In Darini -v- Markerstudy Group (24th April 2017) His Honour Judge Dight considered an important issue in relation to set off and costs. A copy of the judgment is available here. HMC25855_DariniOlsoyvMarkerstudy_ApprovedJudgment_24042017 (2) and has kindly been provided by Gavin Lampert of Lucas & Co.  It is important that you read the discussion of this case in  Faulkner -v- Secretary of State for Energy and Industrial Strategy [2020] EWHC 296 (QB) Mr Justice Turner discussed in detail here. 

THE CASE

The claimants had brought a personal injury action.  The action was discontinued and, therefore, a deemed costs order made in favour of the defendant.   However the claimants had the protection of one way costs shifting.  The costs order could not be enforced without permission of the court.

• The defendant sought to set aside the notice of discontinuance.
• The defendant’s application was unsuccessful.
• The district judge ordered that the defendant pay the claimant’s costs.
• The district judge ordered that the costs that the defendant had been ordered to pay should be set off against the costs the claimant had to pay.

THE APPEAL

The claimants appealed against the order setting off the costs:

• Firstly on the grounds that the district judge had to power to order a set off.
• Secondly that the outcome was so unjust that, if the district judge had such a power, she should not have exercised it.

THE DECISION OF THE CIRCUIT JUDGE ON APPEAL

The judgment contains a detailed review of the rules, legislation and case law.  The circuit judge concluded that there was no right of set off

24. There are, therefore, in my judgment, three situations, on a proper construction of the rules, in which a set-off can take place: first, where a costs order is made against the claimant, it can be set off against damages and interest only; secondly, where the claimant’s claim has been struck out on the grounds that it is an abuse, enforcement, including set-off, may be allowed in full without the permission of the court; and thirdly, where there is a finding on the balance of probabilities that a claimant is fundamentally dishonest, the courts may allow set-off to the full extent, but that is a matter of the court’s discretion. Those three analyses accord, in my judgment, with the policy objective of protecting a claimant in personal injury claims.  The facts of the present case do not satisfy any of the three situations.  Sub-rules 15 and 16 simply do not come into play, and this was not a case where the learned district judge was seeking to set off costs against damages and interest; rather, she was seeking to set off costs against costs. She had, in my judgment, therefore, no jurisdiction;  the criteria were not satisfied.Even if she had a general jurisdiction under CPR 44.12, and bearing in mind that an appellate court can only overturn an exercise of discretion of a lower court where the lower court has acted in a way which no judge properly directing himself on the law could have exercised such discretion, I would nevertheless have overturned her decision for the reasons given by the claimant in Mr Mallalieu’s skeleton in the sections that I cited above.

EXERCISE OF THE DISCRETION

The judge did not need to give a judgment in relation to the exercise of the discretion. That part  of the judgment refers to the claimant’s counsels skeleton argument and accepts the submission.

9. “In his skeleton, Mr Mallalieu says as follows in paragraphs 48 to 50:

“But for the defendant’s application, the position would have been simple. Theclaim had been discontinued, the defendant’s ability to enforce the deemed costs order in its favour by virtue of CPR 38.6 would have been effectively nil.There were no damages, none of the exceptions in CPR 44.15 or 44.16 applied, and therefore 44.14(1) applied. From the claimants’ perspective, they would have incurred such costs as they incurred in bringing their claim unsuccessfully but would have no further liability.  The QOCS regime would have operated as intended.

(50) It cannot be correct that a defendant is able thereafter to bring an unsuccessful application which is dismissed with costs but, as a result, placed the claimants in a worse position than they would have been but for that application. But for the application, the position would have been as set out above.  The application has been brought and has caused the claimants to incur additional costs. The court has held that the claimants should be entitled to those costs in principle, thereby placing the claimants back in the position they would have been but for the application. However, the effect of the set-off is then to prevent the claimants from being placed back in that same position, but rather to leave them effectively paying their own costs for the defendant’s failed application.”

He concludes by submitting, in paragraph 51:

“There was no principle basis to deny the claimants their costs of the defendant’s failed application. The court rightly awarded them to the claimants. Having done so, it has then undermined the effect of its own order by the inappropriate and unjust order for a set-off.”