THE SET OFF OF COSTS AND QOCS: A HIGH COURT DECISION: THE COURT HAS A DISCRETION TO SET OFF COSTS – BUT ON THE FACTS OF THIS CASE WOULD NOT DO SO
In the judgment given this morning in Faulkner -v- Secretary of State for Energy and Industrial Strategy  EWHC 296 (QB) Mr Justice Turner considered the issue of whether a defendant, ordered to pay costs when failing in an application to set aside a notice of discontinuance, can set those costs off against the costs that the claimant would be liable to pay were it not for the provisions of Qualified One Way Costs Shifting.
“It is not without irony that the defendant sought to set aside a notice of discontinuance which, albeit served late in the day, had had the effect of saving it money.”
The claimant brought an action alleging that his work as a miner had led to the development of COPD. The case was a “stand alone” case and was not part of any group litigation. The case was listed for trial in February and the claimant’s case was supported by expert evidence. The claimant issued a notice of discontinuance shortly before the trial.
THE DEFENDANT’S APPLICATION
The defendant sought to set aside the notice of discontinuance and to then strike the application out. The application to disapply QOCS was based on CPR 44.15 (c)
ii) a person acting on the claimant’s behalf and with the claimant’s knowledge of such conduct,
is likely to obstruct the just disposal of the proceedings
The defendant’s argument was the discontinuance of the case, in circumstances where the defendant may have had a very useful test case tried, obstructed the just disposal of the proceedings. (This may well be a very crude summary of the defendant’s very lengthy skeleton argument).
THE DISMISSAL OF THE DEFENDANT’S APPLICATION
The defendant’s application was dismissed. The judge assessed costs and ordered the defendant to pay them.
THE SET OFF ARGUMENT
The defendant argued, initially, that its liability to pay costs should be set off against an interlocutory order for defendant’s costs in the case that had been made at an earlier hearing. The judge felt that this issue of set off needed consideration and reserved judgment on that issue.
SET OFF COULD APPLY TO THE DEFENDANT’S ENTIRE COSTS
The judge raised the issue with the parties as to whether set off should take place against the entirety of the costs that the claimant would be due to pay the defendant but for the operation of QOCS.
7. Having reserved judgment, however, I considered the matter further and raised the issue by email to the parties as to whether it would be theoretically open to the defendant, although this had not been an argument raised before me at the hearing, to claim to set off not just the sum of £3,500 but the whole of the costs which it had incurred in the action for which the claimant would be deemed to be liable by the operation of CPR 38.6. Faced with this doubtless unwelcome judicial initiative, Mr Exall on behalf of the claimant, with characteristic realism, conceded that this set off could be extended to cover the defendant’s entire costs of the action and that, if it were, then the claimant’s costs order of £7,000 would be extinguished. He nevertheless continued to urge me to hold that, in any event, no set off in either sum should be ordered.
THE FIRST ISSUE: DID THE COURT HAVE POWER TO SET OFF COSTS IN THESE CIRCUMSTANCES?
The claimant argued that the court did not have power to set off in these circumstances, relying on Darini v Markerstudy Group 24 April 2017, the claimant also brought the decision in Howe v Motor Insurers’ Bureau (2017) WL 05659795 to the attention of the court. These two cases were difficult to reconcile. The judge held that Howe was binding and the court has a power of set off in these circumstances.
13. Support for the claimant’s position is to be found in the decision of HHJ Dight in Darini v Markerstudy Group 24 April 2017 (Unreported). The factual background in that case was very similar to that in the instant case. Having failed in a bid to set aside notice of discontinuance, the defendant faced a claim to pay the claimant’s costs in respect of that application. However, it contended that it could set off against any such costs order the costs which to which they had become entitled by virtue of the operation of CPR 38.6.
14. The defendant’s set off argument was successful before the District Judge but came to grief on appeal to the Circuit Judge.
15. HHJ Dight found that section 2 of CPR 44 (comprising Rules 13 to 16 inclusive) was to be treated as providing for a separate code which created a “different procedural environment” for the costs of personal injury claims. Rule 14 had been drafted so as to exclude reference to a set off against costs.
16. The matter, however, does not end there. In Lewison LJ reached the contrary conclusion. He held that set off was not a form of enforcement and pointed out that Part 44.14 enables enforcement without the permission of the court whereas Part 44.12 requires a court order before one set of costs can be set off against another.
17. It does not appear that Darini was brought to the attention of the Court of Appeal in Howe. Nevertheless, I can find no basis upon which to distinguish the two cases on the issue of set off and enforcement. Therefore, the decision of the Court of Appeal in Howe is binding on me and it would be an act of hubris on my part to embark on any discussion concerning which of the two irreconcilable decisions is academically the more compelling. Accordingly, Darini must be treated as being no longer good law on this point.
18. It must follow that the defendant succeeds on this issue.
THE NATURE OF THE COURT’S DISCRETION TO ORDER SET OFF
The defendant, however, was less fortunate on the question of the exercise of the court’s discretion to set off. The judge firstly considered the nature of the discretion.
19. In Howe, the Court of Appeal refused to exercise its discretion to decline to permit the set off of costs against costs. However, it would appear from the judgment of Lewison LJ that the issue of discretion had been argued not on the particular facts of that case but in support of the unsuccessful proposition that there should be a general rule that the court would be expected to refuse to allow a set off against costs as being incompatible with the broader aims of the QOCS regime. There was thus no individual feature of that case which counsel had sought to deploy in favour of the exercise of the court’s discretion.
20. In contrast, in Darini the court heard full argument on the issues relevant to the exercise of the discretion on the particular facts of that case. I 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.
21. In Darini the claimant advanced the following argument on the issue of discretion:
“But for the defendant’s application, the position would have been simple. The claim 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.
It cannot be correct that a defendant is able thereafter to bring an unsuccessful application which is dismissed with costs but, as a result, places 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.”
22. HHJ Dight found this argument to be persuasive and held, with reference to the decision of the District Judge:
“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.”
23. There is an obvious danger in attempting to lay down general rules concerning the exercise of a pure discretion. The whole purpose of affording the court a procedural discretion is to provide for the flexibility necessary to achieve the overriding objective in circumstances of infinite potential permutation. I would not, therefore, conclude that the discretion to set off costs against costs is to be exercised against the defendant in every case in which it unsuccessfully applies to set aside notice of discontinuance of a claim falling within the QOCS regime – as the logic of Mr Mallalieu’s argument might otherwise appear to mandate. Each case must be decided on its own facts.
THE EXERCISE OF THE DISCRETION ON THE FACTS OF THIS CASE
On the facts of this case, however, the judge held that it was not appropriate to allow the defendant to set off the costs. The defendant’s application was weak, indeed “doomed to failure”.