Legal Update: Costs Against Costs Set-Off in a QOCS Case

In a previous article in this newsletter (Costs off setting in a QOCS Case: how to make sure your clawback does not end up a draw back) a line of cases was considered holding that a defendant to a personal injury claim which is subject to qualified one-way cost shifting (QOCS) may set-off an award of costs in its favour against costs which it is liable to pay to a claimant. There was analysis of the circumstances in which a set-off against costs was likely to be ordered and when it was not, some relevant considerations when seeking a costs set-off order and what the future may hold for this area of law. At that time, a set-off of costs against costs appeared to be an available means of circumventing the restriction on enforcement of costs orders in a defendant’s favour under the QOCS rules.

Since that article was written, the Supreme Court has handed down judgment in Ho v Adelekun [2021] UKSC 43. The court was asked to rule on the interrelationship between the QOCS limitation in CPR rule 14.14:

44.14—(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

and the court’s ability to order a set-off of costs against costs which appears in CPR 44.12:

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 Supreme Court has resolved the issue in a manner which restricts the utility of costs set-off for defendants, but probably does reflect the original intention behind the QOCS rules. In short, the Supreme Court held that a set-off of costs against costs is simply a method of enforcement, like many other methods available such as attachment of earnings, orders for sale of property and, indeed, set-off against damages. None of these methods of enforcement stand apart from rule 44.14. Rather, the correct interpretation is that they are all subject to it.

The position as it now stands is therefore that defendants remain free to apply for permission to set-off costs against costs under rule 44.12 but their entitlement to do so is limited to by CPR 44.14 to the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.

In those circumstances the principal circumstance in which a costs against costs set-off will benefit a defendant is likely to be where the lion’s share of damages have already been paid, perhaps as interim payments, but the defendant which benefits from a costs order in its own favour also has an outstanding liability for the claimant’s costs. In those circumstances it may favour a defendant to seek an order setting-off its own entitlement to costs against those that it must pay to the claimant, instead of paying all those costs and then trying to recover money back from the claimant in satisfaction of its own costs.

As a practice point, it is useful to note that Lord Briggs and Lady Rose expressed their doubt as to the appropriateness of a matter of rule interpretation such as this being referred to the Supreme Court at all. In their view matters of ambiguity such as this should be resolved by the Civil Procedure Rules Committee.

A further point to note (see paragraph 32 of the Supreme Court judgment) is that QOCS does not prevent a court from weighing up the relative successes and failures of the parties to the litigation and making a single composite costs order which reflects a mixed outcome on various issues in the case. This is effectively an informal set-off ‘by the back door’. In this author’s experience courts are rarely enthusiastic about making split issue costs orders, save in the clearest of cases. Inviting a judge to do so and then to express it as a single composite costs order in an effort to work around the QOCS regime is likely to prove extremely difficult. However, there is support in principle for a judge’s ability to do so at Supreme Court level.

The law is now clear, unless the CPRC elects to tinker further, but, in this author’s opinion, that is unlikely.