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Ho v Adelekun: a need-to-know decision for all PI practitioners

The Supreme Court decision in Ho v Adelekun provides an important clarification of the costs regime applicable to personal injury cases.

The facts

The Claimant was the innocent victim of a road traffic accident, and brought proceedings against the responsible driver. In due course that claim settled by way of a Part 36 offer, entitling the Claimant to a payment of damages and costs from the Defendant. The Claimant then proceeded to lose a very expensive argument – which went all the way to the Court of Appeal – about the basis of assessment of those costs. She was held to be entitled to costs of about £16,700, whereas the Defendant’s costs of the appeal, which she was ordered to pay, amounted to some £48,600.

The Claimant argued that she was protected from paying any of the Defendant’s costs by the qualified one-way costs shifting (“QOCS”) regime, which precluded enforcement of the Defendant’s costs beyond the level of damages and interest payable to her. Following Cartwright v Venduct Engineering [2018] 1 WLR 6137 the damages payable pursuant to the settlement did not count for these purposes, the settlement having been reduced to a Tomlin order. So, if the Claimant was right, the Defendant would have nothing to enforce her costs against. The Defendant argued that it was possible to set off the two costs orders against each other, with the net effect that the costs payable to the Claimant would be wiped out by those payable to the Defendant.

The case returned to the Court of Appeal, which held itself bound by the earlier decision of Howe v MIB [2020] Costs LR 297 to agree that the Defendant’s interpretation of the rules was correct.

The decision of the Supreme Court

The Supreme Court unanimously allowed the Claimant’s appeal. It held that costs orders made in a claimant’s favour should not be taken into account when determining the limit up to which a defendant may enforce an order for costs in its favour.

The nub of the decision is as follows:

  1. … QOCS is intended to be a complete code about what a defendant in a PI case can do with costs orders obtained against the claimant, ie about the use which the defendant can make of them. The defendant can recover the costs ordered, by any means available, including set-off against an opposing costs order, but only up to the monetary amount of the claimant’s orders for damages and interest….
  2. We consider that rule 44.14(1) works in the following way. First, it requires two comparators to be constructed. First, the aggregate amount in money terms of all costs orders in favour of the defendant. Secondly, the aggregate amount in money terms of all orders for damages and interest in favour of the claimant. We will call them A and B. If A is less than or equal to B, the defendant can enforce his costs orders without limit. If A is more than B, then the defendant can only enforce his costs orders up to the monetary limit of B. The effect of this cap, as we have called it, is to require the defendant to keep a running account in money terms of all costs recoveries which it makes against the claimant, and to cease enforcement when limit B is reached.

  1. …The requirement is to calculate A by reference to the aggregate amount in money terms of all the defendant’s costs orders made against the claimant, not the net amount arrived at by netting off opposing costs orders and striking a net balance. Costs orders in favour of the claimant are not even mentioned in the formula, and the aggregate expressly referred to is a gross not a net amount.

Strictly speaking set off remains available, but only up to the amount of damages and interest in the Claimant’s favour. Save to that limited extent the practical effect of the decision is that the Claimant’s costs do not form part of the “pot” of money against which a Defendant may enforce its costs.

Observations

Every lawyer involved in personal injury work will have to be aware of the decision in this case.

In many cases the net financial result of litigation will change dramatically. For example, suppose a Claimant succeeds at trial in recovering damages of £10,000, and costs of £15,000, but the Defendant obtained the benefit of a costs order of £25,000 (say the Claimant failed to beat a Part 36 offer from the Defendant, or lost on a complex interlocutory or preliminary issue). Prior to the Supreme Court’s decision the costs orders in favour of each side would be set off against each other, and the Defendant could enforce the remaining amount against the Claimant’s damages. The net result would be that no money would change hands. Now the Defendant could enforce its costs only up to £10,000, and would be left having to pay the Claimant’s costs of £15,000 – of which the Claimant herself may not see a penny.

For Claimant representatives the decision will be gratefully received. APIL’s submission as intervener was that permitting set-off of costs against costs undermined the whole economic basis upon which PI litigation was undertaken. Arguably, some of the arbitrariness that will result from Ho is simply a facet of the rough but practical justice inherent in the QOCS regime as a whole.

Nevertheless, it is suggested that the decision of the Supreme Court cannot be welcomed. It goes beyond what the QOCS regime is designed to achieve, namely the protection of impecunious Claimants from Defendants’ costs. The effect is to place costs orders in a Claimant’s favour in a privileged position, more thoroughly insulated than even the Claimant’s own damages. The chief beneficiaries are likely to be Claimant solicitors, rather than injured Claimants themselves. The black letter rules of the CPR are not so clear-cut as to compel such an unattractive result. The decision in Howe could have been left intact, with any revisions a matter for the Civil Procedure Rules Committee – indeed the Supreme Court itself suggested that this would normally be a more appropriate way of resolving ambiguities in the interpretation of the CPR.

The Supreme Court recognised that its decision may lead to results that “at first blush” (and, presumably, second, third, and fourth blushes) look counterintuitive and unfair, or appear anomalous. It simply observed that no one has claimed that the QOCS regime is perfect. It was unmoved by policy considerations, observing that those were better considered by the Rules Committee, which is able to amend the rules if the Supreme Court’s interpretation of them does not reflect how the QOCS regime is supposed to operate. Many involved in this field of litigation will hope that this invitation is acted upon.

 

Jack Macaulay

8 October 2021.



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