Faulkner v Secretary of State for Energy and Industrial Strategy [2020] EWHC 296 (QB)

Introduction

When Qualified One-Way Costs Shifting was introduced by Lord Justice Jackson as part of the LASPO reforms I can’t imagine that even he could have foreseen the types of satellite litigation it would generate. It seemed to be a fairly innocuous deal for insurers, remove the recoverability inter partes of ATE premiums but sacrifice the rewards of any adverse costs orders in the Defendant’s favour, save for limited circumstances. However, it appears that this has resulted in the opening of Pandora’s box as both claimants and defendants look to more inventive ways of implementing the scheme to best benefit themselves.

Background

One such example of the procedural gymnastics that parties are resorting to is evident in this case. The case related to a standalone claim being brought on behalf of the Claimant for injuries suffered to his lungs as a result of the exposure to harmful dust during his employment. A CMC hearing was heard and it was ordered that a preliminary hearing should take place and the Defendant was ordered its costs in the case summarily assessed at £3,500.00.

The Claimant then proceeded to serve a pre-emptive notice of discontinuance of his claim and that such a discontinuance would ensure that the protection under the QOCS regime would remain intact. Knowing that this would be the case, the Defendant proceeded to make an application to set aside the notice of discontinuance. The Defendant’s plan was to, once the Claimant’s claim had been reinstated, then make an application to strike out the claim because CPR 44.15 provides that QOCS protection is stripped away if the claim is struck out on one of the grounds set out therein.

The Claimant successfully resisted the application to set aside the notice of discontinuance and the Claimant was awarded costs of the hearing in the summarily assessed sum of £7,000.00.

The Issue to be dealt with

The Defendant then sought to try and set-off their order of costs against the Claimant’s order to reduce their liability from £7,000.00 to £3,500.00. The Judge, in an unusual move, corresponded with both parties by email and raised the point that this principle could be expanded to include the entirety of the Defendant’s costs which would then be set-off against the Claimants favourable order. This point was conceded by the Claimant but continued to argue that set-off could not be applied in the present circumstances and that if it was held that it could, that the Court had a discretion when making any order for set-off.

The Arguments

The Claimant’s argument rested on the wording of CPR 44.14(1) which provides that orders for costs against a Claimant can be enforced without the permission of the Court but only to the extent that the aggregate amount does not exceed the amount of any orders for damages and interest made in favour of the Claimant. Essentially, the Claimant argued that as the Order was made for costs, and not damages and interest, there could not be any set-off.

The Defendant relied upon CPR 44.12 which provides that a Court may assess the costs which a party is liable to pay and set-off the amount assessed against the amount the party is entitled to be paid and direct that party to pay any balance.

The Claimant’s alternative argument if it failed on its first was that the Court retains a discretion when making an order for set-off and that such an order should be made in the Claimant’s favour in this case.

The Decision

The Court held that it was bound to follow the decision in Howe v Motor Insurers’ Bureau [2017] EWCA Civ 932 in which it was held that set-off was not a form of enforcement and that the Court did have a discretion to make such an order.

However, when matters turned to the Court’s discretion on a case by case basis the Court considered and found the reasoning put forward in the case of Darini v Markerstudy Group 24 April 2017 (Unreported) to be particularly persuasive. The reasoning was that the Claimant should not be placed into a worse position than if the matter had been successfully discontinued because the Defendant made and failed in their application to set aside the notice of discontinuance.

When considering the facts of this case Turner J considered that the Defendant’s application to set aside the notice of discontinuance was so weak that it was doomed to failure. Furthermore, he considered that if the Defendant considered that a strike out application had prospects of success then it could and should have made it before the notice of discontinuance had been served. As such, Turner J exercised his discretion in not making an order allowing the Defendant to set-off any costs entitlement against the Claimant’s entitlement to costs and, therefore, the Claimant was entitled to costs in the sum of £7,000.00.

Discussion

This decision clearly sets out two key points:

  • The Court can make an order to set-off an entitlement to costs against another entitlement to costs which goes behind the QOCS regime; and
  • That the Court can exercise its discretion when making such an order and must exercise such discretion on a case by case basis.

It therefore appears that QOCS protection can be particularly difficult to remove when a notice of discontinuance has been served. It is for the Defendant to ‘beat the Claimant to the punch’ if it is to stand any chance of striking out a claim and removing QOCS protection in a doomed claim, and certainly it is not advised to wait until the proverbial ‘horse has bolted’.

The full judgment of this case can be found here.

For further information, please contact Kris Kilsby here.

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