Supreme Court decision in Ho v Adelekun [2021] UKSC 43: QOCS and set off of costs

11th October 2021

James Marwick of our Personal Injury and Clinical Negligence teams summarises the Supreme Court’s decision in Ho v Adelekun. The case concerns whether a Defendant in a QOCS case may be entitled to set off costs orders in its favour against any costs order in favour of the Claimant.

The Supreme Court held that, on a proper construction of Part 44, there was no such entitlement.

This decision overturned the Court of Appeal guidance in Howe v MIB (No 2) which had been doubted but followed by the Court of Appeal below in Ho.

The Supreme Court held at paragraph 44:-

We recognise that this conclusion may lead to results that at first blush look counterintuitive and unfair. Why should a defendant which has a substantial costs order in his favour have to pay out costs to a claimant under an order made against him when the two costs orders would net off against each other, leaving both sides to meet their own solicitor’s costs themselves? Whether or not the intervener in this appeal is right that such a result accords with the policy underlying QOCS, we hold that it is the result that follows from the true construction of the wording used in Part 44.”

It is worth assessing where this leaves the QOCS landscape in terms of recovery of Defendant costs, and the decision in Ho v Adelekun must be read with that in Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654.

In Ho, the underlying personal injury action had been settled for £30,000 with the settlement embodied in a Tomlin order with provision for the Defendant to pay the Claimant’s costs.

The parties then fell out over whether the Claimant was limited to fixed costs or entitled to assessed costs (the claim had started under the fixed costs regime but – as is obvious from the settlement value – it turned out to be worth more than the fixed costs limit of £25,000).

That issue went up to the Court of Appeal and the Claimant lost and the Defendant obtained costs orders in her favour.

Because the Court of Appeal had opined in Venduct (quick recap: all about cross enforceability of co-defendant costs orders) that a Tomlin order or a Part 36 settlement was not a court order for damages and interest within the meaning of Part 44 and QOCS, there was no entitlement for the Defendant in Ho to set off its costs (£48,000 or so) against the damages recovered in the settlement and so the ability to set off costs against costs (i.e. Claimant’s costs order in the underlying settlement) had come to the fore.

The Supreme Court in Ho v Adelekun had identified why costs set-off was a key battleground at paragraph 7 of its judgment and approved the Court of Appeal’s guidance in Venduct:-

In cases where the aggregate of the damages and interest that the defendant is ordered to pay a successful claimant is large, this question may not matter. Provided that the defendant’s costs order (or the aggregate of more than one costs order) is less than the aggregate of the orders for damages and interest, there is no constraint on the ability of the defendant to enforce its costs orders, whether by set-off (if that is a species of enforcement) or by any other process of enforcement known to the law. But there are at least three types of case where it may be critical to any use which can be made by the defendant of a costs order in its favour. The first is where the claimant fails at trial and is ordered to pay the defendant’s costs, but is successful (with an order for costs in its favour) at an earlier interim stage, such as in fending off an application for summary judgment by the defendant, or later in winning on a costs assessment. The second is where the claimant succeeds, but by way of settlement rather than at trial. In such a case there is no court order for damages or interest, even if the settlement agreement is annexed to a Tomlin order, and therefore no headroom below the cap available under QOCS for the defendant’s costs enforcement: see Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654; [2018] 1 WLR 6137 (“Cartwright”). The third type is where the aggregate of the costs that the claimant is ordered to pay the defendant substantially exceeds the aggregate of the orders for damages and interest which the defendant is ordered to pay the claimant. This is by no means a rarity; a disproportionality between the damages and the costs is all too frequent in modest to medium-sized PI claims which do not settle within the Pre-action Protocols.”

The Supreme Court decision therefore reinforces that a Defendant is unlikely to be able to set off costs against damages or costs in certain situations.

This has a potentially widespread impact on offer dynamics and insurer exposure.  By way of example:-

D makes an early Part 36 offer for, say, £25K in a high value PI case.  It is not accepted by C but D does not withdraw the offer after expiry of the relevant period.  A year down the line with substantial further costs incurred by D, it serves surveillance evidence, and C moves quickly to accept the offer.  Arguably  C can bank its £25K of damages payable under the Part 36 offer, bank its deemed costs order up to expiry of the relevant period, and leave D with an order for post-expiry costs that it cannot set off against damages (as the Part 36 settlement is beyond its reach in accordance with Venduct) and which it cannot set off against costs (in accordance with Ho).

The assumption that a Defendant can enforce its costs one way or another against a Claimant’s damages or costs on late acceptance by a Claimant appears to have been dealt a serious blow.

The longer-term impact is not year clear, but the Supreme Court in Ho expressed dissatisfaction that it was having to determine a procedural issue such as that in Ho when litigators were entitled to greater certainty in the rules.

James undertakes the full range of personal injury and clinical negligence work with a sub-specialism in costs.  He is recognised by the Legal 500 in all these areas, and is described by clients as “An excellent advocate. He is analytical, pays great attention to detail and provides stellar advice. He is ultra client-focused.” Read more here