This week I have two cases which will involve application and consideration of the effect of Ho v Adelekun  UKSC 43, the recent and controversial decision of the Supreme Court on Qualified One Way Costs Shifting in personal injury claims. There will be many others, as various aspects of the decision are worked out in practice.
The effect of Ho is that the Supreme Court has decided that, in effect rule 44.14 CPR trumps rule 44.12 CPR, so that the most that a defendant can offset in respect of its own costs entitlements, are those sums it has been ordered to pay a claimant in respect of damages and interest.
As most cases conclude by way of settlement without a court order for damages and interest, that means that in most cases, the defendant will be standing their own costs, even where there are substantial costs orders made at an interlocutory stage in its favour. The Supreme Court reached this conclusion with diffidence:
9. We should say at the outset that we doubt the appropriateness of a procedural question of this kind being referred to this court for determination. The very fact that two eminently constituted Courts of Appeal have differed profoundly over the interpretation of a provision of the CPR suggests that there must be an ambiguity which practitioners need to have sorted out. The CPRC exists for the purpose of keeping the CPR under constant review. It is better constituted and equipped than is this court to put right such ambiguities, all the more so where, as here, the outcome is suggested by both parties and by the Association of Personal Injury Lawyers (“APIL”), intervening, to have potentially profound policy consequences for the maintenance of a reasonably fair and level playing field in PI litigation, something which this court is much less well equipped than is the CPRC to assess. Nonetheless, permission having been given, this court must decide the question of construction, leaving it to the CPRC to consider whether our interpretation best reflects the purposes of QOCS and the Overriding Objective, and to amend the relevant rule if, in their view, it does not.
One of the unwritten principles of legal practice, is that each generation will fondly re-invent the wheel, but imagine that they are breaking new and interesting ground. The recent decision of the Supreme Court has it’s origins in the practice of the Court of Common Pleas, when faced with the common scenario that a claimant will obtain judgment and costs against a defendant, but the defendant will succeed on a counterclaim and wish to set off against her liabilities to the claimant.
Where the claimant is impecunious, her lawyers will wish to avoid such a circumstances, as if the claimant does not recover costs, they will go unpaid. Thus in the case of Sonia Burkett v London Borough of Hammersmith and Fulham  EWCA Civ1342 the Court of Appeal summarised the position as follows:
38. On this appeal we are concerned with a set-off of costs against costs within the same proceedings. Section 51 places all such matters, subject to other enactments and rules, in the discretion of the court. Those who are concerned to learn more about the historical origins of what is now s 51 would do well to study not only the leading judgments in this court in Edwards v Hope (1885) 14 QBD 922 and Reid v Cupper  2 KB 147 , but also these further judgments which flesh out the story: Barker v Hemming (1880) 5 QBD 609 ; Blakey v Latham (1889) 41 Ch D 518 ; Goodfellow v Gray  2 QB 498 ; David v Rees  2 KB 435 ; Puddephatt v Leith (No. 2)  2 Ch 168 ; Knight v Knight  Ch 835 ; In re A Debtor  Ch 162 ; and, finally, Izzo v Philip Ross, Neuberger J (unreported, 31 July 2001) .
39. What these cases show is that in the early nineteenth century the three common law courts followed different practices in exercising what Buckley LJ described in Reid v Cupper as “their equitable jurisdiction to do what was fair” when they were considering whether to allow one judgment to be set off against another, so that the party who was ultimately successful could levy execution for the balance. The solicitor whose client was successful in the first action was prima facie entitled to a lien over the judgment debt to secure his unpaid costs, and the Court of King’s Bench was more solicitous towards the interests of the unpaid solicitor than the Court of Common Pleas. Between 1832 and the time of the jurisdictional reforms of the mid-18705 the court’s discretion whether to order a set off was taken away by rule in most cases in favour of the supremacy of the solicitor’s lien, but the last of these rules was swept away by Order LXV r 14 of the rules annexed to the Supreme Court (Amendment) Act 1875 which provided that:
“[A] set-off for damages or costs between parties may be allowed, notwithstanding the solicitor’s lien for costs in the particular cause or matter in which the set-off is sought.” *117
40. It is unnecessary for the purposes of this judgment to retrace the process of reasoning which led to this rule being interpreted as meaning that a set-off could be allowed against damages due on a judgment in another action ( Goodfellow v Gray ), but not against a judgment for costs in another action ( David v Rees ). It is sufficient to observe that in Reid v Cupper this court held that a judge was entitled to make an order setting off one party’s costs in an action against the other party’s costs in a different action by reliance not on the language of Order LXV r 14, but on the old discretionary practice of the courts which preceded all the rule changes. The governing principles are best seen delineated in the short judgments of Bowen LJ in Edwards v Hope (at pp. 926–7) and Pickford LJ in Reid v Cupper (at pp. 155–6). In essence, the courts reverted to the old practice of the Court of Common Pleas (which was willing in principle to override the effect of the solicitor’s lien) and upheld the approach of Kay J in Blakey v Latham when he said (at p. 522):
“How can any solicitor possibly have an equity against B to make B pay costs which B is ordered to pay to A when B cannot recover from A the costs which A is ordered to pay B? How can any solicitor have an equity to make B pay instead of setting them off? If this matter were free from authority I should say it is the most extraordinary equity I have ever heard of.”
41. All the complications introduced by the language of the 1875 rule have disappeared today when s 51 of the 1981 Act provides quite simply that “subject to the provisions of this or any other enactment and to rules of court” the costs of and incidental to all proceedings in the High Court shall be in the discretion of the court.
42. A set-off as to costs of the kind ordered by Newman J is, therefore, essentially discretionary in nature, a discretion only to be withheld from a judge by specific rules of law. That consideration is reinforced by a comparison of that species of set-off with the rules of set-off as a defence to an action.
Whatever the rights and wrongs of the decision in Ho it will have a number of ramifications, which may prove difficult for the court system and lead to the application of the law of unintended consequences.
I will only cite three, the most obvious ones, but there are others.
First, the effect on part 36. Take the following example: the claimant has a modest personal injury claim worth perhaps £10,000 or a little more, his costs are £100,000 and the defendant at a relatively late stage in the proceedings makes a part 36 offer to the claimant of £9500. Should the claimant decline to accept, and proceed to trial, his downside is limited to the £10,000+ that forms the upper limit of enforcement action for a defendant. Conversely he might get more, much more, by way of modest damages and a much larger award of costs by proceeding to trial. Prior to Ho, his damages and costs might have been largely wiped out by a defendant’s costs encouraging settlement. In these hypothetical circumstances, a part 36 offer loses 90% of its effectiveness and cases will fight that might otherwise be settled.
Secondly, in circumstances where a defendant’s prospects of recovering their costs, or at least offsetting them against a claimant’s costs becomes largely nugatory by operation of one rule, the defendant is incentivised by the system to run arguments that circumvent the difficulty. The first and most obvious, will be to argue that the exceptions to QOCS apply: already virtually all road traffic accident trials, involve allegations of fundamental dishonesty. The mixed claims exception, may yet come to the fore. And I believe there will be more applications for non party costs and wasted costs against solicitors who will be said to have the “real interest” in forcing litigation or arguing points, particularly costs points. Non-party costs applications against ATE insurance companies (who do not seem to enjoy a penumbral shield of QOCS), may also be made in the short term before they revise their terms of cover and reduce their vulnerability to such applications.
Which brings me to the third potential consequence: what is the point of ATE insurance now? Given that the effect of part 36 has been largely neutered, its sole raison d’etre is to provide insurance for a claimant’s disbursements. But in this scenario ATE insurance is not so much providing insurance for the claimant, but reinsurance for the claimant’s solicitors overdraft. That in turn will raise questions as to how many claimants will take out ATE insurance, which in turn may have effect on the viability of what has always been a fragile insurance market. Moreover, advice given to claimants to effect ATE insurance is likely to be scrutinised, by those who might suggest that it is not in the client’s best interest to obtain an ATE insurance policy, given the limited risks they now face.