In a case to which qualified one-way costs shifting (‘QOCS’) applies, can a defendant set-off a costs order in its favour against the claimant’s costs where there is no damages award that the defendant can set-off its costs against? That was the issue which the Supreme Court was confronted with in Ho v Adelekun  UKSC 43.
The underlying claim concerned a road traffic accident in which Ms Adelekun (the Claimant) suffered personal injuries. She alleged negligence on the part of Ms Ho (the Defendant). Liability was denied and the Claimant issued proceedings. The Defendant made a Part 36 Offer which was accepted. A Tomlin Order was drawn up on the usual terms.
There was an issue between the parties as to whether the costs payable by the Defendant were fixed costs as set out at CPR Part 45, Section IIA (as contended for by the Defendant and which would have amounted to some £16,700) or whether they were conventional costs on the standard basis (as contended for by the Claimant and which would have amounted to some £42,000). At first instance, the Deputy District Judge considered that only fixed costs were payable. This was reversed on appeal by the Circuit Judge. However, on a second appeal, the Court of Appeal reinstated the decision of the Deputy District Judge ( EWCA Civ 1988). In addition, the Court of Appeal ordered that the Claimant pay the Defendant’s costs of the costs assessment appeal incurred before the Court of Appeal and below.
At that stage, the Defendant asked the Court of Appeal to set off the costs order in its favour against the £16,700 fixed costs that she was liable to pay to the Claimant. The Claimant objected on the basis that there was no order for damages in favour of the Claimant to enforce the costs order against. In Cartwright v Venduct Engineering Ltd  EWCA Civ 1654;  1 WLR 6137, it was held that where a claim is disposed of in favour of a claimant by way of settlement rather than following a trial, there is no “court order” for damages and thus no damages order against which costs can be enforced pursuant to the QOCS rules, even where the settlement agreement is annexed to a Tomlin order; CPR 44.14(1) permits enforcement of costs order against a claimant without permission of the court “but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant” (emphasis added).
The Court of Appeal was minded to agree that the effect of a set-off of costs against costs would have been to permit enforcement of a costs order in an impermissible way. However, it considered itself bound by its previous decision in Howe v Motor Insurers’ Bureau  Costs LR 297, where it was held that a set-off of opposing costs orders was not affected by QOCS because set-off is not a type of enforcement. On the assumption that set-off was permissible, the Court of Appeal exercised its discretion in favour of such a set-off. However, the Court of Appeal gave permission to appeal to the Supreme Court on the issue of the availability of set-off.
Appeal before Supreme Court
For the purposes of the appeal, it was accepted that QOCS applied. It was also accepted that since the claim was settled after an acceptance of a Part 36 Offer, there was no “order for damages”.
The Defendant argued that set-off of costs against costs was already well-recognised, particularly in Legal Aid cases (following the decision in Lockley v National Blood Transfusion Service  1 WLR 492). The Claimant argued that the rules relating to QOCS mentioned set-off of costs against damages only and thus necessarily excluded a set-off of costs against costs. Both parties emphasised the competing policy considerations in favour of their respective arguments.
Lord Briggs and Lady Rose (with whom the other members of the Court agreed) declined to be drawn on the policy considerations, considering that those were best left to the Civil Procedure Rules Committee. On the question of construction, however, the court held that QOCS is intended to be a complete code about what a Defendant in a personal injury case can do with costs orders made against the claimant. It further held that a set-off is a means of enforcement (because after all, setting off costs against damages is a permissible form of enforcement of a costs order in a defendant’s favour).
Given that CPR 44.14(1) does not mention enforcing defendants’ costs orders against the extent of claimants’ costs orders, a set-off of costs against costs would not be permissible where there was no damages order. The court did not rule out a set-off of costs against costs in QOCS cases pursuant to CPR 44.12, but only where there was an order for damages and interest and then, only to the extent of such an order.
The case concerns a discrete but important issue for those practising in the fields of personal injury, clinical negligence and costs. The scenario whereby a defendant obtains an order for costs in an interim application in a case which is ultimately settled is not uncommon. The effect of the Supreme Court’s decision (or more accurately, the combined effect of the decisions in Cartwright and Ho) is that where there is no order for damages, the defendant’s costs in such a scenario would be unenforceable.
It will be interesting to see how the implications of this decision manifest themselves in practice. Will it mean that (somewhat counterintuitively) defendants will be more inclined to require matters to go to trial in order to preserve their ability to enforce costs orders from interim applications? The Supreme Court did note that the court could make an adjusted or discounted “one-way” costs order to reflect the parties’ relative success in the proceedings although it also noted that that would water down the costs protection that claimants enjoy. Whether such discounted or adjusted costs orders catch on remains to be seen. The court itself recognised that its decision may at first blush look unfair, which may prompt the Civil Procedure Rules Committee to revisit the issue.