Set Offs, QOCS and Discontinuances: Darini v Markerstudy Group (2017)

In the recent case of Darini v Markerstudy Group (Central London County Court, 24th April 2017), HHJ Dight overturned a decision permitting a costs order against a defendant to be set-off against a costs order against a QOCS protected claimants.

The claims were QOCS protected, road traffic personal injury claims brought on behalf of two claimants, which were issued on 14th October 2014. The claims were subsequently discontinued on 26th June 2015. As a result of discontinuance, a deemed order for costs had been made in favour of the defendant under CPR 38.6(1) although this was unenforceable as per the QOCS provisions.

On 16th July 2016 the defendant sought to set aside the notices of discontinuance and asked for the claims to be struck out, after a finding that the claims were fundamentally dishonest and asked for the claimants to pay the defendant’s costs of the application. The grounds relied on by the defendant were that the claimants’ conduct was abusive of the court’s process and/or was likely to obstruct the just disposal of proceedings and the claims were fundamentally dishonest.

The Deputy District Judge, dismissed the application to set aside and ordered the defendant to pay the claimants’ costs related to that application, which she summarily assessed at £4,118.40. The judge then went further and ordered that those costs be set off against the costs order previously made in the defendant’s favour, following the earlier notice of discontinuance (mentioned above), with any remaining balance in favour of the defendant not to be enforced.

The effect of the order was that the claimants had an entitlement to the costs of the unsuccessful application which they had defeated, but that the defendant did not actually have to pay them because those costs were set off against the costs which the defendant was entitled to by virtue of the notice of discontinuance, which, in a usual QOCS scenario, the claimants would not ordinarily have had to pay.

The claimants appealed this decision on two grounds:

  1. Firstly, that the deputy district judge had no power to order a set-off against another costs order;
  2. Secondly, the outcome was unjust so that even if the deputy district judge had such a power, she should not have exercised it.

DID THE DEPUTY DISTRICT JUDGE HAVE THE POWER TO ALLOW A SET-OFF?

The claimants submitted that section 2 of Part 44 i.e. the scope and interpretation of QOCS is a self-contained set of rules which restricts set-offs so that they can only occur in the circumstances allowed for in CPR 44.14, 44.15 and 44.16 (the exception to QOCS) – none of which applied here.

The defendant submitted that the governing provision relating to the exercise of discretion in relation to set-offs is found in section 1 of CPR 44, in particular 44.12 which states:

(1) Where a party entitled to costs is also liable to pay costs, the court may assess the costs which that party is liable to pay and either –

(a) set off the amount assessed against the amount the party is entitled to be paid and direct that party to pay any balance; or

(b) delay the issue of a certificate for the costs to which the party is entitled until the party has paid the amount which that party is liable to pay.’

The defendant submitted that this was not ousted by section 2 of Part 44 but instead section 2 should be read in light of this provision. Further, it was pointed out that 44.12 does not state that it is subject to the QOCS regime in section 2 – something which the Rules Committee could have specifically provided for had they wanted to as such they claimed that the court has an inherent jurisdiction to set off costs orders against costs orders.

HHJ Dight, acknowledged that the set-off of costs against costs is a discretionary matter for the court and quoted the Court of Appeal decision in Burkett v London Borough of Hammersmith and Fulham [2004] EWCA Civ 1342 in which it was said at para 42, that it was a discretion only to be withheld from a judge by specific rules of law. In relation to this HHJ Dight said:

It seems to me that one has to look at section 2 of Part 44 in that light. […]Section 2 (that is Rules 13, 14, 15 and 16) is, in my judgment, a self-contained code to the extent that it gives QOCS protection to personal injury claimants. It is to be contrasted to section 1 of Part 44 and, notwithstanding the absence of words such as “subject to”, it seems to me that it necessarily creates a different procedural environment for the costs of personal injury claims’.

He went on at para 23 to say:

‘A set-off of costs against costs is, in my view, a means of giving effect to an order in favour of the defendant and therefore would be enforcement within the meaning of these provisions. Therefore, in my judgment, the defendant can only enforce a costs order which includes setting off that costs order in the manner indicated in Rules 14, 15 and 16, and that, necessarily, in my view, limits the court’s discretion and the power to order set-off contained in 44.12. It is significant, in my view, that they appear in different sections of the rules, and while it may be regrettable that the specific words “subject to” or something along those lines does not appear in 44.12 to indicate that 44.13, 44.14, 44.15 and 44.16 limit it nevertheless that is the necessary effect.  In my judgment, that is a sufficient withholding of the discretion which satisfied the concerns expressed by Lord Justice Brooke in paragraph 42 of the Burkett case’.

As the exceptions to QOCS outlined in 44.14, 44.15 and 44.16 did not apply to the facts of this case, it was concluded that the deputy district judge did not have the power to order the set-off of the costs order and as such, the claimants appeal was allowed.

SO WHEN CAN A SET-OFF TAKE PLACE?

HHJ Dight, usefully outlined three situations in which a set-off can take place:

first, where a costs order is made against the claimant, it can be set off against damages and interest only; secondly, where the claimant’s claim has been struck out on the grounds that it is an abuse, enforcement, including set-off, may be allowed in full without the permission of the court; and thirdly, where there is a finding on the balance of probabilities that a claimant is fundamentally dishonest, the courts may allow set-off to the full extent, but that is a matter of the court’s discretion. Those three analyses accord, in my judgment, with the policy objective of protecting a claimant in personal injury claims’.

The full judgment can be accessed here.