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Does Qualified One-way Costs Shifting (“QOCS”) constrain a defendant’s liberty to seek, or the court’s discretionary power to permit, a set-off between opposing costs orders?

Personal Injury: QOCS: Ho v Adelekun [2021] UKSC 43

Does Qualified One-way Costs Shifting (“QOCS”) constrain a defendant’s liberty to seek, or the court’s discretionary power to permit, a set-off between opposing costs orders?

“Ameliorating procedural scheme”

QOCS applies to most personal injury (“PI”) claims.  It usually limits the ability of a successful defendant to recover its costs against an unsuccessful claimant.  Lord Briggs and Lady Rose gave judgment (with whom Lady Arden and Lords Kitchen and Burrows agreed), starting with the context:

“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.”

The “central rationale” is that:

“[T]he 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 [After The Event] 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 … 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.”

QOCS does not affect the order of costs in favour of a defendant.  It affects the enforcement.  It is ‘qualified’ because there are circumstances where enforcement is not limited.

First, where there are no reasonable grounds.  Secondly, abuse of process.  Thirdly, conduct of the claimant, or a person acting on her behalf and with her knowledge of such conduct, is likely to obstruct just disposal.  Fourthly, fundamental dishonesty.  Fifthly, pursuit of a claim for the benefit of a third party.

Judicial background

In Howe v Motor Insurers’ Bureau [2020] Costs LR 297 (“Howe”), Sir James Munby P, McFarlane and Lewison LJJ held that set-off of opposing costs orders was not affected by QOCS essentially because set-off is not a type of enforcement.

In the instant appeal, Sir Geoffrey Vos C, Newey and Males LJJ disagreed.  They considered that they were bound, however, to follow Howe.

In the instant appeal, the Supreme Court held that “the Court of Appeal was right in the present case to doubt whether Howe was correctly decided.”  There was, however, a caveat:

“The very fact that two eminently constituted Courts of Appeal have differed profoundly over the interpretation of a provision of the CPR suggests that there must be an ambiguity which practitioners need to have sorted out.  The [Civil Procedure Rule Committee] exists for the purpose of keeping the CPR under constant review.  It is better constituted and equipped than is this court to put right such ambiguities, all the more so where, as here, the outcome is suggested … to have potentially profound policy consequences for the maintenance of a reasonably fair and level playing field in PI litigation, something which this court is much less well equipped than is the CPRC to assess.”

Outside the context of QOCS, there appear to be two “leading cases on the jurisdiction to order set-off of costs against costs”.  First, Lockley v National Blood Transfusion Service [1992] 1 WLR 492 (CA).  Secondly, R (Burkett) v Hammersmith and Fulham London Borough Council [2004] EWCA Civ 1342; [2005] 1 Costs LR 104.

Legislative background

Two statements preceding the approval of QOCS by Parliament were “of slightly greater assistance” than extracts from Sir Rupert Jackson’s ‘Review of Civil Litigation Costs: Final Report’ (December 2009).  This was because QOCS as enacted by Parliament “is significantly different in its essential mechanism”.  The second statement

“regards the claimant’s damages as the only fund against which the defendant might recover costs, and uses the Part 36 situation only as an example of a wider principle.  It points with reasonable clarity away from a set-off of costs against costs as an additional resource from which a defendant might recover costs from a claimant.”

Opposing costs orders

There may be costs orders in favour of both parties:

“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.”

Where a large sum in damages and interest is awarded, it may be academic whether QOCS constrains the defendant’s liberty to seek, or the court’s discretionary power to permit, a set-off between opposing costs orders:

“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.”

In at least three types of case, however, it may be critical.

First, “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.”

Secondly, “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”.

Thirdly, “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 “all too frequent” in modest to medium-sized claims which do not settle within the Pre-action Protocols.


The claimant was injured in an RTC.  The defendant offered to settle for £30,000 and costs up to that point.   The claimant accepted and a settlement agreement was made.

A dispute arose as to the pre-settlement costs (“the dispute”).

The Court of Appeal upheld the defendant’s contention that she was only liable for about £17,000 of the pre-settlement costs.  Reflecting that the defendant succeeded on this point, an order was made that the claimant should pay the defendant’s costs of about £50,000 for the hearings in relation to the dispute (“the costs order”).

As the defendant agreed to pay, as opposed to the court ordering the same, there were no orders for damages and interest for the purposes of CPR 44.  Therefore, there was nothing against which the defendant could enforce the costs order under the QOCS regime.

In the circumstances, could the defendant avoid paying the £17,000 in respect of the pre-settlement costs because it was cancelled out by the £50,000 that the claimant owed under the costs order?  The Court of Appeal answered in the affirmative.  The claimant appealed.


Both parties and the intervener “placed great emphasis on what they characterised as the adverse policy consequences of the opposing answers”.  The Supreme Court found that it “is not necessary or appropriate to described or examine those policy considerations in any detail.”

First, “this court is not well placed to assess them”.  Secondly, if there are adverse policy consequences, it is for the CPRC to put right.

In any event, the question “is one of construction of the language of the QOCS provisions in the CPR set in their context.”  Helpfully, there was common ground.

First, QOCS does not constrain the court from making costs orders, but merely the use that defendants can make of them.  Secondly, QOCS is essentially mechanical rather than discretionary.  Thirdly, QOCS only amounts to a ban of set-off or opposing costs orders if there are no order for damages or interest, or if the aggregate amount of damages and interest has already been used up by other means of enforcement.

The appellant submitted, and the respondent disagreed, that QOCS rules was a complete costs code for applicable PI cases.  The Supreme Court only accepted that: “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.”

Practical guidance was given on CPR 44.12(1):

“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.”

The question for the appeal became as follows.  Does the defendant have to bring into account the benefit in money terms of the set-off of a costs order in his favour?  In other words, does the limit B only apply to the net amount of costs owed by the claimant, having set off any costs the defendant is ordered to pay to the claimant?


The ratio is as follows:

“[We] do not consider that the well-established jurisdiction to direct set-off of costs against costs under rule 44.12 is displaced by the QOCS scheme, provided that there is an order for damages or interest and that the headroom provided by that order has not been exhausted by other means of enforcement [but] we do not accept … that it is only the net costs entitlement that has to be brought into account under rule 44.12(1).”


Two criticisms of the conclusion were identified – and rejected.

First, it “may lead to results that at first blush look counterintuitive and unfair.”  The riposte was that, whether or not the conclusion accords with the policy underlying QOCS, it is the result that follows from the true construction of the wording.  Further, any apparent unfairness in an individual (such as the instant) case “is part and parcel of the overall QOCS scheme”.

Secondly, it “may lead to results that appear anomalous.”  The court was unabashed:

“No one has claimed that the QOCS scheme is perfect.  It is, however, the best solution so far that the opposing sides in the ongoing debate between claimant solicitors and defendant insurers have been able to devise.  It works to achieve the aims for which it was introduced in the great majority of straightforward cases in which one side or the other is entirely successful.”

Finally, the Supreme Court opined that: “If set-off of costs against damages must be a form of enforcement in order to make rule 44.14 work, then the QOCS context requires set-off to be treated as a form of enforcement even if not mentioned as such elsewhere in the CPR.”


The appeal was allowed.

The defendant was required to pay the pre-settlement costs and the sum in the settlement agreement, but cannot enforce the costs order against the claimant.

By Richard Menzies and Dominic Bright

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