If a claimant fails to beat a Part 36 offer, can a defendant offset its costs against the claimant’s costs? Do fixed costs apply if a claim leaves RTA Protocol regime?

The Issues

1. The claimant successfully recovered personal injury damages but had failed to beat a much earlier Part 36 offer. Could the Defendant (the Appellant) recover the substantial costs she had incurred (after her Part 36 offer was rejected) by offsetting those costs not only against the damages which the Claimant had been awarded, but also by offsetting her costs against the costs which the Claimant was entitled to recover for the period before the Part 36 offer was made.
    
2. The original dispute concerned a claim which commenced in, but subsequently exited the RTA Low Value Personal Injury Claim Protocol. Did fixed costs apply?

The Facts

CPR 44.12 provides:

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 the party is liable to pay.

The Claimant argued that the general set off provisions did not apply as the appeal fell within the scope of the QOCS regime.

CPR 44.14 (1) provides:

Subject to rules 44.15 and 44.16 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 for any orders for damages and interest made in favour of the Claimant.

Section II of CPR Part 44 provides a Claimant with protection from having to pay the Defendant’s costs other than in certain circumstances; where the proceedings have been struck out on the grounds set out in CPR 44.15, or with the permission of the court, where the claim is found to be dishonest or CPR 44.16(2) applies.  In the absence of those exceptions the Defendant can enforce a costs order by way of a set off but only to “the aggregate amount in money terms of any orders for damages and interest made in favour of the Claimant” in accordance with CPR 44.14 [10].

In the case of Howe v Motor Insurers’ Bureau 2017 (unreported) the Court of Appeal decided that the costs awarded to the Claimant should be set off against costs orders in favour of the Defendant, with the set off not being limited to the damages and interest received by the Claimant.

The Claimant’s QC argued that the effect of Howe would undermine QOCS and would leave the Claimant with personal liabilities for their solicitor’s costs and would leave them deprived of any damages awarded.   The Defendants made the point that there were already circumstances in which claimant could be out of pocket in the same way, for example where the Defendant’s Part 36 offer is not beaten and the Defendant’s post-offer costs exceed the sum of damages.

The Judgement

In giving his judgement, Lord Justice Newey preferred the Claimant’s submissions stating:

There was no authority on the issue, and where QOCS applies, the court’s initial view was that:

1. it had no jurisdiction to order costs liability to be set off against each other. 
2. Section II of CPR Part 44 represents a self-contained code
3. a defendant should be able to recover costs that he has been awarded only by set-off against damages and interest under CPR 44.14 or, where appropriate, by invoking CPR 44.15 or CPR 44.16.

BUT: the court found itself bound by the decision of Howe and suggested that although that decision may have been incorrect it did not fall within the limited class of cases in which the Court would not be bound by its earlier decision as per Young v Bristol Aeroplane Co Ltd [1944].

Accordingly, the court held it was appropriate to allow the Defendant to set off the costs due to her against her liability to the Claimant for the costs of the claim generally.

Did fixed costs apply to a claim which commenced in the RTA Low Value Personal Injury Claim Protocol, but subsequently exited that regime? The Court of Appeal held that the Defendant’s costs liability in respect of the ex-portal claim was limited to fixed costs.  As the Claimant had not made any application pursuant to CPR 45.29 for a higher amount the Court of Appeal held that the fixed costs regime was applicable.  The Claimant’s costs were therefore limited to £16,705.15 and the Defendant was awarded her costs in respect of the appeal.

Comment

CPR 44.12 is a useful tool to defendants who may have the benefit of an interlocutory costs order in a claim which then goes onto succeed.

It is interesting however that in his closing, Lord Justice Newey commented:

“I would add finally that the Civil Procedure Rules Committee may wish to consider whether costs-set off should be possible in a QOCS case”.

This judgement clearly raises questions as to the level of protection QOCS was intended to give Claimants and which is likely to be subject to review in the future. The defendant has been granted permission to appeal to the Supreme Court and that hearing is scheduled to take place in June 2021.

View the Judgement here

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