No Costs Against Costs Set Off Allowed In A QOCS Case | Supreme Court Decision

HO V ADELEKUN (SET OFF OF COSTS AGAINST COSTS IN QOCS CASES) | DECISION

LORD BRIGGS AND LADY ROSE:

Analysis

30. Counsel for both parties, and the intervener in written submissions, placed great emphasis on what they characterised as the adverse policy consequences of the opposing answers to the question before the court, seeking to admit those policy issues under submissions about the purposes of the QOCS scheme. For the appellant and APIL it was said that the real effect of a costs against costs set-off in the QOCS context was to deprive the claimant’s solicitor of the means of payment for work done on credit in parts of the case in which the client had been successful and recovered costs. This would, they said, undermine the whole economic basis upon which PI litigation under QOCS could be undertaken by solicitors for deserving clients of modest or non-existent means. This would strike at the heart of what QOCS was seeking to achieve. For the respondent it was submitted that by depriving defendants of any fund against which (in a no court order for damages case) they might recover costs, the court would be giving a green light to the pursuit by claimants of weak interim applications and unmeritorious points. It would also remove any real incentive to settle before trial, if the adverse costs consequences of losing at trial (or failing to beat a Part 36 offer) led to a purely unenforceable costs sanction.

31. It is not necessary or appropriate to describe or examine those policy considerations in any detail. First, as already emphasised, this court is not well
placed to assess them reliably. If the true construction of the QOCS scheme set out in Section II of CPR Part 44 has adverse policy consequences, that is a matter for the CPRC to put right. The purpose of QOCS is tolerably clear, to seek to rebalance an inherently tilted playing field. The question underlying this appeal is how far that levelling process was intended to go. The answer to that question will not affect that levelling process to any great degree. It is common ground that there can be no costs recovery at all against claimants who simply lose, and obtain no damages or costs order in their favour. A much larger effect on the levelling process was arrived at by the decision in Cartwright that damages and interest payable under a settlement did not count for the purposes of rule 44.14(1), since far more cases settle than go to trial. Where a claim does conclude with a court order, in many cases, the defendants’ costs orders will be less than the claimants’ damages and interest, and the defendant will undoubtedly be able to deduct the costs it is owed from the damages and interest it must otherwise pay over to the claimant.

32. As both counsel were constrained to accept, the present question is one of construction of the language of the QOCS provisions in the CPR set in their context. For that purpose, it is necessary to return to study the language of rule 44.14 in more detail. Certain points were, or became, common ground. First,

the QOCS regime does not in terms prevent a trial judge from making a single, one way, costs order which is the result of adjusting in the judge’s mind the appropriate costs order in the light of the parties’ respective successes or failures on different issues in the litigation. This is because QOCS does not seek to constrain the court from making costs orders, but merely the use which defendants can make of costs orders in their favour.

33. Secondly, the appellant submitted and the respondent did not seriously challenge that the QOCS regime is essentially mechanical rather than discretionary, so that the phrase in rule 44.14(1) “without the permission of the court” did no [sic] preserve a general discretionary power to permit a defendant costs enforcement beyond that expressly provided for by the permission process in rule 44.16. That process was necessitated only by the need for the court to see whether the qualifying facts existed, such as dishonesty.

34. Thirdly, and this only emerged during the hearing, rule 44.14 does not in terms operate as a total ban of set-off of opposing costs orders. It just imposes a monetary cap. It does so by requiring the monetary value of any set-off by the defendant to be brought into account against the monetary amount of the claimant’s orders for damages and interest. That will amount to a ban only if there are no orders for damages or interest (as in the present case) or if the aggregate amount of damages and interest has already been used up by other means of enforcement.

35. The appellant’s main submission on construction was that Section II of Part 44 was a complete costs code for the PI cases to which it applies, so that the express mention in rule 44.14(1) of set-off of costs against damages and interest necessarily ruled out (by silence) set-off of costs against costs.

36. For the respondent it was submitted that the QOCS rules were not a complete code. They did not expressly displace the court’s jurisdiction to direct set-off of costs against costs in rule 44.12. Such a deep-rooted jurisdiction, routinely applied in Legal Aid cases and founded on plain justice and equity, could not be displaced without clear words of exclusion. Cases like Burkett showed that the only costs which were subject to the cap in rule 44.14(1) were the net costs liability (if any) of the claimant to the defendant after all opposing costs orders had been netted off. If this was, by concession, what the judge could do by way of mentally adjusting the amount or percentage of a single costs order in one party’s favour at the end of a trial, why should QOCS be any more restrictive, merely because opposing costs orders were made at different times during the litigation? Finally, “enforcement” should be defined by its use elsewhere in the CPR. Part 70 provided a complete list of enforcement measures, which did not include set-off.

37. We would not accept Mr Mallalieu’s submission that QOCS is a complete costs code, or that it wholly excludes set-off of costs against costs under rule 44.12. But 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. This is what the Explanatory Memorandum states in terms.

38.

We consider that rule 44.14(1) works in the following way. First, it requires two comparators to be constructed. First, the aggregate amount in money terms of all costs orders in favour of the defendant. Secondly, the aggregate amount in money terms of all orders for damages and interest in favour of the claimant. We will call them A and B. If A is less than or equal to B, the defendant can enforce his costs orders without limit. If A is more than B, then the defendant can only enforce his costs orders up to the monetary limit of B. The effect of this cap, as we have called it, is to require the defendant to keep a running account in money terms of all costs recoveries which it makes against the claimant, and to cease enforcement when limit B is reached.

39. The question remains: does the defendant have to bring into account the benefit in money terms of the set-off of a costs order in his favour; in other words does the limit B only apply to the net amount of costs owed by the claimant, having set off any costs the defendant is ordered to pay to the claimant? Plainly the 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. That is what “money terms” means. For example, assume that the claimant is ordered an award of £20,000 in damages and interest, but that the defendant has costs orders for an aggregate amount of £30,000. If the defendant has not yet paid the damages, it can set off its damages liability against the claimant’s costs liability, but only up to £20,000. It must bring that £20,000 into account under rule 44.14(1) and cannot enforce the balance of its costs entitlement of £10,000, by any means of enforcement. If the defendant has already paid the damages before its costs are assessed, then it can enforce its costs orders by any other available means (set-off being in practice unavailable), but only up to £20,000. It cannot therefore be said that use of a set-off is not a means of enforcement, where costs are set off against damages.

40. If set-off of costs against damages is therefore a form of enforcement in this context, so as to make sense of rule 44.14, then why should set-off of costs against costs not equally be a means of enforcement? Both achieve 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) to the part satisfaction of the defendant’s entitlement against the claimant for costs. Strictly it might be said that set-off of costs against damages pursuant to rule 44.14 requires less assistance from the court than set-off of costs against costs, because the latter requires the court’s direction under rule 44.12. But that just makes it more like a form of enforcement.

41. Real assistance on the contextual meaning of enforcement is gained by reflecting on the language and structure of rule 44.14(1). The requirement is to calculate A by reference to 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.

42. Some slight further assistance may be available from rule 44.14(3), which prohibits the “unenforced” part of a costs order from being registered as an unsatisfied or outstanding judgment. That would act to the detriment of the claimant’s credit rating, such that the threat of it would otherwise be an incentive towards payment, and therefore a prohibited form of enforcement. This suggests a wide contextual meaning of enforcement. The concept of the judgment for costs being partly unsatisfied because of the impact of the cap in sub-rule (1) would be very odd if set-off were not a kind of enforcement for this purpose.

43. Returning to the respondent’s submissions,

we do not consider that the well- established jurisdiction to direct set-off of costs against costs under rule 44.12 is displaced by the QOCS scheme, provided that there is an order for damages or interest and that the headroom provided by that order has not been exhausted by other means of enforcement. But for the reasons already given we do not accept the submission that it is only the net costs entitlement that has to be brought into account under rule 44.12(1).

44. We recognise that this conclusion may lead to results that at first blush look counterintuitive and unfair. Why should a defendant which has a substantial costs order in his favour have to pay out costs to a claimant under an order made against him when the two costs orders would net off against each other, leaving both sides to meet their own solicitor’s costs themselves? Whether or not the intervener in this appeal is right that such a result accords with the policy underlying QOCS, we hold that it is the result that follows from the true construction of the wording used in Part 44. 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.

45. We also recognise that this construction of rule 44.14 may lead to results that appear anomalous. We have already referred to the fact that a judge in making an order for costs might be invited to adjust the amount or percentage ordered to reflect the relative success of the parties though, as Mr Mallalieu pointed out, a judge might also take into account when so invited, that this would water down the protection that would be afforded to the claimant if the judge made cross costs orders instead. Mr Bacon also argued that in the PI cases where legal aid is still available, particularly certain birth defect claims, it would appear that costs against costs set- off would still be available following Lockley and Burkett. 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.

46. Finally there is in our view nothing in the point that set-off is not mentioned in the list of the court’s enforcement powers in Part 70. If set-off of costs against damages must be a form of enforcement in order to make rule 44.14 work, then the QOCS context requires set-off to be treated as a form of enforcement even if not mentioned as such elsewhere in the CPR.

47. So for all those reasons we consider that the Court of Appeal was right in the present case to doubt whether Howe was correctly decided. We would allow the appeal.