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The Mechanics Of Qualified One Way Costs Shifting - Mrs. Sui La Ho V Miss Seyi Adelekun [2021] Uksc 45

27 October 2021

The case of Mrs. Sui La Ho (Defendant/Appellant) v Miss Seyi Adelekun (Claimant/Respondent) was already well known following the Court of Appeal ruling in 2019 that in an RTA case, a Part 36 offer making reference to “detailed assessment” does not escape the fixed costs regime.  The same case also addresses the question of how Qualified One Way Costs Shifting (“QOCS”) should be applied and whilst the Court of Appeal begrudgingly decided in favour of allowing a costs set-off, the matter came before the Supreme Court and now in Mrs. Sui La Ho v Miss Seyi Adelekun [2021] UKSC 45 it has been ruled that where QOCS applies there can be no set-off against each parties’ costs and any costs award for a Defendant can only be enforced to the limit of damages paid.

By way of background, an RTA claim fell out of the portal and was settled by Mrs. Ho via a Part 36 offer for £30,000.00 with standard wording referencing standard basis costs and a Tomlin Order being signed to that effect.  Importantly, the effect of a Tomlin Order settlement is that there is no order for damages and thus nothing for a Defendant to offset costs against under CPR 44.14 (1) of the QOCS regime (see Cartwright v Venduct Engineering Ltd [2018] 1 WLR 6137).

Mrs. Ho applied for fixed costs to apply and DDJ Harvey ruled that the fixed costs regime applied.  Miss Adelekun appealed that decision and HHJ Wulwik held that the fixed costs regime was not applicable.  Mrs. Ho appealed that decision to the Court of Appeal and on 19 November 2019 the appeal was allowed it was held that the fixed costs regime did apply and as a consequence Mrs. Ho was only liable to pay fixed costs of £16,700.00.

The Court of Appeal was also asked to decide whether Mrs. Ho should be able to offset the costs of the hearing before DDJ Harvey awarded to her against her liability to Miss Adelekun for costs of the claim generally.  The Court of Appeal held that it was bound by its own previous decision Howe v Motor Insurers Bureau (No. 2) [2017] 7 WLUK 84 and concluded that Mrs. Ho could offset here costs against those of Miss Adelekun.  The Court of Appeal added that it would have been inclined to conclude the contrary if it had not been bound by Howe.  Although the Court of Appeal’s decision would allow Mrs. Ho to set off her cost against those of Miss Adelekum she remained unable to enforce her costs against the damages paid to Miss Adelekun by way of a Tomlin Order settlement. Miss Adelekun appealed to the Supreme Court.

The Supreme Court heard the appeal on 29 and 30 June 2021 and on 6 October 2021 unanimously allowed the appeal with Judgment being handed down by Lord Briggs and Lady Rose with Lady Arden, Lord Kitchin and Lord Burrows in agreement.

Mrs. Ho had argued that the parties should be able to set off the opposing cost orders against each other because the monetary cap created by Rule 44.14 (1) only applied to the net costs liability of a Claimant after all opposing costs orders had been netted off.  Therefore, despite the aggregate amount of court orders for damages and interest in Miss Adelekun’s favour being zero, Mrs. Ho argued that the £16,700.00 owed by her for pre-settlement costs should still be netted off against the costs awarded to her for the hearing before DDJ Harvey.

This argument was rejected by the Supreme Court on the basis that the calculation of a Claimant’s net costs liability was the incorrect approach as the bar to enforcement in the QOCS provisions applied to the gross amount of a Defendant’s costs orders against a Claimant rather than the net amount.  It was highlighted that the effect of Rule 44.14 (1) is to create a monetary cap on the amount a Defendant can recover in costs from the Claimant, set at the level of the aggregate amount in money terms of all court orders for damages and interest in a Claimant’s favour. 

The outcome was that Mrs. Ho was required to pay Miss Adelekun the full pre-settlement costs of £16,700.00 on top of the £30,000.00 agreed to in the settlement agreement but was unable to enforce the Court of Appeal costs order against Miss Adelekun. There can be no set off against costs, only against damages. 

As described by the Supreme Court, if the aggregate amount of costs orders in favour of the Defendant is less than/equal to the aggregate amount of damages/interest ordered for the Claimant, then the Defendant can enforce costs orders without limit but if the aggregate costs orders in favour of the Defendant exceed the aggregate damages/interest in favour of the Claimant, the Defendant can only enforce costs orders up to the monetary limit of those damages/interest. When the limit of the aggregate damages/interest is reached, the enforcement will cease.

The Supreme Court displayed reluctance to be addressing this issue as evidenced by commentary that they “doubt the appropriateness of a procedural question of this kind being referred to this court for determination” and it is clear that a review by the CPRC in now required. 

The QOCS rules were introduced in 2013 as a trade-off for success fees and ATE insurance premiums to no longer be recoverable from a losing party in personal injury claims.  However, Defendants in those types of claims are understandably concerned that they are required to defend claims with very little prospect of recovering costs even when successful or partly successful.  Indeed, they are unlikely to recover any costs when a case is settled by a Tomlin Order.

This briefing is prepared by Malcolm Goodwin and Laura Dear It is not intended to be an exhaustive statement of the law and should not be relied on as legal advice.