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More pain for compensators on the costs front

In Ho v Adelekun [2021] UKSC 43 the Supreme Court put beyond doubt the inability to set off costs against costs within a QOCS case.

Whilst the equitable remedy of “set off” between two parties is preferable where possible, when it comes to the application of the one-sided legal enigma known as QOCS this decision displaces years of jurisprudence, with a partial set off and the ring-fencing of costs.

The impact of QOCS on set off is to cap the set off at no greater sum than the combined damages and interest. If a balance exists beyond this cap, compensators cannot look to set off the balance from any costs payable to an opponent; hence partial set off.

This appears to be a slightly absurd application of policy. Indeed, one questions whether it eluded the minds of those determining the point that costs are incurred as a consequence of a client’s instructions. The client owns the costs and hence has the ability to recover those costs against an opponent; we know this to be the indemnity principle.

It is the case that judgment includes costs, rather than simply being reflective of damages and interest.

If a claimant gets it wrong: 

  1. Why should those acting profit to the detriment of any other party?
  2. Why under such circumstances are those acting not looking to their own clients to shoulder the costs of unsuccessful actions?

We have perhaps come full circle to the “no win, no fee” culture. Perhaps that ship, whilst having sailed, is an earlier example of an attempt to ensure a “level playing field,” where a commercial settlement was always preferable to a trial and the threat of 100% success fees.   

In our view, QOCS has never been the answer “for the maintenance of a reasonably fair and level playing field in PI litigation.” Save for exceptions such as fundamental dishonesty, a claimant (or, cynically, those instructed to act) may wish to chance their arm — in what is now a risk-free costs environment — when the risk only extends to damages and interest. Even with an offer on the table, there remains an incentive to push for more.

Surely, if a party gets it wrong, they should not profit — that would seem common sense. What we have now is a situation that means, solely as a consequence of QOCS, that the losing party still gets paid up to the point when the win became a loss and evades the costs consequence of getting it wrong.  

The UKSC has deferred to the CRPC remarking that the CPRC was “better constituted and equipped to put right “ambiguities in the rules. That is a matter for debate but a statement that will generate feelings of incredulity from compensators.

We now wait for the CPRC to consider whether the interpretation within the judgment best reflects the purposes of QOCS and the overriding objective. The CPRC is going to be extremely busy factoring in that they are already wrestling with the Government’s response to the extension to the fixed recoverable costs regime.

So, as ever, there will be a need to consider carefully any amendment to the Rule. In the meantime, compensators need to redouble their effort to: 

  1. Act commercially in order to make prospective cost savings, irrespective of the strength of an argument; and
  2. If making an offer, consider whether an offer should be made pursuant to Part 36 as this would require payment if accepted within 14 days
  3. Consider when an adverse costs liability exists, holding opponents’ solicitors to account in terms of not releasing funds
  4. When an adverse costs liability exists, structure “Calderbank/WOP” offers and terms of settlement within a consent order to provide for the release of damages and interest-only once the costs liability has been set off; and
  5. Agree settlement in principle and then look to retain sufficient monies from the settlement on account to enable set off.

This is not easy and will be complicated by the inevitable conduct arguments that are likely to be raised by claimants who are said to be held to ransom and kept out of their damages

Unsurprisingly, notwithstanding cogent argument in opposition, the recommended increase to the GHR’s went through on the nod. Don't miss our latest updates, read more.

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