Ho howe hmmm

One of my abiding interests in the field of personal injury costs is the vexed and vexing topic of QOCS, QUOCS, QUALCS or QWOCS. Various accronyms have been applied over the years to the scheme of Qualified One Way Costs Shifting introduced by LASPO 2012, and there may well be one or two that I have missed.

The scheme, although embodied in one short section of part 44 of the CPR, is sufficiently opaque that it has had to be considered on a number of occasions by the Court of Appeal who have attempted valiantly to bring clarity to the provisions and how they might be applied in practice.

The most recent decision of the Court of Appeal can be viewed as a retrograde step in that it raises the spectre of an earlier Court of Appeal decision being flawed and the possibility arises that the Supreme Court will now be asked to resolve the difference in reasoning between the two divisions of the Court of Appeal.

The case is that of Ho v Adelekun (No 2) [2020] EWCA Civ 517  a successor to the substantive decision on fixed costs reported as Ho v Adelekun [2019] EWCA Civ 1988 and the earlier decision Court of Appeal decision that it calls into doubt is that of Howe v MIB (No 2) Court of Appeal Transcript 6th July 2017.

The essential point is this: does the existence of rule 44.14 bar the ability of a defendant to set off costs orders in it’s favour against costs orders owed to the claimant under rule 44.12? Or does the defendant have to pay the claimant’s costs and be limited to “setting off” any costs against any damages that it must pay to the claimant?

The Court of Appeal in Ho, disagreed with the analysis of the Court of Appeal in Howe that rule 44.12 operated independently and separately to rule 44.14 but held that due to the doctrine of precedent it had to follow Howe even though it considered it wrongly decided and instead has granted permission to appeal to the Supreme Court.

The key reasoning of the Court of Appeal is to be found in the judgment of Newey LJ, with whom Males LJ gave a short concurring judgment. Newey LJ observed as follows:

15. However, there seems to me to be more force in other arguments advanced by Mr Mallalieu. In the first place, I find it hard to see how costs set-off can be justified on the basis that CPR 44.14 deals with set-off without the permission of the Court while CPR 44.12 authorises set-off with such permission. As I see it, CPR 44.14 is designed to bar any enforcement of costs orders against claimants in excess of damages and interest unless CPR 44.15 or CPR 44.16 applies, not merely to bar enforcement without the permission of the Court. Were the position otherwise, the protection afforded to claimants by QOCS would be severely curtailed. There would be no evident restriction on the circumstances in which costs orders against claimants could be enforced against them with the Court’s permission.

16. Secondly, there are, as it seems to me, compelling reasons for interpreting “enforced” as extending to set-off in the context of CPR 44.14. Mr Mallalieu acknowledged that set-off is not as a general rule regarded as a species of “enforcement”. It is plain, moreover, that CPR 44.14 encompasses conventional methods of enforcement such as are described in Practice Direction 70 – Enforcement of Judgments and Orders. Supposing, therefore, that a defendant wished to recover costs from a claimant who had already received sums he had been awarded by way of damages and interest, CPR 44.14 would allow him to use the ordinary mechanisms of enforcement to the extent of the award. On the other hand, those responsible for the QOCS regime will surely also have intended it to be possible for a claimant’s costs liability to a defendant to be set against the defendant’s liability for damages and interest so that the claimant simply receives a net sum. In fact, it would appear far preferable to adopt such an approach where possible. Yet it is hard to see where authorisation for such a course is to be found unless it is in CPR 44.14. CPR 44.12 could not be in point as it is concerned with the setting-off of mutual costs obligations, not with setting off a costs entitlement against a liability for damages and interest.

17. Some further support for the respondent’s case is to be found in the following:

i) The QOCS rules in Section II of CPR 44 do not cross-refer to CPR 44.12. CPR 44.14(1) is expressly stated to be subject to CPR 44.14 and 44.16. Nothing is said about CPR 44.12;

ii) The explanatory note to the Civil Procedure (Amendment) Rules 2013 said that “a successful claimant against who a costs order has been made … will not have to pay those costs except to the extent that they can be set off against any damages received” (emphasis added). It was not suggested that costs set-off would be possible; and

iii) While set-off of costs may have been common in legally-aided cases (see Lockley v National Blood Transfusion Service [1992] 1 WLR 492 and R (Burkett) v London Borough of Hammersmith and Fulham [2004] EWCA Civ 1342, [2005] 1 Costs LR 104), the QOCS regime does not mirror that relating to legal aid. Jackson LJ proposed the adoption of the formula contained in section 11(1) of the Access to Justice Act 1999 (Final Report, paragraph 4.6), but that recommendation was not implemented. As Vos LJ observed in Wagenaar v Weekend Travel Ltd [2014] EWCA Civ 1105, [2015] 1 WLR 1968 at paragraph 44, legal aid had “a quite different statutory regime”.

I suspect that when or if, the decision reaches the Supreme Court, the defendant’s arguments may well prevail: there are formidable difficulties facing the claimant, some of which I will set out below.

First, rule 44.14 simply doesn’t deal with set off at all. It is wrong to characterise it as doing so. It deals with enforcement. Thus a defendant is free to enforce against any of a claimant’s assets up to the limit of an order for damages and interest in the claimant’s favour. If the claimant has a particularly valuable car, or a house with equity in it, the defendant can simply write the cheque for the damages and enforce against the other assets.

Moreover, rule 44.14 has been held to apply in multi-defendant cases, so that a successful defendant can enforce against a claimant up to the limit of any damages awarded against an unsuccessful defendant: the concept of enforcement described by rule 44.14 is simply impossible to characterise as set off, which presupposes mutual cross claims between the same parties.

Secondly, Newey LJ is simply wrong that there is no mechanism for set off of costs against damages other than in rule 44.14. It is to be found in section 72 of the County Courts Act 1984. A defendant can simply apply to set off the costs order obtained in its favour against the damages judgment against it. Section 72 provides as follows:

(1) Where one person has obtained a judgment or order in the county court against another person, and that other person has obtained a judgment or order against the first-mentioned person in the  county court or in the High Court, either such person may, in accordance with rules of court, give notice in writing to the court or the several courts as the case may be, and may apply to the court or any of the said courts in accordance with rules of court for leave to set off any sums, including costs, payable under the several judgments or orders.

(2) Upon any such application, the set-off may be allowed in accordance with the practice for the time being in force in the High Court as to the allowance of set-off and in particular in relation to any solicitor’s lien for costs.

(3) Where the cross judgments or orders have not been obtained in the same court, a copy of the order made on any such application shall be sent by the proper officer of the court to which the application is made to the proper officer of the other court.

(emphasis added)

I have underlined part of section 72(2) because it makes it plain that a solicitor’s contingent interest in the costs award to his client, his lien, does not automatically defeat or bar the legitimate interest of a paying defendant in offsetting the client’s liability against his own liability, although in the nineteenth century there was respectable argument that the position was different.

Thirdly there is no reason why rule 44.14 should cross-refer to rule 44.12. The two rules are complementary rather than in conflict as they deal with different legal concepts, and indeed the power to set off costs in rule 44.12 long pre-dates the current rule 44.14 and  goes back to before the Judicature Acts of the nineteenth century and the powers of the old courts before the fusion of law and equity to allow set off of costs against costs. All that rule 44.14 does is bolt on a prohibition concerning enforcement.

Fourthly the wording of the Explanatory Memorandum could be viewed not as determinative but as loosely describing the practical effect of rule 44.14: in most cases, a defendant will not have to enforce the costs order at all, because a claimant will suffer the deduction from his damages, rather than face extraneous enforcement action or an application under section 72. But that is a very different consideration than the wholesale disapplication of the court’s usual discretion to set off costs against costs which the Court of Appeal has found applies.

Fifthly, the Court of Appeal seems to have regarded the case of Sonia Burkett v London Borough of Hammersmith and Fulham [2004] EWCA Civ1342 as simply another case in the long tradition of legally-aided cases which involved set off and distinguishable on that basis. But that decision is a seminal one, emphasising that the root source of the court’s jurisdiction to make an order for set off flows from section 51 of the Senior Courts Act 1981, as the successor to the earlier provisions and practices of the common law courts. The power to set off costs against costs long pre-dated the Legal Aid Acts. As Brooke LJ noted:

46. None of this has anything at all to do with a discretionary balance between two sums of costs. First, it is for the judge to decide, in his discretion, what costs order is appropriate. The exercise of striking a fair balance between such payments is quite different from the judge’s task in a case of equitable set−off as just discussed, where he has to decide as a matter of law, not of discretion, what claims can be asserted, and then, but only then, decide whether the rules governing equitable set−off permit the one claim to be set−off against the other. Secondly, and illustrative of the point just made, no right to costs arises until the judge decides that the right exists. Since he has discretion in creating the right, so he has discretion in deciding the amount in which, and the form in which, that right should be enforced.

47. In our view, therefore, the objections raised to Newman J’s order in terms of lack of mutuality, or the failure of the one set of costs to impeach a claim to the other set of costs, simply beat the air. They are drawn from the jurisprudence of equitable set−off as a defence to action brought. They are irrelevant (except possibly as a guide for the judge to the exercise of his discretion) to the discretionary jurisdiction as to costs.

I have no doubt that there are other aspects of QOCS still to be teased out, and a number of cases which could usefully go to the Court of Appeal on particular points, which continue to trouble me. But it will be interesting to see in the interim, what the Supreme Court makes of this particular point.