Written by Paul Wainwright, Head of Costs and Rachael Round, Associate
As the late, great Stephen Hawking once said, “one of the basic rules of the universe is that nothing is perfect. Perfection simply doesn’t exist… Without imperfection, neither you nor I would exist.” The Supreme Court Justices certainly agreed with the sentiment when considering the proper operation of Qualified One Way Costs Shifting (QOCS), and the drafting of CPR 44.14, The issue under consideration was whether, in the context of the QOCS regime, courts had a jurisdiction to set-off costs vs costs (rather than merely damages and interest).
QOCS was introduced in April 2013, in exchange for a bar on recovery for most ATE premiums, to insulate genuine claimants who bring unsuccessful injury claims, from a liability to pay their opponent’s costs. This approach protects those claimants from meeting the costs incurred by (comparatively) well-funded insurers, NHS Trusts or local authorities. The asymmetry of the relationship - private individual versus experienced ‘repeat player’ defendants – provides the policy justification for this protection.
The general effect of QOCS is that a claimant pays nothing where their claim is dismissed at trial. However, matters become more complicated where there have been successful Part 36 offers by defendants, or discrete interlocutory applications won and lost by either side during the course of the litigation. Crucially, the rules are silent as to what should happen when a claimant’s damages and interest alone are not sufficient to satisfy any adverse costs liability in favour of a defendant and whether any shortfall can be set off by defendants against costs that would otherwise be payable in favour of a claimant.
The Court of Appeal in Howe v MIB (No. 2)  Costs LR 297 permitted the set off of costs vs costs but the issue was doubted when considered by a differently constituted Court of Appeal in Ho v Adelekun, hence the further appeal to the Supreme Court.
The Supreme Court
In Ho, the Supreme Court unanimously held that any costs orders against a claimant may be enforced, without permission of the court, where the aggregate amount is not more than a claimant’s damages and interest only, per CPR, r. 44.14(1).
The argument that QOCS is a complete costs code or that it wholly excludes set off under r.44.12 was rejected. However the court stated that “QOCS is intended to be a complete code about what a defendant in a personal injury case can do with costs orders” obtained in their favour. The Court made clear at paragraph  that in reaching its decision, “It is not necessary or appropriate to describe or examine those policy considerations in any detail. First, as already emphasised, this court is not well placed to assess them reliably. If the true construction of the QOCS scheme… has adverse policy consequences, that is a matter for the CPRC to put right.”
Interestingly, paragraph 9 of the judgment reads as a direct invitation for the Civil Procedure Rule Committee (CPRC) to determine (i)whether set off of costs vs costs intended and (ii) if it was, to amend the CPR despite the Supreme Court ruling on this point: “We should say at the outset that we doubt the appropriateness of a procedural question of this kind being referred to this court for determination ... The CPRC exists for the purpose of keeping the CPR under constant review. It is better constituted and equipped than is this court to put right such ambiguities.”
What this means for you
Following this decision, and unless the rules are amended, there may be limited scenarios where a defendant entitled to a costs recovery will not exhaust a claimant’s damages and interest only.
However practitioners should be alive to the following exceptions to QOCS which, if properly argued, have the potential to mitigate:
Non-Party costs orders – A defendant may recover costs from a controlling party, whether that be the solicitor on record or a third party such a funder, if the litigation is pursued for their financial interest – r.44.16(3). Such orders are regularly made where a claimant’s solicitor proceeds to trial without their client’s consent or pursues an argument in costs solely for their financial benefit;
Wasted costs – A defendant may recover their costs “thrown away” where the claimant’s legal representative has acted in a manner which is unreasonable, improper and/or negligent e.g. failed to file a trial bundle, which resulted in the trial being vacated and significant costs wasted;
Mixed claims - The usual rules relating to mixed claims still apply; see: Brown v Commissioner of Police  EWHC 2046 (Admin) and any element of the claim pursued which does not comprise injury, such as property damage, is not automatically afforded the same QOCS protection and the usual costs rules apply;
Statutory exceptions - A finding of fundamental dishonesty removes a claim from QOCS protection and summary judgment or abuse of process also removes a claim from QOCS protection r.44.15;
r.44 Discretion - Finally, it was acknowledged that any perceived injustice to a largely successful defendant could be reflected in an adjustment to the final costs order made (e.g. the defendant being ordered to pay a percentage of the claimant’s cost).
Practitioners should be mindful of the comments of the Court of Appeal in Corstorphine v Liverpool City Council  EWCA Civ 270 @ : “It follows that in my judgment the judge should have concluded that the QOCS regime applied to the claims made against the Second and Third Defendants. If so, that would have been a highly material factor to be taken into account in determining whether the Appellant should be liable to pay to the Respondent the costs it had to pay the Second and Third Defendants.” Whilst Hamblen J objected to a cost order that sought to circumvent QOCS in Corstorphine, the unfairness of Ho will lead to further argument on this point.
Please do not hesitate to contact a member of BLM’s Costs practice group if you have any questions in respect of the above.