The Court of Appeal has handed down judgment in a decision that is likely to cause a major shake-up in the area of credit hire litigation. In this article Connor Wright and Kyran Kanda discuss implications of Tescher v Direct Accident Management Limited [2025] EWCA Civ 733.
In the conjoined appeals of Direct Accident Management Limited (“DAML”) and Spectra, the Court of Appeal has now held that where a credit hire claim fails and a costs order is made in favour of the defendant and against the claimant, it is now the case that courts are “likely, absent some special feature” to order a non-party costs order against the credit hire organisation. This is an exception to the Qualified One-Way Costs Shifting (QOCS) scheme in personal injury cases.
Facts
These conjoined appeals raised similar factual scenarios. A road traffic accident occurred between the defendant and the claimant. The claimant brought a claim for personal injury and credit hire. The claims did not succeed. The claimant was directed to pay the defendant’s costs, not to be enforced without permission of the court pursuant to the Qualified One Way Costs Shifting regime (“QOCS”). The defendants made an application for a non-party costs order against the credit hire organisations, DAML and Spectra. The application against DAML was dismissed at first instance. The application against Spectra was initially allowed, with Spectra being ordered to pay 65% of the Defendant’s costs. This was overturned on appeal by HHJ Gargan.
Judgment
The key authorities
Lord Justice Birss conducted a review of the authorities. With respect to non-party costs orders, in Dymocks v Todd, in particular, the Privy Council distinguished between a “pure” funder with no interest in the litigation, against whom the discretion to award a non-party costs order will not generally be exercised, and a non-party who does not merely fund the proceedings but substantially controls them or is to benefit from them. In this latter case, if the proceedings fail, they will pay the successful party’s costs [27]. The non-party was described as “a real party” to the litigation.
The theme of control reappeared in Farrell v Birmingham City Council [2009] EWCA Civ 769 (a case decided prior to QOCS). The Court of Appeal upheld a non-party costs order made against a credit hire company for 80% of the defendant council’s costs. This was on the basis that, firstly, the credit hire company was in a real sense the instigator of the litigation and, secondly, the claim was prosecuted by the solicitors in the names of the claimants at the behest of the credit hire company, because that is what the hire agreement provided. The credit hire company was in control of the litigation [31].
QOCS
QOCS provides costs protection for claimants in personal injury cases. It limits a defendant’s ability to enforce a costs order against a claimant without the permission of the court, subject to certain exceptions. The relevant exception relates to proceedings which include a claim made for the financial benefit of a person other than the claimant (CPR r44.16(2)(a) and r44.16(3). Birss LJ noted that, while QOCS has been brought in to protect claimants in personal injury claims, it was not brought in to protect persons, other than the claimant, for whose financial benefit the whole or part of the claim was made [33; 37]. Birss LJ identified that Practice Direction 44 paragraphs 12.5 and 12.6 provided relevant insight into the court’s costs jurisdiction in these cases. He stated that the effect of these provisions was that when a claim fails and QOCS protection would normally apply to protect the claimant, in a case in which r44.16(2)(a) applies, it will be exceptional for the claimant to lose their QOCS protection, whereas it would be “usual” for the non-party for whose financial benefit all or part of the claim was made to have to pay costs, either all of the costs or those attributable to that claim [44].
Post-QOCS, a series of High Court decisions have granted non-party costs orders in the credit hire context. Various aspects of those decisions were challenged by the Respondents in the present appeal and this case represents the first time the Court of Appeal has addressed non-party costs orders in credit hire.
The present cases
In light of the above, Birss LJ held that courts should adopt a two-step process when considering non-party costs orders in credit hire. The first step is to ask whether in the circumstances a non-party costs order of some kind against the credit hire company should be made. The second step is to decide on the amount of costs.
Step 1 – is the non-party costs jurisdiction engaged?
Birss LJ highlighted several important features of credit hire litigation. Firstly, the premise of his analysis in Step 1 is that a costs order has been or is being made against the claimant in the defendant’s favour and the claimant is protected by QOCS [67].
Secondly, the credit hire claims in issue involve claimants who are alleged to be impecunious as per Lagden v O’Connor. That matters because in such a case the credit hire company cannot expect to recover the credit hire charges from the claimant on any realistic commercial basis [68].
Thirdly, the essential characteristic of credit hire agreements for present purposes is that the hire is on credit with payment being deferred until the conclusion of the action for damages, which includes the hire charges, made against the party alleged to be liable for the accident. The credit hire agreements in Tescher and AXA Insurance either included an express requirement that the hirer pursue a claim for hire charges or made the deferral of hire charges conditional on the pursuit of a claim [69-70].
Birss LJ found that the deferral arrangements in both cases, coupled with the allegation of impecuniosity, combine to make litigation (or its settlement) the only realistic means by which the credit hire company will be paid for the hire. It followed, therefore, that in a very real sense the credit hire agreement, for which the credit hire company is responsible, is a fundamental cause of the legal costs incurred by the defendant. That is enough to satisfy the requirement for causation sufficient at the first stage of the exercise, i.e. that there be a causative link, though not in a strict ‘but for’ sense, between the particular conduct of the non-party relied upon and the incurring by the claimant of the costs sought to be recovered [70].
Consequently, absent some reason why not, when a claimant has been ordered to pay the costs and QOCS applies, a non-party costs order against the credit hire company is now “likely”. In reaching this conclusion, Birss LJ took a realistic view of credit hire litigation. He found that as a matter of reality – practical and economic – it is the credit hire company which is the real beneficiary of the litigation for the damages in respect of charges for credit hire. The fact that payment of the sums obtained in a successful claim to the credit hire company benefits the claimant by extinguishing their debt to that company does not alter this reality [74]. Nor does the genuine nature of the benefits the claimant derives from the car they receive or the legal correctness of the damages claim the claimant brings. The “real party in all but name” test was considered to be satisfied.
Step 2 – what would a just costs order be?
Birss LJ identified three “obvious possibilities”:
- an order for all the costs of the litigation;
- an apportionment based on the sizes of the credit hire claim and the PI claim; and
- an award of the extra costs attributable to the credit hire as compared to the litigation without it.
When the credit hire claim is several times larger than the PI claim (as in both DAML and Spectra), an order for all the costs of the litigation would be “likely, absent some special feature” [77].
DAML and Spectra
Birss LJ found, for the reasons identified above, that DAML was the real beneficiary of the claim for credit hire charges and had tacit control over the litigation. The causation and control aspects of the test to engage the costs jurisdiction were satisfied. There were no other special circumstances which might suggest no order should be made at the first stage. Given that DAML’s credit hire charges were several times larger than the damages for personal injury, a non-party costs order was made for DAML to pay all the claimant’s costs.
The DDJ’s original order requiring Spectra to pay 65% of the costs was restored. The fact the claim which was discontinued would or might well have succeeded does not justify a different order.
Comment
Birss LJ was careful to clarify that there was no suggestion that fixing credit hire companies with costs risk when the claims fails would prevent them from offering the service. However, the House of Lords in Giles v Thompson [1994] 1 AC 142 had anticipated that where credit hire claims failed there would be “consequent orders for costs which will impose a healthy discipline upon the companies.” This decision is likely to be welcomed by Defendant litigators of credit hire disputes. Defendant insurers now have a powerful tool in their arsenal, and should consider carefully whether to make an application for non-party costs where a claim for personal injury and credit hire charges has been successfully defended. A close review of the merits of a claim and early legal advice will often assist parties to reach a sensible, commercial settlement of credit hire charges and avoid the credit hire company footing the bill for a costs order.
Whilst every effort has been taken to ensure that the law in this article is correct, it is intended to give a general overview of the law for educational and/or informational purposes. It is not intended to be a substitute for specific legal advice and should not be relied upon for this purpose.
This article represents the opinion of the author and does not necessarily reflect the view of any other member of St Philips Chambers.
