In edition 304 of BC Disease News (here), we summarised the High Court’s judgment in Faulkner v Secretary of State for Business, Energy And Industrial Strategy  EWHC 296 (QB), wherein a defendant employer was able, at least in principle, to have its costs set-off against its QOCS-protected opponent’s costs.
Since then, the Court of Appeal has provided additional guidance on set-off (or enforcement), in the case of Ho v Adelekun  EWCA Civ 517.[i]
Here, the claimant accepted the defendant’s Part 36 Offer of £30,000, in full and final settlement of her road-traffic accident (RTA) claim, enforced by way of Tomlin order.
However, the basis upon which the claimant’s costs of the case should be assessed was not agreed between the parties, with the claimant conventionally assessing its costs at £42,000 and the defendant submitting that it was only liable for CPR 45 Section IIIA fixed costs, totalling £16,705.15.
When the application was first heard in 2018, at the Central London County Court, Deputy District Judge Harvey preferred the defendant’s position. This decision was overturned on appeal, only to be reinstated by the Court of Appeal, in Ho v Adelekun  EWCA Civ 1988.
So, was the defendant entitled to the costs of its successful application (DDJ Harvey elected not to make a costs order at 1st instance)? If so, was she able to enforce her costs by setting them off against the claimant’s £16,000 costs order?
Handing down judgment on 9 April 2020, Sir Geoffrey Vos, Lord Justice Newey and Lord Justice Males found in favour of the defendant and ordered the claimant to pay its costs, in spite of QOCS.
Although Faulkner was not cited, the rationale behind the Court of Appeal’s decision was identical, namely that Lord Justice Lewison’s finding, in Howe v Motor Insurers’ Bureau (No 2)  EWCA Civ 2523, was binding and that Darini & Anor v Markerstudy Group (24 April 2017, Central London County Court) was no longer ‘good law’.
Moving on to determine whether the Court should decline to exercise its residual discretion to direct set-off, it deemed that supportive arguments ‘lose their potency’ once it has been determined that set-off can be ordered ‘in principle’. Indeed, in this particular scenario:
‘Since (a) it is to be assumed that those responsible for the QOCS regime intended the Court to be able to order costs set-off regardless of whether the claim was unfounded or the claimant has misconducted himself in some way, (b) there is no evidence of anything specific to the respondent’s circumstances which could render costs set-off unjust and (c) the appellant has herself incurred substantial costs in vindicating her rights and will be left with a large shortfall even with the benefit of costs set-off, we should, I think, exercise our discretion to order set-off’.
The status quo, therefore, appears to be that set-off of costs is compatible with the QOCS regime, even though it was conceded that the claimant’s entitlement to costs in the present case would be ‘substantially reduced and perhaps even extinguished’ as a result:
‘… the claimant’s unsuccessful challenge to the applicability of the fixed costs regime will leave the claimant with a potential liability in costs to her own solicitors, which (bearing in mind that the challenge to the fixed costs regime was in large part for their benefit rather than the claimant’s) the solicitors may or may not choose (or be entitled) to enforce. But the claimant will in no circumstances have any net liability to the defendant and, in that respect, the order made will not be contrary to the QOCS regime. Moreover … it is perfectly possible under the QOCS regime for a successful claimant to be left with a liability to her solicitors’.
Nevertheless, in lieu of the significance of this ruling moving forwards, Newey LJ has urged the Civil Procedure Rule Committee (CPRC) to expressly affirm or deny whether it should be possible for defendants to set-off their overall liability for costs against costs in their favour, where claims are subject to QOCS.
Males LJ agreed that this issue could ‘usefully be considered’, adding that:
‘Regardless of whether Howe v Motor Insurers Bureau (No. 2) was correctly decided, there are powerful arguments on each side of the issue as to what the law should be’.
Full text judgment can be accessed here.
[i] Neil Rose, ‘Appeal court urges rethink over set-off in QOCS cases’ (14 April 2020 Litigation Futures) <https://www.litigationfutures.com/news/appeal-court-urges-rethink-over-set-off-in-qocs-cases> accessed 17 April 2020.
John Hyde, ‘Judges call for review of costs rules after QOCS judgment’ (16 April 2020 Law Gazette) <https://www.lawgazette.co.uk/law/judges-call-for-review-of-costs-rules-after-qocs-judgment/5103872.article> accessed 17 April 2020.