This article will consider “set off” in QOCS cases following the recent decision of Mr Justice Turner in Faulkner v Secretary of State for Energy and Industrial Strategy  EWHC 296 (QB). A link to the full judgment can be found here.
What is set off and what is the issue in relation to QOCS?
The court’s power to order the setting off of costs orders is neatly covered by the wording of CPR 44.12. So neat is the wording that I will not attempt to paraphrase it:
“(1) Where a party entitled to costs is also liable to pay costs, the court may assess the costs which that party is liable to pay and either –
(a) set off the amount assessed against the amount the party is entitled to be paid and direct that party to pay any balance; or
(b) delay the issue of a certificate for the costs to which the party is entitled until the party has paid the amount which that party is liable to pay.”
With regard to QOCS provisions, the important wording for the purposes of this article is CPR 44.14(1):
“… orders for costs made against a claimant may be enforced without the permission of the court but only to the extent that the aggregate amount in money terms of such orders does not exceed the aggregate amount in money terms of any orders for damages and interest made in favour of the claimant.”
The interplay between these provisions has led to a battle focussed on the following points:
a. Despite the reference in CPR 44.14(1) to “damages and interest”, do the set off rules at CPR 44.12 apply to costs orders in QOCS cases?
b. If a claimant’s damages are reduced to nil by the operation of CPR 44.14(1), can a defendant set off the balance of any costs order made in the defendant’s favour against a costs order made in the claimant’s favour?
The previous case law
Darini & Olsoy v Markerstudy Group, Central London County Court, 24 April 2017 (Unreported)
The Claimant (“C”) discontinued a personal injury claim and, subject to QOCS, became liable to pay the Defendant’s (“D”) costs under CPR 38.6. D then applied to set aside C’s notice of discontinuance. D’s application failed and the court made a costs order in C’s favour. D argued that, although there was now a costs order in C’s favour following the application, D could set off that costs order against the costs to which D was entitled under CPR 38.6.
At first instance the District Judge accepted D’s argument but, on appeal, His Honour Judge Dight found that Section II of CPR 44 (comprising rules 13 to 16 inclusive) was to be treated as a separate code which created a “different procedural environment” in respect of costs in personal injury claims. Thus, HHJ Dight found that CPR 44.14 had been drafted so as to exclude set off against costs (but after Howe, see below, this point is no longer good law).
Howe v Motor Insurers’ Bureau  EWCA Civ 932
Although the Court of Appeal was not referred to the decision in Darini, Lewison LJ reached the contrary conclusion to HHJ Dight in relation to jurisdiction.
Therefore, Howe is authority for the position that in QOCS cases the court does have jurisdiction under CPR 44.12 to order a set-off of costs (see Para.4).
The court went on to exercise its discretion in favour of the Defendant by setting off costs orders in favour of the Defendant against those in favour of the Claimant.
Recent decision in Faulkner
In Faulkner, the Claimant brought a claim for personal injury following his development of chronic obstructive pulmonary disease (“COPD”). He argued that his COPD had been caused by exposure to dust during his work as a miner.
The Claimant discontinued his claim shortly before the trial of a preliminary issue on diagnosis and causation. The Defendant then sought to set aside the notice of discontinuance and to strike out the claim under CPR 44.15(c). That application was dismissed and the Defendant was ordered to pay the Claimant’s costs of the application. Unsurprisingly, the Defendant deployed the arguments raised by the defendant (unsuccessfully) in Darini but seemingly overturned in Howe.
There are two main threads to Turner J’s judgment: (i) jurisdiction; and (ii) discretion. In relation to the jurisdiction to set off costs orders, Turner J found that the Court of Appeal’s decision in Howe was binding on him. He commented that Darini is no longer good law on this point.
However, as to the discretion to order set off Turner J noted that in Howe the issue of discretion had been argued, not on the particular facts of the case, but in relation to whether or not there should be a general rule that the court should refuse to allow set off as inconsistent with the broader aims of the QOCS regime.
Turner J found that, in contrast, HHJ Dight in Darini heard full argument on the issues relevant to the exercise of discretion on the particular facts of that case. Turner J went on to find, “nothing in the decision of Howe which could be taken to cast any doubt about the soundness of the approach taken by HHJ Dight in this regard.”
In relation to discretion, Turner J noted that HHJ Dight would have overturned the District Judge’s decision in any event (see Para.22 in Faulkner). The submissions made by the claimants in Darini included the following:
a. The defendant’s application (to set aside the claimants’ notice of discontinuance) turned a straight forward situation into a complicated situation. But for the defendant’s application the ability to enforce the deemed costs order (under CPR 38.6) would have been nil.
b. As the claimants had discontinued there were no damages, none of the exceptions to QOCS in CPR 44.15 or 44.16 applied, and therefore CPR 44.14(1) applied. The claimants would have incurred costs in bringing unsuccessful claims, but would have no further liability. Thus, the QOCS regime would have operated as intended.
c. It could not be right that the defendant could bring an unsuccessful application which is dismissed with costs but, as a result, place the claimants in a worse position than they would have been but for the application. The claimants ought to be placed back in the position they were in but for the application.
d. Setting off costs would leave the claimants effectively paying their own costs for the defendant’s failed application.
In Faulkner, Turner J decided to exercise his discretion in the Claimant’s favour. Set off was disallowed. His key considerations were as follows:
a. Each case of set off must be decided on its own facts (Para.23).
b. The application to set aside the notice of discontinuance was very weak, and the bid to strike out the resurrected claim under CPR 44.15 was “doomed to failure” (Para.24).
c. Even if there were grounds upon which the Claimant’s evidence was vulnerable, if the Defendant considered that such a strike out application had realistic prospects of success it could have made the application whilst the claim was still proceeding (Para.24).
d. If the Claimant had not served notice of discontinuance, the trial of the preliminary issue would have gone ahead and the Defendant would have incurred yet more costs. The Claimant, however, would still have enjoyed the full protection of the QOCS regime (Para.25).
e. It was not without irony that the Defendant sought to set aside a notice of discontinuance which had saved it money (Para.25).
The clear message to take from Faulkner is that the court’s exercise of the discretion to order set off will depend of the facts of the case. The analysis should focus on the facts.
Defendants in cases of suspected fundamental dishonesty will be keen to distinguish Faulkner, in which the Claimant appeared to have issues relating to medical diagnosis / causation as opposed to dishonesty.
More generally, Defendants should avoid under-selling themselves when it comes to costs budgeting. Those in the habit of submitting “low-ball” costs budgets should note that they may be limiting their costs recovery further on in the case.
On the other side of the fence, Claimants will be keen to emphasise the points raised in Darini relation to discretion, as well as the points identified by Turner J at Paragraphs 15(c)-(e) above. The irony point may well be attractive to many judges, except in circumstances of obvious dishonesty.
Robert Golin, a member of the Farrar’s Building Personal Injury Team, accepts instructions from both Claimants and Defendants. Robert frequently delivers training, seminars and workshops upon request. Any such request should be made to the Farrar’s Building Clerking Team.