How Adelekun v Ho affects cost orders

The case of Adelekun v Ho  [2019] EWCA Civ 1988  initially started out as a road traffic accident claim with no particular peculiarities. After the damages settled, a dispute arose as to whether the claimant was entitled to fixed costs or conventional costs (that is, time spent multiplied by hourly rates, plus disbursements and VAT).

There were a number of complexities to this dispute, namely: the parties’ agreement to re-allocate the claim from the fast track to the multi-track; an order of the court for standard basis costs; and a part 36 offer letter from the defendant referring to a detailed assessment. Ultimately, the Court of Appeal decided that fixed costs apply, and the defendant sought its costs from the claimant. 

As this was a personal injury case, the claimant pleaded qualified one-way costs shifting (QOCS) protection in that:

1. there were no damages ordered in the claimant’s favour for the defendant to enforce any costs order against, and
2. a set off of costs versus costs was impermissible – in other words the law did not support the defendant’s costs of the fixed costs dispute being set off against the claimant’s costs of the claim

Regarding 1, the decision in Cartwright v Venduct [2018] EWCA Civ 1654  was that settlement by Tomlin Order or part 36 offer did not constitute an order for damages in the realm of QOCS, and thus the defendant’s costs could not be set off against the claimant’s damages, where the claim settled out of court, which is usually the case. The Cartwright decision prevents defendants from enforcing costs order against a claimant’s damages in most scenarios, thereby giving significant protection to claimants’ damages. The defendant did not argue that the Cartwright decision was wrong at Court of Appeal or Supreme Court level.

Regarding 2, the claimant faced a high hurdle due to a previous Court of Appeal decision, in Howe v Motor Insurers Bureau(no2), [2017] EWCA Civ 932 ,that defendants could indeed set off costs against a claimant’s costs; and so the Court of Appeal were in a difficult situation of considering whether their own decision in Howe was per incuriam. It was decided that the Howe decision did not reach the high bar of per incuriam, but Lord Justices Newey and Males both remarked on the merit of the claimant’s stance on QOCS. 

Accordingly, the Court of Appeal took the unusual step of granting the claimant permission to appeal to the Supreme Court. The claimant, in the Supreme Court, had the advantage of the Howe decision being non-binding and so did not face the high hurdle she faced at Court of Appeal level. The claimant case was supported by the intervention of the Association of Personal Injury Lawyers (APIL). The Association of British Insurers (the APIL’s counterpart) did not intervene for the defendant.

Notwithstanding the global pandemic, the appeal before the Supreme Court was in person. On one view, the appeal was not overly complicated, as it concerned a statutory analysis of the QOCS regime which is succinctly set out at Civil Procedure Rules (CPR) 44.13 to 44.17. Further, CPR 44.14 is clear in that a defendant can only enforce a costs order up to the amount of the claimant’s damages and interest ordered. In the present case, no damages were ordered as it settled by part 36 offer and acceptance with the damages subsequently contained in a Tomlin Order. The Cartwright decision was unchallenged by the defendant and so the cap on enforceability was nil.

One would think that might be the answer, however the defendant argued that the QOCS regime at CPR 44.13 and 44.17 was not a complete code on QOCS, and CPR 44.12 gave the court jurisdiction to set off costs against costs. A further complication in the dispute were the parties’ opposing views on the purpose of the QOCS regime and the ‘adverse policy consequences’ if the opposing party was correct. The Supreme Court was therefore asked by the parties to interpret the QOCS regime on a literal and purposive basis.

In respect of the purposive interpretation, it was said (at paragraph 31) that policy considerations are not necessary for the Supreme Court to consider, as they are not well placed to assess them reliably and the Civil Procedure Rules Committee (CPRC) can put them right if required. Instead, the court was tasked with the construction of the language of the QOCS provisions set out in their CPR context (32). To that end, the court decided that the QOCS regime is a complete code for what defendants in PI cases can do with costs orders (37) which does not preclude a defendant setting off its costs against a claimant’s costs, but there is a limit on the enforceability i.e. the damages and interest ordered. In effect, defendants can set off their costs against the claimant’s damages or costs, but only to the extent of the damages and interest (40).

The claimant won the appeal, because there were no damages ordered in the present case. This meant the cap on enforceability was nil, and the defendant could not set off its costs below against the claimant’s costs of the claim. Interestingly, the court went onto say (44) that their conclusion may lead to results that at first blush, look counterintuitive and unfair. But the court also added that any apparent unfairness is part and parcel of the QOCS regime, devised to protect claimants against liability for costs, and to lift from the defendants’ insurers the burden of paying success fees and after the event premiums in the many cases in which a claimant succeeds without a costs order in the defendant’s favour. So the court showed its awareness of the policy considerations, but seemingly did not base its decision on it. 

The court concludes (45) by saying the QOCS regime is not perfect but it’s the best solution thus far, albeit results could appear anomalous. One can draw comparisons with the fixed costs regime and how that can lead to seemingly unfair results for claimants. For instance, in a situation where a claimant has spent far more than the fixed costs regime permits, and is left with a sizeable shortfall greater than if a conventional costs order had been made.

The present case was one of these anomalous examples in that the parties spent significant costs in both the fixed costs appeals and the QOCS appeals. The defendant built up a large costs liability with the expectation of winning the appeals and an enforceable costs order in its favour. These sorts of appeals are fairly rare, and therefore the particular facts of the present case rightly did not bear on the court’s decision on QOCS.

The Supreme Court’s decision, along with the decision in Cartwright, significantly curtails the ability for defendants to enforce costs orders against a claimant’s damages and costs. As detailed in the judgment, there will be situations where damages are ordered, and the defendant can enforce costs orders. Defendants in personal injury cases are usually government institutions (such as the NHS, Ministry of Defence and councils) or insured companies and individuals. 

From practical experience, I know some defendant lawyers are displeased with the Supreme Court’s decision, but it remains to be seen whether the adverse policy consequences come to fruition, as the defendant argued they would in Ho. For instance (30) the court notes the defendant’s submission that claimants will pursue weak interim applications and unmeritorious points, and the incentive to settle before trial will be removed. Some defendants are attempting novel ways to avoid the QOCS regime and circumvent the Ho decision, but it is too early to say whether these will work.

As alluded to in the Supreme Court’s judgment, the CPRC are better placed to consider adverse policy consequences. The minutes from the CPRC meeting on 5 November 2021 show their consideration of the decision inHo v Adelekun, but it was agreed that the Costs Sub-Committee need not consider this matter until further consideration had been given to the wider work on fixed recoverable costs and costs generally. This was despite the Forum of Insurance Lawyers writing to the CPRC, presumably putting forward their discontent with the Ho decision. It should be borne in mind that defendant insurers made substantial savings as a result of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) reforms, as post-LASPO in the majority of cases, claimants pay the success fee and after the event (ATE) premium, rather than the defendant insurers. It appears that defendant insurers want to shift the liability for success fee and ATE premiums onto claimants, but retain the ability to enforce costs orders against them.

To conclude, the decision by the Supreme Court brings a significant degree of certainty to how QOCS operates. The CPRC is keeping an eye on any fallout from Ho v Adelekun but in my view an overhaul to the QOCS regime is unlikely. The decisions in Cartwright and Ho set out clearly and neatly when a defendant can or cannot enforce a costs order. To many practitioners and the judiciary the finality is welcome indeed.