Ho v Adelekun [2021] – to what extent can defendants offset “costs against costs” in a QOCS case?

The claimant was the innocent party in a road traffic collision and brought proceedings against the defendant driver. That claim settled by way of acceptance of an offer of £30,000 plus legal costs, but the claimant then proceeded to lose an expensive dispute concerning the basis of assessment of those costs. She was held to be entitled to costs of about £16,700, whereas the defendant’s costs of the appeal, which she was ordered to pay, amounted to some £48,600.

The claimant argued that she was protected from paying any of the defendant’s costs by the QOCS regime, which barred enforcement of the defendant’s costs beyond the level of damages and interest payable to her. Following Cartwright v Venduct Engineering [2018] the £30,000 damages payable did not count for these purposes; there was no order to pay damages as the agreement to do so was recorded in the schedule to a Tomlin order. Therefore, if the claimant was right, the defendant’s insurers would have nothing to enforce their costs against. The defendant argued that it was possible to set off the two costs orders against each other, with the net effect that the costs payable to the claimant would be wiped out by those payable to the defendant.

The case returned to the Court of Appeal, which disagreed but held itself bound by its earlier decision of Howe v MIB to agree that the defendant’s interpretation of the rules was correct.

The Supreme Court unanimously allowed the claimant’s appeal. It held that costs orders made in a claimant’s favour should not be considered when determining the limit up to which a defendant may enforce an order for costs in its favour.

The court held that the effect of rule 44.14(1) is to create a monetary cap on the amount that a defendant can recover in costs from the claimant, set at the level of the aggregate amount in money terms of all court orders for damages and interest in a claimant’s favour. The defendant cannot recover costs once that monetary cap is reached.

The defendant’s insurers argued that they could set off the opposing costs orders against each other because the monetary cap created by rule 44.14(1) only applied to the net costs liability of a claimant after all opposing costs orders had been netted off. Therefore, despite there being no court order for damages, the insurers argued that the £16,700 owed by them for the pre-settlement costs could still be netted off against £16,700 of the Court of Appeal costs order in their favour.

The Supreme Court dismissed this argument. The setting off of costs against costs is a form of enforcement covered by QOCS just as the setting off of costs against damages is. A calculation of a claimant’s net costs liability was therefore an incorrect approach, as the bar to enforcement in the QOCS provisions applied to the gross amount of a defendant’s costs orders against a claimant rather than the net amount.

The effect of this is that the defendant must pay the claimant the full pre-settlement costs of £16,700 on top of the £30,000 agreed to in the schedule to the Tomlin order, but cannot enforce the Court of Appeal costs order at all.

The court accepted that this may give rise to unfortunate results, though stated:

No one has claimed that the QOCS scheme is perfect. It is, however, the best solution so far that the opposing sides in the ongoing debate between claimant solicitors and defendant insurers have been able to devise. It works to achieve the aims for which it was introduced in the great majority of straightforward cases in which one side or the other is entirely successful.

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