Kerry Underwood

QOCS AND SET-OFF: CONFLICTING CASES

with 14 comments


These issues are dealt with in my book Qualified One-Way Costs Shifting, Section 57 Set-off available from Amazon here

In Darini and Olsoy v Markerstudy Group, Central London County Court, 24 April 2017, Claim A49YP380

the court considered the difficult issue of set-off and its relationship with Qualified One-Way Costs Shifting (QOCS).

Here the Claimants brought a personal injury claim and discontinued it, thus creating a deemed Costs Order in favour of the Defendant, pursuant to CPR 38.6(1), but one which could not be enforced without leave of the court, due to QOCS.

The defendant unsuccessfully sought to set aside the Notice of Discontinuance and was ordered to pay the costs of that application to the Claimants.

The District Judge allowed those costs to be set off against the notional, unenforceable, sum due from the QOCS protected Claimants on discontinuance, which negated the Costs Order on the failed application.

The Claimants appealed and the Circuit Judge allowed that appeal, holding that there was no right of set-off.

Consequently the judge did not need to consider the proper exercise of judicial discretion on these facts, as there was no discretion, in his judgment.

However, had there been such discretion, the Circuit Judge would have overturned the District Judge’s decision on the basis that it was unjust, as it would put the Claimants in a worse position than they otherwise would have been as a result of the Defendant’s failed application.

The worse position was that the Claimants would effectively have to pay their own costs for successfully defending the Defendant’s application as they would not physically recover those costs from the Defendant due to set-off.

The judge held that set-off applied in only three circumstances in the context of QOCS:

  • against damages and interest only – CPR 44.14(1) – and not costs;
  • where the claim had been struck out on the ground that it is an abuse, in which circumstances enforcement, including by way of set-off is allowed in full, without the permission of the court – CPR 44.15;
  • where there has been fundamental dishonesty, in which case the extent of set-off is in the court’s discretion – CPR 44.16.

Thus the court here held that the restriction on enforcement in various places in CPR 44.13 to CPR 44.17, dealing with QOCS, prevented “enforcement” by set-off and thus set-off is only allowed where and when enforcement is allowed.

The court accepted that there was no authority directly on the point.

It was accepted that there can always be a set-off of damages and/or costs against damages and that that is not a matter of discretion.

Here the court quoted from

Burkett v London Borough of Hammersmith & Fulham [2004] EWCA Civ 1342:

“It is possible to regard all questions regarding costs as being subject to the statutory discretion conferred on the court by section 51 of the Supreme Court Act 1981 [now Senior Courts Act 1981]. But I would not have thought a set-off of damages against damages could properly be described as a discretionary matter, nor that a set-off of costs against damages could be so described.”

Thus the issue here was whether there could be a set-off of costs against costs or whether that amounted to “enforcement” and thus had to be dealt with in the same way as any other method of enforcement.

The judge took the view that set-off of costs against costs is a form of enforcement and thus subject to CPR 44.13 to 44.17, and can only be exercised in the same circumstances as any other method of enforcement.

Comment

This is a difficult issue.

Why the Civil Procedure Rules Committee refuses to clarify the obviously defective QOCS rules is beyond me, and beyond the constant stream of judges at every level who have commented on them.

On balance, I believe the judge to be wrong and the District Judge who made the first decision to be right.

CPR 44.12 which appears immediately before the QOCS rules at CPR 44.13 to CPR 44.17, says:

“(1) Where a party entitled to costs is also liable to pay costs, the court may assess the costs which that party is liable to pay and either –

(a) set off the amount assessed against the amount the party is entitled to be paid and direct that party to pay any balance; or

(b) delay the issue of a certificate for the costs to which the party is entitled until the party has paid the amount which that party is liable to pay.”

I see nothing anywhere that prevents CPR 44.12(1)(a) apply to QOCS cases.

It would have been helpful if the Civil Procedure Rules said:

“This rule applies to cases under CPR 44.13 to 17”; or

“this rule does not apply to cases under CPR 44.13 to 17.”

You have to be Kremlinologist to understand the working of the Civil Procedure Rules Committee.

Presumably they could not make up their minds, as is evident from so many other rules, and so stuck the set-off rule immediately before the QOCS rule, without bothering to tell anyone whether or not it applied to QOCS cases.

They have adopted the same policy in relation to Part 36 and its relationship with virtually any other rule.

The Practice Direction is silent.

Forthcoming Court of Appeal decision

Although the written judgment is not yet available, the Court of Appeal in dealing with the cost consequences of its decision in Howe v Motor Insurers’ Bureau [2017] EWCA Civ 932, held that the losing Defendant – the Motor Insurers’ Bureau, could set-off against the costs it had to pay Mr Howe the “unenforceable” Costs Orders it had obtained against him in the main personal injury litigation, where Mr Howe’s claim failed due to limitation issues.

This is on all fours with the facts of the Darini case, where the losing Claimant in the substantive action was successful in resisting the Defendant’s application to set Notice of Discontinuance aside and was awarded costs of that application.

Thus Darini must now be considered to be wrongly decided, in the sense that the court said that there was no jurisdiction to allow set-off. Clearly there is, although the court could exercise its discretion so as not to allow set-off in any given case.

I stress that I have not yet seen the Court of Appeal judgment, which was given orally, but I understand that it will hold that a successful defendant in a QOCS case can set-off “unenforceable” Costs Orders against any costs that it has to pay to the Claimant.

As the costs of the substantive action lost by the Claimant will normally be higher than any costs awarded to the Claimant on an application or appeal, the effect is that the Claimant has to pay its own costs in relation to those ancillary proceedings, where it has won.

Policy issues

One of the points in the Darini case was that it was the policy of the rules, following implementation of Lord Justice Jackson’s report, although in relation to QOCS, not in the way that Lord Justice Jackson advised, that QOCS would replace the need for After the Event insurance.

Such insurance would not protect the Claimant in relation to applications successfully resisted.

Take the Darini case. Let us say that the costs against Mr Darini were £20,000.00 and he successfully resisted the application and was awarded £5,000.00.

Prior to QOCS the balance due from Mr Darini to the MIB would be £15,000.00 and that is the only amount that the ATE insurers would pay out, as they do not insure a client’s own costs.

Thus prior to QOCS Mr Darini would indeed have had to fund his own application, which would not have been insured.

I realise that the application here was in relation to QOCS and therefore would not have arisen prior to QOCS, but the principle is the same, that is that a Claimant successfully resisting an application and being awarded costs would simply result in the Claimant owing less costs overall and it is only that lower sum that insurers would cover.

Thus the policy considerations in Darini are based on a false premise.

I am grateful to Ben Williams QC for his assistance in relation to this piece.

These issues are dealt with in my book Qualified One-Way Costs Shifting, Section 57 Set-off available from Amazon here.

 

Also see:

KERRY ON QOCS: BOOK UPDATE AND LINKS: UNIFIED

QOCS, APPEALS, SET-OFF & KAFKA

QOCS, PART 36, TWO DEFENDANTS: SOME PROBLEMS

CREDIT HIRE, QOCS AND NON-PARTY COSTS ORDERS

QOCS, DISCONTINUANCE AND STRIKE-OUT AND OTHER THINGS

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Written by kerryunderwood

July 25, 2017 at 9:40 am

Posted in Uncategorized

14 Responses

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  1. Kerry, was there ever any judgment published by the CoA or do you have further information on this?

    William Mackenzie

    September 21, 2017 at 10:03 am

  2. Kerry, interesting article as always. I guess we have to see the decision before we can analyse it properly. However I would say this about the decision in Howe. On the basis that set-off has been allowed in Howe and assuming his legal representatives have not waived any entitlement to their fees to the extent of the set-off allowed then the Claimant is out of pocket by the set-off amount. This seems incredibly unfair on the basis that i) the rules were not particularly clear which led to ii) Stewart J arriving at the wrong decision (at least according to CofA). Had i) or ii) not occurred the Claim would have been dismissed at first instance with the Claimant not being out of pocket (save perhaps for some disbursements). Given that the Claimant was obliged to appeal to enjoy the protection of QOCS (that according to CofA he was entitled to as of right) then he ought to be no worse off than had the correct decision been made at first instance. I found it surprising, therefore, that given the discretionary nature of CPR 44.12, the CofA nevertheless ordered set off with the inevitable consequence that the Claimant would be worse off.

    Daniel Higgins

    November 10, 2017 at 10:23 am

    • Daniel

      All true – but that is always the case when a judge makes a wrong decision – the loser on appeal pays the costs caused by the judge’s wrong decision. I have always taken the view that when a decision is overturned due to an error of law by the judge, then the state should pay both parties’ costs of the appeal.

      Kerry

      kerryunderwood

      November 17, 2017 at 9:26 am

      • Very true except in this instance it was the winner of the appeal that ended up the loser due to a Judge’s incorrect decision.

        Daniel Higgins

        November 20, 2017 at 1:36 pm

  3. Good point! However that is a quirk of QOCS, where the claimant has an advantage generally. It has the presumably unintended consequence of effectively depriving a claimant of QOCs to an extent.

    Kerry

    kerryunderwood

    November 20, 2017 at 3:25 pm

    • Having read the Jackson Report on this point, which obviously had no bearing on the actual rule as drafted but the reasoning behind the recommendation of QOCs is still somewhat relevant. The reasoning for introducing QOCs was due to a significant saving to insurance companies who no longer had to pay ATE Premiums so that QOCs provided a saving overall. I would therefore venture that it is the Defendant, not the Claimant, who has the significant advantage under QOCs due to the overall savings made. The Claimant finds his position somewhat unchanged, whether under ATE or QOCS, in that generally he is only meeting an adverse costs order if he has been fraudulent.

      Daniel Higgins

      November 20, 2017 at 4:11 pm

      • I disagree. In all other areas of English/Welsh law, except Aarhus Convention cases, the costs consequences are the same for both parties. Recoverability was a blip. Prior to that a losing claimant paid costs, albeit that Legal Aid was a form of QOCS/ATE.

        True it is that insurers are better off as compared with recoverability, but the true comparison is with pre-recoverability.

        I cannot accept the statement that it is the defendant, not the claimant, which is better off under QOCS. If so, on that logic, the claimant would be better off in a no-costs regime. Defendants would accept that, and that is where we are headed if sensible progress cannot be mad on costs.

        Kerry

        kerryunderwood

        November 20, 2017 at 5:10 pm

  4. I accept the point you are making but we need to compare the old system that Claimant’s enjoyed with ATE premiums recoverable from Defendants and the new system that was introduced in the form of QOCs rather than other areas of law. The driving factor behind the change was the costs to litigation and in view of the sums paid by the Defendant as against the costs recovered through the ATE premium the Defendant was at a clear financial advantage through the use of QOCs. The Claimant’s position from old to new is relatively unchanged. In view of that the Defendant clearly benefits from the introduction of the new system whereas the Claimant’s position is largely unchanged. Clearly QOCs was introduced to benefit the Defendant by lowering their cost exposure.

    Of course comparing the situation to other areas of law the Claimant does benefit, I am not blind to that fact. But there is not so much a David v Goliath situation for instance in other areas of litigation as there is in personal injury between lay client and insurer backed Defendant. Whether through legal aid, ATE backed CFAs or CFAs with QOCs there is an accepted realisation that something is required to redress that balance in favour of the little guy so justice is not denied. So I maintain QOCs is for the benefit of the Defendant in that it has provided them significant savings over the previous regime.

    Daniel Higgins

    November 21, 2017 at 4:04 pm


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