Kerry Underwood

QOCS AND SET-OFF – COURT OF APPEAL DECISION

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The matters dealt with in this piece are examined in great detail in my three volume, 1,300 page book Personal Injury Small Claims, Portals and Fixed Costs – price £50 and available from Underwoods Solicitors here.

Kerry Underwood offers consultancy services in relation to this and other matters and details are here.

These principles, and the whole issue of Qualified One-Way Costs Shifting, is dealt with in my book – Qualified One-Way Costs Shifting, Section 57 and Set-Off – Available from me here for £15.

 

In

Ho v Adelekun [2020] EWCA Civ 517

the Court of Appeal considered the interplay between Qualified One-way Costs Shifting (QOCS) and set-off, and held that a QOCS protected claimant in a personal injury matter was liable to have adverse costs set off against the costs order in her favour in the proceedings generally.

Here Miss Adelekun was the successful claimant in a QOCS protected personal injury case, but there was a dispute as to costs, specifically whether the agreement between the parties meant that fixed costs did, or did not, apply.

Miss Adelekun lost that aspect of the case when the Court of Appeal ruled that fixed costs applied, thus reducing her costs from £42,000 to £16,000.

See my blog – STANDARD COSTS MEANS FIXED COSTS: COURT OF APPEAL DECISION

Mrs Ho, the defendant, having won that aspect of the case was awarded costs, as usual as QOCS relates to the enforcement of costs orders, not whether they should be made in the first place.

Thus the issue here was whether a losing defendant in a QOCS protected personal injury case could set off against the costs of that action the costs order made in her favour, but on the face of it unenforceable, in the fixed costs/not fixed costs dispute, in which she was successful.

Yes, said the Court of Appeal, holding that it considered itself bound by its own decision in

Howe v Motor Insurers’ Bureau (No 2) [2017] EWCA Civ 2523,

where the court allowed such set-off.

See my blog – QOCS AND SET-OFF BY SUCCESSFUL DEFENDANT IN MULTI-DEFENDANT CASES

The Court of Appeal said that there was no question of a claimant ever having to make a payment to a defendant under the set-off provisions, but the costs awarded to the claimant could be substantially reduced, or extinguished altogether, by set-off of costs awarded to a defendant in the course of those proceedings, as here.

The potential effect is that a successful claimant in such a situation will have a potential liability to her or his own solicitors for the effectively unrecovered costs, unreceived due to set-off.

Here, the Court of Appeal suggested that as the challenge on the fixed costs point was for the potential benefit of the solicitors, rather than the claimant, the solicitors may choose not to enforce any bill, and indeed may not be entitled to.

The Court of Appeal suggested that the Civil Procedure Rules Committee should reconsider the rules and consider whether set-off should ever be available in a case subject to QOCS, although two of the three Court of Appeal Judges said that they could see arguments both ways.

The decision is being appealed to the Supreme Court.

The Court of Appeal described the set-off issue as “a point of some general importance”, but did not find the decision in Howe was per incuriam, that is wrongly decided, but saw considerable force in the submission that enforcement should extend in the context of CPR 44.14 to set-off, and that there was a “powerful case” for calling into question the decision in Howe.

Analysis of authorities on judicial precedent, including

Young v Bristol Aeroplane Co Ltd [1944] 1 KB 718

satisfied the Court of Appeal that it was bound by the decision in Howe and had to order set-off.

Absent the decision in Howe, and finding itself bound by that decision, the Court of Appeal here would have held that in a QOCS case the court has no jurisdiction to order costs liabilities to be set off against each other and that Section II of CPR 44 is a self-contained code only allowing a defendant to recover costs it has been awarded by setting off against damages and interest under CPR 44.14,  or by invoking CPR 44.15 or CPR 44.16, in line with

Darini v Markerstudy Group Central London County Court,24 April 2017

a case not considered by the Court of Appeal in Howe.

See my blog – QOCS AND SET-OFF: CONFLICTING CASES

Costs set-off may have been common in a legal aid context, but QOCS does not mirror that regime.

The Court of Appeal found it hard to see how the fact that CPR 44.14 enables enforcement without the court’s permission, while permission is required under CPR 44.12 could justify set-off.

CPR 44.14 seemed to the Court of Appeal to be designed to bar any enforcement of costs orders against claimants in excess of damages and interest, so no set-off of costs against costs, unless CPR 44.15 or CPR 44.16 applies, not merely enforcement without the court’s permission.

The Court of Appeal saw compelling reason for interpreting “enforced” in CPR 44.14 as extending to set-off.

The QOCS rules in Section II of CPR 44 do not refer to CPR 44.12 and the explanatory note to the rules refers to “set-off against any damages received”, not costs set-off.

 

CPR 44.12 reads:

 

“(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.”

 

To me that is very clear and, as I pointed out when QOCS came in seven years ago, it is of great significance that this statement of the common law principles of set-off appears immediately before the new rules on QOCS in the Civil Procedure Rules.

I cannot see why the Court of Appeal is so upset about set-off against a claimant’s costs, as compared with set-off against damages and interest.

Set-off against damages and interest, which is very clearly allowed by the rules on QOCS, potentially removes the client’s damages.

Set-off against costs generally affects the solicitor, rather than the client, depending upon the terms of the retainer.

It is the ability to set-off against damages that wrecks QOCS protection whenever a Part 36 offer is made by a defendant, a point recognised in Paragraph 14 of the judgment here.

As the law stands this decision, and the decision in Howe are unquestionably correct.

My book on the subject is called Qualified One-Way Costs Shifting, Section 57 and Set-Off, as it was obvious to me when I wrote that book that that was the case.

Here is the opening page of Chapter 13 from that book:

                                                                                  SET OFF

 

The common law concept of legal set-off has existed since at least as early as 1745 – see Hanak v Green, Court of Appeal 1958, 2 QB 9

The Civil Procedure Rules deal with it in the briefest of terms: –

“Set-off

44.12

(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.”

The Practice Direction is silent as to the effect of this rule.

Significantly this rule appears immediately above the rule dealing with Qualified One Way Costs Shifting – CPR 44.13 to CPR 44.17 – also notable for its brevity.

This raises the question as to whether, in a QOCS case, even the claimant’s pre Part 36 costs are at risk of being eaten in to to satisfy the unsatisfied element of a costs order in favour of a defendant when a defendant’s Part 36 offer has not been beaten.

Thus the claimant is awarded £30,000 at court and an order is made in the defendant’s favour for £40,000, leaving an unsatisfied balance of £10,000.

May the defendant set this off against the claimant’s pre Part 36 costs?

Yes, seems to be the clear answer. That situation appears to fall fairly and squarely with CPR 44.12(1)(a).

 

Parties could have saved themselves a lot of time and money by purchasing it. You can – details above.

Written by kerryunderwood

May 4, 2020 at 10:45 am

Posted in Uncategorized

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