The Supreme Court ruling, by its own admission, is likely to cause "counterintuitive and unfair" results for defendants and insurers. Surely, a review of the Civil Procedure Rules must now be needed to redress the imbalance of QOCS?

In the month of Halloween, this decision is likely to cause quite a fright for defendants and insurers in injury claims.

The Supreme Court has handed down its judgment in Ho v Adelekun [2021] UKSC 43, removing the ability of defendants to recover costs awarded in their favour by off-setting them against costs awarded to the claimant in certain situations. This overturns the earlier Court of Appeal decision, along with the decision in Howe v MIB (No.2) [2017] EWCA Civ 932.

The issues in Ho

The underlying claim in Ho was a personal injury dispute which settled for £30,000 by way of acceptance of a Part 36 offer, with the Defendant liable to pay the Claimant's costs. The Defendant then contended that the Claimant was entitled to no more than 'Fixed Recoverable Costs' rather than assessed costs on the standard basis. The point was argued to the Court of Appeal, where the Claimant lost and was held to be entitled to fixed costs of around only £16,700. The Defendant was awarded the costs of the appeal, which amounted to £48,600.

The Claimant argued that she was protected by Qualified One-Way Costs Shifting (QOCS) from paying any of the Defendant's costs. The decision in Cartwright v Venduct Engineering Limited [2018] had already made clear that neither a Tomlin Order or a Part 36 settlement could be considered to be a court order for 'damages and interest' (see Part 44 CPR) such as would trigger a successful defendant's right to enforce an order for costs against damages paid. The Defendant argued, however, that it was possible to set off the costs ordered in favour of one party against the costs ordered for the other, which would wipe out the £16,700 costs payable to the Claimant.

The Court of Appeal held itself bound by the earlier decision of Howe and accepted the Defendant’s interpretation of the rules. The Claimant appealed on this issue to the Supreme Court.

A reluctant ruling by the Supreme Court?

The Supreme Court unanimously, albeit apparently somewhat reluctantly, allowed the Claimant's appeal. It held that off-setting costs constitutes "enforcement" for the purposes of the QOCS provisions in Part 44 CPR. Accordingly, it is not possible to off-set a defendant's costs against the claimant's costs. Defendants can therefore no longer expect that they will recover costs awarded in their favour (e.g. at an interlocutory application) by way of offset against costs awarded to the claimant upon settlement of the case.

The Supreme Court justices appeared reluctant to rule on such a procedural question at all, recognising that this ruling "…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?" Nevertheless, on a correct interpretation, this was the effect of the Rules.

The judgment left it open to the Civil Procedure Rules Committee to amend the Rules if the Supreme Court’s interpretation of them did not reflect how the QOCS regime is supposed to operate.

What this means for defendants and insurers

This ruling further erodes the fairness of the QOCS regime for defendants, particularly in the context of medical malpractice cases where most cases (even those with little merit) settle before trial. It also partially undermines the defendant's most powerful weapon in the CPR armoury to put the claimant at risk of paying the defendant's costs: a Part 36 offer. It is no longer a given that a defendant can enforce its costs against a claimant’s costs if the claimant fails to beat the offer at trial. By way of example: if a defendant makes a Part 36 offer of £10,000, and the claimant fails to beat the offer at trial, the defendant's costs recovery will be limited to the level of damages awarded. The defendant's costs could be much higher, but it can no longer seek the balance of its costs by offsetting against the claimant's costs.

Ever since the introduction of QOCS in 2013, defendant practitioners have seen an increase in unmeritorious claims being pursued way beyond the pre-action stage, only to be abandoned late in the litigation when considerable defence costs have been incurred. We may now see reasonable defendant Part 36 offers being increasingly ignored or rejected. This decision therefore arguably goes beyond what the QOCS rules were designed to achieve, which was essentially to stem the recovery of large ATE premiums and success fees, by protecting the claimant from paying the defendant's costs as a 'trade-off'.

This decision gives no extra protection to claimants; the chief beneficiaries are claimant lawyers whose costs are now further insulated, which again was not the intention of QOCS. Surely, this decision must lead the Civil Procedure Rules Committee to review the QOCS provisions to redress the imbalance. Only time will tell.

For now, the decision in Ho means that claimants and their solicitors can sleep very comfortably at night, knowing that their costs are further protected from the scary prospect of offset by the QOCS 'Ghostbusters'.