly, it paves the way for claimants pursuing bad points – as the claimant had originally done in Adelekun – forcing defendants to incur costs the claimant will not have to pay, perhaps thereby applying improper pressure to settle.
“An urgent review of the QOCS rules by the CPRC is required to ensure the intended checks and balances operate.”
Bolt Burdon Kemp instructed Roger Mallalieu QC. For Ms Ho, Taylor Rose MW instructed Nick Bacon QC and Andrew Roy. The Association of Personal Injury Lawyers, as intervenor, instructed Ben Williams QC.