May 21, 2020

Costs: Court of Appeal allows costs set-off in QOCS case

The Court of Appeal has recently considered whether CPR 44.14 bars the ability of a defendant to set off costs orders in its favour against those costs orders owed to a claimant under rule 44.12. The Court of Appeal stated it was compelled to follow the previous decision in Howe v Motor Insurers Bureau (No.2), which concluded costs set-off to be possible under QOCS.

However, the Court of Appeal judgment expressed reservations regarding that decision, finding that but for the binding precedent in Howe the decision reached may have been a different one.

We understand that permission to appeal to the Supreme Court has been granted, and therefore, this decision is unlikely to have resolved the issue.

Background

On 15 January 2014, Miss Adelekun (“the Respondent”) submitted a claim following a road traffic accident involving Mrs Ho (“the Appellant”). The Appellant’s insurers did not admit liability and the matter exited the RTA Protocol. Proceedings were issued on 7 January 2015. On 19 April 2017, Mrs Ho’s representatives made a Part 36 offer of £30,000 to settle Miss Adelekun’s claim. Two days later the offer was accepted, and a Tomlin order was then made by consent on 24 April 2017.

There was a dispute regarding the Respondent's costs, as the approved Tomlin Order stated, "the defendant do pay the reasonable costs of the claimant on the standard basis to be the subject of detailed assessment if not agreed". The Appellant argued that the fixed costs regime should apply; the Respondent that reasonable costs, to be assessed if not agreed, should be recoverable.

The Court of Appeal found that the fixed costs regime should apply as the case remained in the fast track at the time of settlement. The Respondent was thus entitled to £16,705.15 in respect of her costs.

The parties disagreed as to whether the Respondent should be ordered to pay the Appellant’s costs of the initial application hearing in the County Court, and whether the Appellant should be able to set off the costs due to her against liability to the Respondent for the costs of the claim generally.

Submissions

The Appellant argued she should be able to set-off her entitlement to costs against her liability for costs; the Respondent argued that the court had no jurisdiction to sanction a set-off or in any event it was not appropriate to order a set-off in these circumstances.

Under CPR 44.12, the Court may "set off the amount assessed against the amount the party is entitled to be paid and direct that party to pay any balance" where a party entitled to costs is also liable to pay costs. It was agreed by both parties that CPR 44.12 did not apply because this was a QOCS case, so CPR Part 44.13 to 44.17 applied (Section II of CPR Part 44).

The Respondent submitted Section II of CPR Part 44 represents a self-contained code that provides a claimant with protection from having to bear a defendant's costs other than in particular circumstances. It was also stated that directing a set-off would be inconsistent with the principles underlying QOCS, and no such order should be made.

The Appellant contended that Howe was binding on the court, which could and should provide for costs awarded to the Respondent to be set-off against costs orders in favour of the Appellant. It was the just course to direct a set-off; it would be wrong for the Respondent to recover all of her costs and the Appellant to recover none.

Judgment

Lord Justice Newey, giving the leading judgment, agreed with the Appellant, finding Howe was binding and the court "must, accordingly, proceed on the basis that there is jurisdiction to order the set-off of the parties' respective costs entitlements".

Therefore, approaching the claim on that basis, the Appellant was allowed to set off the costs due to her against her liability to the Respondent for costs of the claim generally. The order should also make provision for the Respondent to pay the Appellant’s costs of the initial application hearing.

However, Lord Justice Newey stated that in the absence of Howe, he would have been inclined to accept the Respondent's submission that "where QOCS applies, the Court has no jurisdiction to order costs liabilities to be set off against each other." In addition, he agreed with the Respondent's argument 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."

What can we learn?

  • Whilst this decision will please defendants and their representatives, it should be noted that we understand that permission has been given for the Respondent to appeal to the Supreme Court. Lord Justice Newey's statement that in the absence of Howe as binding precedent he favoured the Respondent’s submissions, means that the only sensible course of action is that the Supreme Court be asked to rule on this issue.
  • In addition, Lord Justices Newey and Males suggested that this issue may be one for the Civil Procedure Rules Committee to consider, as both sides have powerful arguments. Those defendant representatives seeking to pursue set-offs on the basis of this finding may find the position changed again in the future.