By Sean Linley, Costs Draftsman 
The Supreme Court have held that a Defendant cannot set-off costs against costs under the QOCs scheme. This means that Paying Parties must meet costs orders in full and can only enforce costs orders up to the extent of the damages awarded, The case will have significant consequences but the Supreme Court were unequivocal that this intepretation was correct. 
Giving judgment the Supreme Court stated at p44 that: 
"We recognise that this conclusion may lead to results that at first blush look counterintuitive and unfair. Why should a defendant which has a substantial costs order in his favour have to pay out costs to a claimant under an order made against him when the two costs orders would net off against each other, leaving both sides to meet their own solicitor’s costs themselves? Whether or not the intervener in this appeal is right that such a result accords with the policy underlying QOCS, we hold that it is the result that follows from the true construction of the wording used in Part 44. Any apparent unfairness in an individual case such as this dispute between Ms Ho and Ms Adelekun is part and parcel of the overall QOCS scheme devised to protect claimants against liability for costs and to lift from defendants’ insurers the burden of paying success fees and ATE premiums in the many cases in which a claimant succeeds in her claim without incurring any cost liability towards the defendant." 
They also recognised that the decision may lead to results which appear 'anomalous', however, pointed to the fact that it remained open to the Court to make an alternative order for costs for the receiving party. 
At p45, the Supreme Court stated that:  
"We have already referred to the fact that a judge in making an order for costs might be invited to adjust the amount or percentage ordered to reflect the relative success of the parties though, as Mr Mallalieu pointed out, a judge might also take into account when so invited, that this would water down the protection that would be afforded to the claimant if the judge made cross costs orders instead. Mr Bacon also argued that in the PI cases where legal aid is still available, particularly certain birth defect claims, it would appear that costs against costs setoff would still be available following Lockley and Burkett. 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." 
In the present case Ms Ho had argued that she could set off the opposing costs order against each, despite the aggregate amount of costs orders and interest in Ms Adelekun's favour being zero. It was argued therefore that Ms Ho should be able to set-off her Court of Appeal costs against the Claimant's pre-settlement costs of £16,700.00.  
Both Lord Briggs and Lady Rose rejected this argument and firstly considered the QOCs provisions. 
At p39-40, the Supreme Court stated that: 
"The question remains: 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? Plainly the defendant must bring into account the monetary benefit of setting off costs against the claimant’s damages, despite the fact that this may not generate actual cash but only save the defendant from having to put his hand in his pocket to pay the damages and interest to that extent. That is what “money terms” means. For example, assume that the claimant is ordered an award of £20,000 in damages and interest, but that the defendant has costs orders for an aggregate amount of £30,000. If the defendant has not yet paid the damages, it can set off its damages liability against the claimant’s costs liability, but only up to £20,000. It must bring that £20,000 into account under rule 44.14(1) and cannot enforce the balance of its costs entitlement of £10,000, by any means of enforcement. If the defendant has already paid the damages before its costs are assessed, then it can enforce its costs orders by any other available means (set-off being in practice unavailable), but only up to £20,000. It cannot therefore be said that use of a set-off is not a means of enforcement, where costs are set off against damages." 
"40. If set-off of costs against damages is therefore a form of enforcement in this context, so as to make sense of rule 44.14, then why should set-off of costs against costs not equally be a means of enforcement? Both achieve a recovery measurable in money terms for the defendant on account of its costs entitlement, and by the same self-help means of appropriating an asset of the claimant (his damages entitlement) to the part satisfaction of the defendant’s entitlement against the claimant for costs. Strictly it might be said that set-off of costs against damages pursuant to rule 44.14 requires less assistance from the court than set-off of costs against costs, because the latter requires the court’s direction under rule 44.12. But that just makes it more like a form of enforcement." 
As per the previous comments in this post above, the Supreme Court held that a calculation of a Claimant's net costs liability was an incorrect approach, as the QOCs provisions applied to the gross amount of a defendant's costs orders against a claimant rather than the net amount.  
As a consequence, Ms Ho is left having to pay the full pre-settlement costs of £16,700 but cannot enforce the Court of Appeal costs order at all.  
Clearly the implications are significant and whilst some parties will inevitable view the decision as unfair, the Supreme Court has found that it is a part of the overall balance of the QOCs regime.  
If you find yourself involved in any QOCs cases where set-off is an issue, please get in touch. Send an email to or call 01482 534 567 for a no obligation chat. 
Tagged as: QOCS, Set Off
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