The Court of Appeal decision in Ho (Respondent) v Adelekun (Appellant) [2021] UKSC 45 (on appeal from: [2020] EWCA Civ 517) has now been handed down, offering clarification on the qualified one way costs shifting (QOCS) scheme.
What is QOCS?
As a refresh, QOCS operates to limit a claimant’s liability for legal costs to the amount of any order for damages in their favour. I.e. if a claim fails, the claimant pays nothing, and if partially successful, they will never pay more than the amount of the order for damages in their favour.
What happened here?
This claim began as a relatively routine road traffic accident claim which settled for £30,000.00. Following the damages agreement, a dispute arose as to which costs regime applied, with the claimant seeking hourly rate costs and the defendant arguing fixed costs. This issue saw its own distinct appeal process which is not covered in this post and it concluded in favour of the defendant with fixed costs being awarded. The costs of the appeal were also awarded in favour of the defendant.
The final position was the claimant was owed £30,000 damages and fixed costs of £16,700 from the main action while the defendant had an appeal costs order of £48,600.
The defendant attempted to recover these appeal costs in two ways. They argued that costs should be enforceable up to the amount of damages recovered, and thereafter any further amounts could be offset against the claimant’s fixed costs.
At the Court of Appeal hearing the defendant failed on the damages front. It was held that the settlement agreement did not amount to an order for damages and so the defendant had no entitlement to enforce up to £30,000.00 due to the operation of QOCS. This was following a separate decision defining an order for damages in Cartwright v Venduct Engineering Ltd [2018] 1 WLR 6137.
However, the Court of Appeal did find that the defendant could offset the costs of the main action from their appeal costs on the basis that offset did not amount to enforcement. As a result, the position following the Court of Appeal decision was that the Claimant had her £30,000.00 damages but no costs and the Defendant had no costs but had avoided paying the main action costs.
The Supreme Court decision
The claimant successfully appealed the offset point. The Supreme Court held that setting off costs amounted to a form of enforcement under QOCS and was therefore limited in the same way, to the amount of any order for damages in the claimant’s favour. As this had already been established at £nil, the defendant could not offset any amounts.
The final position following the Supreme Court decision was therefore that the claimant had her £30,000 damages and £16,700 costs while the defendant was required to bear their own costs of the appeal – £48,600.00. Although not mentioned in the judgment, the claimant will likely also be able to recover the significant costs of this appeal.
Commentary
The decision appears on the face of it to be fundamentally unfair. The defendant brought the original successful appeal to avoid a significant hourly rate costs liability, but in correctly avoiding that liability, has found itself with an even greater costs burden of the appeal itself. Indeed, the defendant would have been better off “biting their lip” and paying out the increased hourly rate costs incorrectly in the first place.
This apparent unfairness was acknowledged in the judgment as being part and parcel of the effective swings and roundabouts of QOCS in which some individual cases may appear counter intuitive but overall, the scheme works.
What is clear is that QOCS protection is absolute in the absence of an order for damages or interest in favour of the claimant. Claimants can pursue any agreed damages and costs in full, regardless of any opposing liabilities.
It is also important to acknowledge that this is likely to be the case in almost all claims; as even in partially successful claims, the vast majority are settled by way of Tomlin Order or CPR 36 offer, which do not constitute orders for damages.
Defendants must therefore seriously consider the commercial benefit of procedural applications or appeals in light of this as it is very unlikely the costs will ever be recoverable in any form.
