Supreme Court decision on QOCS – disappointing news for defendants

Ho (Respondent) v Adelekun (Appellant) [2021]

Today, the Supreme Court determined that defendants, in cases to which qualified one-way costs shifting (QOCS) apply, are not entitled to seek set-off of their own entitlement to costs against claimant’s costs entitlement (a “costs against costs set off”) where the defendant’s costs exceed the level of damages recovered by the claimant.

Background

Two differently constituted Courts of Appeal, in this case and Howe v Motor Insurers' Bureau [2017], had previously arrived at conflicting opinions in relation to the construction of CPR 44.12 and whether an order for costs in the defendant’s favour could be offset against any entitlement to costs in the claimant’s favour, in circumstances where the amount in the defendant’s favour exceeded the level of damages. The Court of Appeal in Howe held that CPR 44.14 did not prevent an order for set-off under CPR 44.12; the reasoning being that set-off is not the same as enforcement. The Court of Appeal in Adelekun disagreed, but considered itself bound by the previous judgment in Howe.

Ms Adelekun’s appeal to the Supreme Court was essentially about the mechanics of QOCS in CPR 44.14, arguing that the QOCS rules were a self-contained code to which CPR 44.12 should not interfere.

Judgment

The court, considering the QOCS scheme as a whole, stated:

…[W]e would accept that QOCS is intended to be a complete code about what a defendant in a PI case can do with costs orders obtained against the claimant, ie about the use which the defendant can make of them. The defendant can recover the costs ordered, by any means available, including set-off against an opposing costs order, but only up to the monetary amount of the claimant’s orders for damages and interest.

The court went on to explain that CPR 44.14(1) worked in the following way:

First, it requires two comparators to be constructed. First, the aggregate amount in money terms of all costs orders in favour of the defendant. Secondly, the aggregate amount in money terms of all orders for damages and interest in favour of the claimant. We will call them A and B. If A is less than or equal to B, the defendant can enforce his costs orders without limit. If A is more than B, then the defendant can only enforce his costs orders up to the monetary limit of B…

It follows that the where a defendant’s entitlement to costs exceeds the recoverable damages in a QOCS case, that defendant’s recovery will remain limited to the aggregate amount of damages recovered by the claimant, and set off against any costs owed to the claimant will not be permissible.

The court accepted that this may give rise to unfortunate results, though stated:

No one has claimed that the QOCS scheme is perfect. It is, however, the best solution so far that the opposing sides in the ongoing debate between claimant solicitors and defendant insurers have been able to devise. It works to achieve the aims for which it was introduced in the great majority of straightforward cases in which one side or the other is entirely successful.

Comment

Plainly, this is a disappointing and frustrating judgment for insurers who may, in some cases, see the value of costs orders made in their favour depreciated to the level of damages recovered by the claimant. This decision will lead, in many cases, to alterations to litigation strategy given the more limited opportunity to recover costs. The judgment itself raises further points as to the potential approaches available when determining costs, and the same will require case by case consideration.