Clarity Ho!! – Qualified One-way Costs Shifting (‘QOCS’) regime in Ho v Adelekun [2021] UKSC 43

Stuart Jamieson, group co-ordinator of the Parklane Plowden Costs team, analyses the significant decision of the Supreme Court in Ho v Adelekun [2021] UKSC 43 in relation to the Qualified One-way Costs Shifting regime (‘QOCS’) handed down today. 

Ho provides clarification on the mechanism of the QOCS rules, specifically how these apply to competing costs orders between parties and potential set off.

Prior to today appellate authority meant that the correct approach to competing costs orders was that set off under CPR 44.12 would occur prior to enforcement under QOCS.

This circumstance can occur quite frequently, for example where a claim is successful but subject to an interlocutory or appeal costs order in favour of a Defendant or where a Claimant accepts a Part 36 Offer of settlement out of time.

The judgment of Lord Briggs and Lady Rose, with whom Lady Arden, Lord Kitchin and Lord Burrows agreed, contains an all-encompassing yet pithy and insightful consideration of the background to the introduction of QOCS. 

It is recognised that there is an inherent inequality of arms in PI litigation as Defendants ordinarily have the benefit of insurance and large resources.  The old legal aid scheme and then CFAs / ATEs represent the previous ameliorating procedural schemes to address this, with QOCS the third attempt after the Jackson report identified that the previous regime may have tilted the playing field too far in favour of Claimants.

Litigants are now familiar with the QOCS regime, which is celebrating its 8^th anniversary since implementation on April Fool’s Day 2013.  As part of a raft of reforms, Defendants were to forego enforcement of recovery of their own costs but not face meeting the payment of success fees or most ATE premiums inter partes.  This was One Way costs shifting that was designed to shield Claimants from having the risk of having to pay the costs of the Defendant.  It was however qualified by a monetary cap as to enforcement up to the aggregate of the Claimant’s damages and interest and with further, specific exceptions for non-PI claims (e.g. hire), vexatious, abusive claims or fundamental dishonesty where Defendant’s costs could be enforced without limit.

It is important to bear in mind that QOCS as finally enacted did encompass major differences as between the system initially set out persuasively by Sir Rupert in his Final report published in 2009.  This included that the system enacted does not inhibit or restrain the making of a costs award in favour of the Defendant in principle, subject to QOCS acting to limit enforcement.

In addressing the issue of QOCS and set off the Supreme Court recognised that if there were a large amount of damages in a case then the matter may be redundant, the Defendant can fully enforce any costs order as it will be less than the aggregate amount of damages and costs.

However, the Supreme Court identified 3 scenarios where the issue of QOCS and set off are critical: (i) a Claimant loses the claim but has a costs order in its favour, (ii) where a settlement means there is no court order for damages or interest for a Defendant to enforce its costs (as can occur in multi-Defendant actions following Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654), and (iii) costs to be paid by the Claimant to the Defendant exceeds the damages and interest awarded to the Claimant.

The background to Ho was that in Howe v MIB [2020] Costs LR 297 the Court of Appeal decided in 2017 that set off of opposing costs orders was not affected by QOCS, as it was not a mechanism of enforcement and to be applied prior to application of the QOCS rules.  The Court of Appeal in Ho were, however, critical of the outcome of Howe but felt bound to follow it.  The Supreme Court were critical of this difference of opinion and that the matter had not been addressed decisively by the Civil Procedure Rules Committee.

The facts of Ho were that Ms Adelekun had a successful PI road traffic accident claim that settled by acceptance of a Part 36 Offer and Tomlin Order at £30,000 after exiting the RTA Protocol Portal.  The initial key dispute following settlement was whether Ms Adelekun’s costs should be recovered on the fixed or more favourable standard basis.  The Court of Appeal in [2019] Costs LR 1963 finally determined that fixed costs should apply.  The costs of the assessment dispute up to the Court of Appeal were awarded in favour of the Defendant to the PI claim, Ms Ho.  The issue for the Supreme Court was whether she could set off those costs (£48,600) against the fixed recoverable costs of the claim awarded to Ms Adelekun (£16,700) prior to applying QOCS.

The importance of the issue in Ho caused APIL to appear as an intervenor, making written submissions on the potential implications for the QOCS regime.   

It was agreed in Ho that following Cartwright there was no “order for damages” against which to enforce the Defendant’s costs award.  Accordingly, Ms Adelekun’s case was that she was entitled to her damages, interest and fixed costs in full and with the costs order made against her not to be enforced against her damages or costs under QOCS.  Ms Ho contended for the set off of her costs (to occur before QOCS) such as to mean that no net payment of Ms Adelekun’s costs were to be made by her, i.e. the award of £16,700 was set off and eliminated by the costs order of £48,600 for the assessment costs.

Ms Adelekun and APIL argued that to deprive the Claimant of costs for work undertaken on parts of the case where the Claimant had been successful would undermine the economic basis for PI litigation under QOCS.  Ms Ho argued that the opposite approach would encourage unmeritorious or weak application on behalf of Claimants.  The Supreme Court, rightly, evaluated that these policy considerations had limited utility.  The purpose of QOCS to re-balance the playing field had had a greater effect from cases such as Cartwright, as more claims settle than are made subject to a court order for damages in favour of a Claimant, and by the reality that Claimants who lose at trial under QOCS do not ordinarily pay any costs.  

In order to determine the issue before it the Supreme Court considered the specific language of the relevant rule on the “Effect of QOCS” at CPR rule 44.14.  It was observed that, “QOCS does not seek to constrain the court from making court orders, but merely the use which defendants can make of costs orders in their favour.”  

It was also explained by the Supreme Court that the QOCS regime operates mechanically.  The test is whether relevant exceptions are met rather than requiring a court to exercise a general discretion.

In undertaking its analysis the Supreme Court found that, “we would accept that QOCS is intended to be a complete code about what a defendant in a PI case can do with costs orders obtained against the claimant, ie about the use which the defendant can make of them. The defendant can recover the costs ordered, by any means available, including set-off against an opposing costs order, but only up to the monetary amount of the claimant’s orders for damages and interest.”  

In what is likely to be an oft-cited passage Lord Briggs and Lady Rose set out at Paragraph 38 of Ho, “rule 44.14(1) works in the following way. First, it requires two comparators to be constructed. First, the aggregate amount in money terms of all costs orders in favour of the defendant. Secondly, the aggregate amount in money terms of all orders for damages and interest in favour of the claimant. We will call them A and B. If A is less than or equal to B, the defendant can enforce his costs orders without limit. If A is more than B, then the defendant can only enforce his costs orders up to the monetary limit of B. The effect of this cap, as we have called it, is to require the defendant to keep a running account in money terms of all costs recoveries which it makes against the claimant, and to cease enforcement when limit B is reached. [emphasis added]”

The Supreme Court then considers an example where A is at £30,000 and B is £20,000.  The Defendant could then enforce its costs order against the damages, but the Defendant cannot enforce the remaining balance of its costs entitlement of £10,000 (£30,000 – £20,000).

In undertaking this illustration the Supreme Court note, at Paragraph 41 of the Judgment, that CPR rule 44.14(1) is by reference to the aggregate amount of costs orders in favour of the Defendant, it is not by reference to the net amount after setting off opposing costs orders.  Accordingly, “Costs orders in favour of the claimant are not even mentioned in the formula, and the aggregate expressly referred to [of the Defendant’s costs awards] is a gross not a net amount.”

The Supreme Court judgment identifies that Claimant’s damages can be set off from Defendant’s costs award by operation of QOCS (A – B) but that competing costs orders are not to be treated in this way.  It is stated forcefully that any apparent unfairness in not offsetting the Defendant’s costs from those of the Claimant must be accepted as part of the overall QOCS regime.  The Jackson reforms mean that the Defendants have received other benefits, notably by not paying the large success fees and ATE premiums as in the past.  In addition, the Supreme Court highlighted that QOCS works well in the vast majority of cases where one side succeeds.

Ultimately, Ho is an excellent example of the Supreme Court acting decisively to resolve with great clarity of judgment a difficult point over the application of the costs rules and to overrule a previously criticised decision of a lower court (the Court of Appeal in Howe).

The decision will have significant implications for circumstances such as where a Claimant is considering acceptance of a Part 36 Offer out of time or a Defendant is considering an appeal where the structure of settlement, if comparable to Ho, would mean that the costs of succeeding on appeal whilst ordered in principle will not be enforceable against the Claimant.

Overall, Ho is a welcome decision that should help the continued, relative success of the QOCS regime and Jackson reforms in achieving a level playing field for PI claims, compared to the previous generations of ameliorating procedural schemes of Legal Aid and CFAs / ATE.

Stuart Jamieson and Abigail Telford will be giving a lecture on the implications and detail of Ho on Friday (8^th October) as part of the Costs conference hosted by Carter Burnett in Newcastle.

Stuart Jamieson and Abigail Telford are the group co-ordinators of the Costs team at Parklane Plowden.