The Supreme Court handed down its awaited decision in Ho v Adelekun  UKSC 43 this week (06 October 2021) on whether a Defendant’s costs order can be set off against the costs of a Claimant with QOCS protection. 18 St John Street’s, Ian Huffer gives his view.
SUPREME COURT DECISION IN HO V ADELEKUN
The Supreme Court has today handed down its awaited decision in Ho v Adelekun  UKSC 43 (06 October 2021) on whether a Defendant’s costs order can be set off against the costs of a Claimant with QOCS protection.
The full judgment is on BAILII but the court’s decision was to allow Ms Adelekun’s appeal based upon its own construction of the language of the QOCS provisions in CPR 44.14 which it held did not operate as a total ban on set-off of opposing costs orders but just imposes a monetary cap. Although APIL intervened, the Supreme court did not consider it necessary or appropriate to examine the underlying policy considerations which were for the CPRC.
34. “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” (34)
“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, i.e. 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” (37)
“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” (38).
“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 “(39).
“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” (41).
“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)” (43).
- The Supreme Court’s judgment is generally good news for Claimants and Claimant solicitors. With Claimants in personal injury claims generally being represented under CFA agreements, with the client retaining a liability for fees, the absence of set-off provides a fund, from which those fees can be paid even if the Claimant has incurred a liability to pay the Defendant’s costs at, for example, an earlier interlocutory hearing.
- It was plainly good news for Ms Adelekun for not only will the Defendant’s costs of her unsuccessful appeal to the Court of Appeal not be set off against her fixed recoverable costs in the assessment dispute but the Defendant is also not be able to set off her costs against Ms Adelekun’s damages for personal injuries as her claim was concluded by way of an acceptance of a Part 36 offer and there was no ‘order for damages’ within the QOCS regime (Cartwright v Venduct Engineering  1 WLR 6137).
- As the Supreme Court itself acknowledged, their construction of CPR 44.12 would probably result in some anomalies (paragraph 45). One identified by the court was birth defect cases where legal aid was still available where the possibility of the Defendant setting off its costs against a Claimant’s Legal Aid costs remains (Lockley v National Blood Transfusion Service  1 W.L.R).
For further information on Ian Huffer and other members of the Civil and Personal Injury Department at 18 St John Street, please contact a member of the civil clerking team on 0161 278 8261 or firstname.lastname@example.org.