UK & Europe
Insurance & Reinsurance
The Supreme Court has handed down judgment on the case of Ho v Adelekun, with the appeal unanimously allowed. The decision confirms the extent of the construction of Part 44 Section II of the Civil Procedure Rules, dealing with QOCS, and specifically CPR 44.14.
The judgment confirms that 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.”
However, in these circumstances, a calculation of a claimant’s net costs liability is an incorrect approach, as the bar to enforcement set out within the QOCS provisions applied to the gross amount of a defendant’s costs orders against a claimant rather than the net amount. Therefore, the setting off of costs against costs is a form of enforcement covered by the QOCS provisions just as the setting off of costs against damages is.
As such, set off of defendant's costs from claimant's costs is precluded where it exceeded the total of any orders for damages and interest in claimant's favour (absent one of the QOCS exceptions applying e.g. fundamental dishonesty).
This decision will be welcomed by claimants and their representatives and by contrast, will be disappointing to defendants and insurers. It was acknowledged in the judgment that “this conclusion may lead to results that at first blush look counterintuitive and unfair.”
The apparent unfairness was considered to be “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.”
However, the judgment did emphasise that it was questionable whether this issue should have been referred to the Supreme Court for determination in the first place. The need to question the decision of the Court of Appeal in Howe v Motors Insurers Bureau  EWCA Civ 932, which itself considered the implementation of the CPR, suggests an ambiguity in the rules to be resolved by the Civil Procedure Rules Committee (CPRC).
The appeal related to the findings of the Court of Appeal in 2020.
Having considered the submissions from the respective parties, Lord Briggs and Lady Rose handed down the leading judgments.
For clarification, CPR 44.14 states as follows:
44.14 - Effect of qualified one-way costs shifting
(1) Subject to rules 44.15 and 44.16, orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.
(2) Orders for costs made against a claimant may only be enforced after the proceedings have been concluded and the costs have been assessed or agreed.
(3) An order for costs which is enforced only to the extent permitted by paragraph (1) shall not be treated as an unsatisfied or outstanding judgment for the purposes of any court record
In terms of the construction of this section, it was agreed that the QOCS regime 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.” Furthermore, the QOCS regime was considered mechanical rather than discretionary. There was no discretionary power save for the process set out in 44.16, which required qualifying criteria, such as dishonesty. Finally, and as stated above, rule 44.14 does not operate as a total ban of set-off of opposing costs orders, only imposing a monetary cap.
It was held that QOCS did not wholly exclude set-off of costs against costs, or contained its own independent costs code, but “is intended to be a complete code about what a defendant in a PI case can do with costs orders obtained against the claimant.”
Considering the application of 44.14(1), the judges noted that “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?”
Per paragraph 43, “…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)”
This is an important and far reaching decision which the Supreme Court appeared reluctant to tackle.
The effect of the decision is to significantly water down the threat of consequences to a claimant of failing to beat a defendant's Part 36 offer.
Given that the vast majority of personal injury claims settle, this decision, along with that in Cartwright v Venduct Engineering Limited  EWCA Civ 1654, leaves the need for defendants to have a clear strategy for settling cases with these issues in mind.
It remains to be seen whether the Civil Procedure Rules Committee will seek to amend the CPR to resolve the ambiguity which the Supreme Court referred to.