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Published 21 May 2020
Last month, the Court of Appeal delivered the latest instalment of the costs saga that is Ho v Adelekun. The latest judgment reported at  EWCA Civ 517 is probably as dramatic as it gets in the costs world, culminating in permission to appeal to the Supreme Court and an invitation to the Rules Committee to consider tackling yet another aspect of the 2013 Civil Justice Reforms. It was the turn of the ‘Qualified One-Way Costs Shifting’ (‘QOCs’) provisions to be thrust into the spot-light.
The introduction of QOCs was the antidote to the problem with how to assess ‘After the Event’ insurance premiums in personal injury cases. By prohibiting the recovery of an insurance premium for an adverse costs order taken out by claimants from losing defendants (paying parties), winning defendants would not be allowed to enforce payment of their costs order unless the claimant behaved unreasonably and was stripped of QOCs protection. With the door closed to payment directly against QOCs protected claimants, successful defendants could only get something back for their successful endeavours through the ‘off-set’ principle.
The QOCs provisions themselves expressly allow a winning defendant to off-set a costs order in its favour against claimant’s damages. The very purpose of what a claimant pursued in litigation was always therefore firmly at risk despite the application of QOCs, ensuring a claimant had ‘skin in the game’. However, there remains an issue as to where that leaves a successful defendant if the costs they are entitled to wipe out entirely the claimant’s damages and leave a shortfall. Should they be entitled to off-set any further sums beyond the claimant’s damages and off-set costs against claimant’s costs? In practice this is an issue which often arises where both the claimant and the defendant are entitled to costs in the same proceedings and the damages are relatively modest. A common scenario would be where the defendant succeeds on its own Part 36 offer.
It’s worth reminding ourselves why the Court of Appeal has been forced to consider the issue of costs off-set in these proceedings. The underlying dispute was a case which started in the Low-Value Pre-Action Protocol (the ‘Portal) and was not allocated to the Multi-track. It was always a fixed costs case because that‘s what the Rules say but the claimant (in reality the claimant’s solicitors) argued that as the case settled by Part 36 the fixed costs rules were circumvented. Fixed costs were just less than £17,000 but the claimant wanted some £42,000.
At first instance, the court upheld what the Rules state and dismissed the claimant’s attempt to get more than fixed costs. After all, Part 36 expressly signposts that what flows from acceptance of a Part 36 offer in a fixed costs case is fixed costs. Surprisingly, the claimant appealed and even more surprisingly the claimant succeeded on grounds that in fact the parties had contracted out of fixed costs. This conclusion was reached because the parties had agreed that the matter should be re-allocated to the Multi-track and had agreed a consent order providing for the usual provision that costs be assessed. However, the claimant chose to settle the case before it was re-allocated to the Multi-track by accepting the defendant’s Part 36 offer and insisted on a consent order when one was not needed.
The Court of Appeal at  EWCA Civ predictably restored order and emphatically put to bed any argument that a Part 36 acceptance was outside the scope of fixed costs. On the contracting out of fixed costs point it was determined that the parties had not contracted out of fixed costs because there was no such contract.
So the claimant returned to the Court of Appeal again because it didn’t agree with the defendant’s stance on two issues:
The claimant argued that the Court did not have jurisdiction to award the set-off the defendant was seeking as QOCS was a self-contained code which gave the claimant protection from having to bear the defendant’s costs, save for in particular circumstances (CPR 44.15 and CPR 44.16), which did not apply here. As far as the Court of Appeal’s own authority of Howe which had decided precisely the opposite to what the claimant argued, it was boldly submitted that the decision was per incuriam. For a decision to be per incuriam it must have been decided in ignorance of any relevant statute or express CPR provision.
The Court of Appeal agreed with the defendant on both issues and dismissed the claimant’s arguments. Firstly, the original decision of the Deputy District Judge had placed unnecessary emphasis on the consent order which was largely irrelevant as the proceedings were compromised by way of Part 36. On the second more significant issue, Howe had not been decided per incuriam and therefore applying the law and assuming an off-set can be ordered then it must as it is plainly just to do so in the circumstances. It was acknowledged that the arguments for allowing costs set-off in principle in QOCs are finely balanced and could usefully be considered by the Rules Committee with ‘powerful arguments on each side of the issue as to what the law should be’.
It would be wrong to assume that the issue at stake is a potential requirement from the claimant to make a payment to the defendant. The consequences in these proceedings were that the costs awarded to the claimant were substantially reduced and perhaps wiped out completely by the costs payable to the defendant. The claimant will remain liable for his own solicitor’s costs but this has always been the situation under the QOCs regime and it is a matter for the claimant’s solicitors whether they choose to enforce that liability.
It must also surely be wrong to value access to justice as a single party (i.e. claimant) pursuit. The claimant in these proceedings has now lost twice in the Court of Appeal and set the hare out of the trap by appealing the original hearing. If in such circumstances the winning defendant should not be able to off-set its costs in successfully defending such proceedings then it would be a denial of the defendant’s access to justice.
For now, the status quo is preserved and winning defendants should continue to seek off-sets against claimant’s costs in QOCs situations. The only reason that the defendant is entitled to any costs arises from the claimants unsuccessful attempt to get more in costs than the fixed costs regime allows. The real issue in this case has always been the pursuit by the claimant’s solicitors to get more than fixed costs. Having lost twice in the Court of Appeal it seems appropriate to be able to rely upon the long established off-set principle to achieve justice.
As for any potential appeal to the Supreme Court or intervention from the Rules Committee, it seems equally as likely that either body would support the application of costs off-set within a QOCs case as not. The outcome in this case was the right one and if it’s not broken there seems little in need of a fix. Nobody likes a bad loser.
Our costs team deals with cases like this on a regular basis. For more information or advice, please contact one of our experts.
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