Set-off in qualified one-way costs shifting – a shift away from defendants

The Supreme Court has ruled that defendants owed costs in a personal injury claim cannot set-off those costs against costs they owe to the claimant. This severely restricts the already very limited scenarios in which a defendant may enforce any costs orders and will no doubt have far-reaching implications for the conduct of both claimants and defendants in the personal injury sphere.

In Ho v Adelekun [2021] UKSC 43, the Supreme Court determined that in a personal injury claim subject to qualified one-way costs shifting (QOCS), the only avenue open to a defendant to enforce any costs order in its favour against the claimant is against the aggregate monetary amount of orders for damages and interest made in the claimant’s favour (CPR Part 44.14). A defendant can no longer set off its costs against costs ordered in the claimant’s favour as had previously been confirmed as possible under CPR Part 44.12 by the Court of Appeal in Howe v Motor Insurers’ Bureau [2020] Costs LR 297.

As clarified in Cartwright v Venduct Engineering Ltd [2018] 1 WLR 6137, Tomlin Orders and settlement by way of Part 36 do not qualify as damages orders for costs orders to be enforced against under CPR Part 44.14. The decision in Ho puts an end to the current practice of defendants seeking to set off any costs owed to them against costs they owed to the claimant. Defendants can now only enforce costs orders in their favour if damages are awarded at trial, or in the unlikely event that the claimant agrees to record settlement of damages before trial in the body of an order.

The Supreme Court commented that it did not feel appropriately placed to comment upon an issue that both parties contended would have wide-ranging policy implications regardless of the outcome, but had to reach a decision as permission for the appeal had been given. It also recognised the decision may appear “counterintuitive and unfair,” but considered it had found the proper construction of QOCS as intended by the wording of the CPR and invited the Civil Procedure Rules Committee (CPRC) to consider any imbalance to QOCS caused as a result.

Comment

The implications for defendants are stark. Costs owed to defendants for successful interim applications can only be enforced against an order for damages, not following settlement before trial, and not against costs owed to the claimant. Late acceptance of a CPR Part 36 offer by a claimant will not lead to the defendant benefitting from a costs order which can be enforced, as there will be no order for damages. Neither of these consequences are satisfactory for defendants. The former will do much to limit the impact of actual or threatened applications by defendants, hindering sensible case management and matter progression. The latter arguably discourages claimants from accepting reasonable offers, knowing that they can apply costs pressure to the defendant to elicit higher offers and potentially accept the Part 36 at a later stage with only the limited consequence of not being able to recover the costs of the attempt to induce a higher offer.

In addition to the existing encouragement to make sensible early Part 36 offers, defendants in PI claims where QOCS applies will now often be faced with the decision of whether to stick with their best offer and accept that the costs of trial will be incurred, or whether to increase the offer by the amount of the costs that would be incurred to see an earlier end to the claim. The knock-on effect for insurers funding claims in excess of any deductibles will be potential higher exposure from unrecoverable defence costs and higher damages payments if made to reach earlier resolution of the claim.

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