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Offsetting the costs awarded on an interlocutory application against damages where settlement is reached by way of Part 36 offer

Alan Lowes v The Secretary of State for Transport
Newcastle-upon-Tyne County Court (District Judge Phillips)
26 June 2020

Andrew Hogan of Counsel (instructed by DWF Law LLP) for the second defendant

A defendant in a NIHL claim was entitled to set off monies from a Part 36 settlement in a claimant's favour against an interlocutory costs order in the defendant's favour under section 72 of the County Courts Act 1984. Helen Elsworth, who acted for the successful defendant explains the findings in Lowes v The Secretary of State for Transport (2020).

Background

This was a claim for Noise Induced Hearing Loss where during the course of litigation, on an interlocutory application, the second defendant obtained a costs order in its favour of £1,500.  The claim was ultimately compromised in the claimant’s favour by way of a settlement under Part 36 of the CPR and the £1,500 was held back from the claimant's damages by way of offset.

The claimant's solicitors objected to the costs order being deducted from the claimant’s damages and issued an application to enforce the balance of the Part 36 compromise, under rule 36.14(7) by entering judgment for the sum not paid.

We issued a cross application under section 72 of the County Courts Act 1984 (to be heard at the same time) for an order that the judgment in the claimant’s favour be set off against the costs order in the second defendant’s favour.

Set-offs in cases of cross judgments in the county courts and High Court are governed by section 72 of the County Courts Act 1984 as follows :-

  1. Where one person has obtained a judgment or order in [the county court] against another person, and that other person has obtained a judgment or order against the first-mentioned person in the ... county court or in the High Court, either such person may, in accordance with rules of court, give notice in writing to the court or the several courts as the case may be, and may apply to the court or any of the said courts in accordance with rules of court for leave to set off any sums, including costs, payable under the several judgments or orders.

  2. Upon any such application, the set-off may be allowed in accordance with the practice for the time being in force in the High Court as to the allowance of set-off and in particular in relation to any solicitor’s lien for costs.

  3. Where the cross judgments or orders have not been obtained in the same court, a copy of the order made on any such application shall be sent by the proper officer of the court to which the application is made to the proper officer of the other court.

There would have to be unusual circumstances for the court to decline to exercise its power to order set off, where there are mutual sums owing. See the case of Commissioners for HMRC v Xicom [2008] EWHC 1945 (Ch) for an example of the exercise of the power when HMRC were permitted to offset a sum for costs they had been ordered to pay by the SCCO, against a sum Xicom had been ordered to pay under a county court judgment.

Judge's findings at the applications

The District Judge found that the claimant was entitled to the additional £1,500 but was not entitled to interest, as the judgment was under £5,000.  He then found it just and equitable to set off the £1,500 costs order against the £1,500 judgment, so the balance due to the claimant was nil.

Comment

This application arose on the back of the claimant's solicitors indicating that they not only refused to accept that there should be any offset against damages of the sum awarded to the second defendant in costs of £1,500 at the interlocutory application, but also that there should be no offset against the claimant's solicitors entitlement to costs.

It is hoped this judgment will put down a marker that whilst the costs awarded to one defendant are not enforceable against damages or costs recovered from another defendant if there is no court order relating to those damages recovered from the other defendant, (Cartwright v Venduct Engineering Limited [2018] EWCA Civ 1654), this does not extend to damages and costs which the claimant may recover from the same defendant as has the order for costs against the claimant.  

Contact

For further information please contact Helen Elsworth, Partner on 07808 975891or by email on helen.elsworth@dwf.law

By Helen Elsworth

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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