Mrs Siu Lai Ho v Miss Seyi Adelekun
| Jurisdiction | England & Wales |
| Judge | Lord Kitchin,Lady Arden,Lord Briggs,Lady Rose,Lord Burrows |
| Judgment Date | 06 October 2021 |
| Neutral Citation | [2021] UKSC 43 |
| Court | Supreme Court |
[2021] UKSC 43
Lord Briggs
Lady Arden
Lord Kitchin
Lord Burrows
Lady Rose
Appellant
Roger Mallalieu QC
(Instructed by Bolt Burdon Kemp)
Respondent
Nicholas Bacon QC
Andrew Roy
(Instructed by Taylor Rose MW (Peterborough))
Intervener (written submissions only)
Benjamin Williams QC
(Instructed by the Association of Personal Injury Lawyers)
Intervener:
(1) Association of Personal Injury Lawyers
Heard on 29 and 30 June 2021
Lord Briggs AND( with whom Lady Arden, Lord Kitchin and Lord Burrows agree)
This appeal is about the mechanics of Qualified One-way Costs Shifting (“QOCS”). There always has been, and probably always will be, an inherent inequality of arms between claimants and defendants in personal injuries (“PI”) cases. This is because the defendants in most cases have the benefit of insurance or, in the case of the NHS, large resources, whereas claimants are in general ordinary members of the public, only a few of whom have the benefit of legal expenses insurance or other sources for the funding of litigation. English procedural rules have for many years sought to ameliorate this imbalance, in particular by rules about costs.
QOCS may be described as the third generation of ameliorating procedural schemes. The first was Legal Aid, under which state funding of meritorious claims was (partly to protect the public purse) accompanied by a virtual prohibition on the recovery of costs by defendants against legally-aided claimants. The second was a combination of Conditional Fee Agreements (“CFAs”) between claimants and their solicitors and the use of After the Event (“ATE”) insurance which would cover the unsuccessful claimant's liability to pay the defendant's costs and so insulate claimants from costs risk, with both success fees under the CFAs and ATE premiums recoverable in a successful case from defendants as part of the claimant's costs. Legal Aid had largely been withdrawn by the end of the 20th century, and the burden on defendants of having to pay the claimants' solicitors success fees and the claimants' ATE premiums was found to have tilted the playing field too far in favour of claimants, with a politically unacceptable knock-on effect on motor and other insurance premiums. What became QOCS was originally proposed by Sir Rupert Jackson in his ground-breaking report “Review of Civil Litigation Costs: Final Report” (“Final Report”) in December 2009. Following extensive public consultation it was implemented, with important changes to the mechanism originally proposed by Sir Rupert, by changes to the Civil Procedure Rules (“CPR”) on the initiative of the Ministry of Justice, debated in detail within the Civil Procedure Rule Committee (“CPRC”), approved by Parliament by the negative resolution procedure and came into force on 1 April 2013. A challenge to the validity of the QOCS regime was rejected by the Court of Appeal in Wagenaar v Weekend Travel Ltd (trading as Ski Weekend) [2014] EWCA Civ 1105; [2015] 1 WLR 1968. In that case it was argued that the rules impeded the full power of the court granted by section 51(3) of the Senior Courts Act 1981 to determine by whom and to what extent the costs are to be paid. The Court of Appeal held that the proviso in subsection (1) of that section that the power conferred was subject to rules of court applied to the power in subsection (3). Vos LJ (with whom Floyd and Laws LJJ agreed) noted that QOCS was “just one of a raft of interconnected changes” bringing about the wholesale reform of the funding of PI litigation (para 26).
The central rationale behind QOCS was that the burden falling on defendants and their insurers would be less if they were to forego costs recovery from claimants when the claim was dismissed than the burden they were forced to bear when they had to pay claimants not only their costs but also recoverable success fees and ATE premiums when the claimants were successful. The effect of success fees on defendants was replaced by a 10% uplift in certain categories of recoverable damages, see Simmons v Castle & Ors [2012] EWCA Civ 1288; [2013] 1 WLR 1239, para 50. Removing the risk of the claimant becoming liable to pay costs if they lost the claim was expected to enable claimants to do without ATE insurance, at least for covering defendants' costs. But costs recovery by defendants was not to be removed entirely. Responses to the Government's consultation expressed concern that adopting such an inflexible stance would mean that there would be no constraints on claimants pursuing dishonest or hopeless claims, and little incentive on claimants to settle. Hence the inclusion of “Qualified” in the title.
Contrary to Sir Rupert's proposals, nothing in the QOCS scheme affects in any way (directly at least) the orders which a court may make in favour of defendants in PI cases, applying the general rules in CPR Part 44, either at trial, at pre-trial interim hearings, at the conclusion of contested costs assessment proceedings post-trial or later still on appeal. The scheme focuses entirely upon what a defendant can do by way of enforcement of a costs order in its favour once obtained. The qualifications to the ban on enforcement inherent in the phrase “One-way” are of two types, one general and the other specific.
Generally, defendants' costs may be enforced up to an amount equivalent to the aggregate of court orders for damages and interest in favour of the claimant. This is, as we shall later explain, a form of monetary cap on the amount of the costs orders made in the defendant's favour which the defendant may enforce. The specific type of qualification consists of defined circumstances where there is no limit on enforcement, namely where the claimant's claim has been struck out as disclosing no cause of action, as an abuse of process or on account of obstructive conduct of the claim, where it has been found to have been fundamentally dishonest, or where it has been pursued for the benefit of a third party. Costs incurred in the same proceedings in the pursuit of claims other than for personal injuries (such as replacement car hire) may also be enforced without limit.
The present appeal concerns the question whether QOCS constrains in any way the defendant's liberty to seek, or the court's discretionary power to permit, a set-off between opposing costs orders, that is orders in favour of the claimant and the defendant respectively. Opposing costs orders may occur in a single set of proceedings in numerous situations. At trial the judge may make opposing costs orders to reflect the varying success of the parties on specific issues, although this is generally discouraged. Opposing orders for different periods of the litigation may be made when the claimant fails at trial to beat the defendant's Part 36 offer. In that situation the defendant is commonly ordered to pay the claimant's costs up to the date specified by the claimant in the Part 36 offer for this purpose and the claimant is ordered to pay the defendant's costs thereafter: see CPR rule 36.17. More typically a party may lose at trial, but win on an interim application, or on a costs assessment or on appeal, with costs following each event.
In cases where the aggregate of the damages and interest that the defendant is ordered to pay a successful claimant is large, this question may not matter. Provided that the defendant's costs order (or the aggregate of more than one costs order) is less than the aggregate of the orders for damages and interest, there is no constraint on the ability of the defendant to enforce its costs orders, whether by set-off (if that is a species of enforcement) or by any other process of enforcement known to the law. But there are at least three types of case where it may be critical to any use which can be made by the defendant of a costs order in its favour. The first is where the claimant fails at trial and is ordered to pay the defendant's costs, but is successful (with an order for costs in its favour) at an earlier interim stage, such as in fending off an application for summary judgment by the defendant, or later in winning on a costs assessment. The second is where the claimant succeeds, but by way of settlement rather than at trial. In such a case there is no court order for damages or interest, even if the settlement agreement is annexed to a Tomlin order, and therefore no headroom below the cap available under QOCS for the defendant's costs enforcement: see Cartwright v Venduct Engineering Ltd [2018] EWCA Civ 1654; [2018] 1 WLR 6137 (“ Cartwright”). The third type is where the aggregate of the costs that the claimant is ordered to pay the defendant substantially exceeds the aggregate of the orders for damages and interest which the defendant is ordered to pay the claimant. This is by no means a rarity; a disproportionality between the damages and the costs is all too frequent in modest to medium-sized PI claims which do not settle within the Pre-action Protocols.
This case comes to the Supreme Court because of a disagreement between two differently constituted Courts of Appeal about the question outlined above. In Howe v Motor Insurers' Bureau [2020] Costs LR 297 (“ Howe”) the Court of Appeal (Sir James Munby P, McFarlane and Lewison LJJ) decided in 2017 that set-off of opposing costs orders was not affected by QOCS, essentially because set-off is not a type of enforcement. In the present case the Court of Appeal (Sir Geoffrey Vos C, Newey and Males LJJ) were inclined to take the opposite view in April 2020, but considered themselves bound to follow Howe.
We should say at the outset that we doubt the appropriateness of a procedural question of this kind being referred to this court for determination. The...
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