These two conjoined appeals look at the issue of when and in what circumstances a non-party credit hire company has to pay the defendant's costs, providing long awaited clarity to credit hire practitioners.
Background
The cases were similar but not exactly on all fours – both were mixed claims for PI and credit hire but in each case for different reasons a costs order was made in favour of the Defendant. With the mixed element of the claim, QOCS operated and costs orders were unenforceable. The Defendants in both cases applied for costs orders against the credit hire companies only for them to be refused.
The claim in Tescher comprised whiplash injuries and credit hire just shy of 20K, with the credit hire making up 85% of special damages. The primary claim was dismissed on the 8th December 2022, by DJ Swan who having made an order that the Claimant pay the Defendants costs but not to be enforced due to QOCS, added DAMs to the claim as second defendant so the costs issue could be addressed.
The application was heard on the 10th May 2023 and was refused by DJ Jeffs as he was not convinced that DAMs was the 'real party' to the claim or that the Claimant (now the insured) had established causation in terms of DAMSs causing the costs to be incurred. Permission to appeal was although granted.
The AXA v Spectra matter comprised general damages for whiplash and travel anxiety with special damages pleaded at just over 16K, again the bulk of it credit hire. It turned out that the Claimant had insured a new vehicle within 10 days of the accident yet she hired for 89 days, despite her claiming she needed a vehicle for three months. As a result the Claimant discontinued with the usual costs order that the Claimant pay the Defendant's costs but subject to QOCS.
AXA then made two applications, one to set aside QOCS protection due to fundamental dishonesty and the other for a non-party costs order against Spectra. The first application was dismissed on the grounds that the Claimant was not dishonest due to her as she had not received the total loss payment until later and she had used the car during the period claimed. The second application was adjourned and another hearing took place, with Spectra required to pay 65% of the defendant's costs. This was then overturned on appeal by HHJ Gargan, who commented on AXA's 'good fortune in escaping a judgment and costs' and stated that it was unjust to make a costs order against Spectra.
Coulson LJ suggested that the two appeals be heard together.
Court of Appeal findings
In the context of non-party costs orders, the cases of Symphony v Hodgson; Dymocks v Todd were discussed, noting that whilst the court had unfettered powers in terms of costs derived from the Senior Courts Act 1981, this should be limited by the requirements of reason and justice. Lord Brown distinguished between a funder with no interest in the litigation and a non-party who does not just fund the proceedings but substantially controls them – these are familiar refrains 21 years after the case!
QOCS and cases arising from the exceptions were then looked at in detail, noting the exception at CPR 44.16 (2)(a) 'proceedings….made for the financial benefit of a person other than the claimant or dependant'. The respondents however presented their case as if the only QOCS exceptions were abuse or fundamental dishonesty. Claims for credit hire were specifically mentioned in the Part 44 Practice Direction as an example of claims made for the financial benefit of a person other than the claimant. The respondents claimed this was wrong, or if not, irrelevant due to the PD's not carrying legislative force.
Finally in the case law review, LJ Birss goes through non-party costs orders specifically in relation to credit hire, all in the High Court. The first was Mee v Jones & Select Hire [2017]; here 60% of defendant costs were ordered to be paid by Select, with the appeal to the High Court failing, CPR 44.16 had not changed the law on non-party orders. The PD paragraph 12.2 came up which Turner J described as 'obvious'.
In Kindertons v Murtagh [2024], Turner J dealt with another appeal against a non-party costs order against the credit hire company. Although the entire claim was dismissed, the claimants disappeared and a non-party costs orders was applied for and granted for with 80% of costs awarded. In the appeal the judge rejected the submission that there wasn't a proper basis to say the credit hire company was controlling the litigation – the contractual terms tied the claimant into continuing the claim at the risk of incurring serious financial issues if he did not. The original decision was upheld.
Guidance given by the court
The judgment then moves to what principles can be derived from the cases and legislation to make sense of it all for lawyers and judges. LJ Birss felt that there were two clear stages, first to examine whether jurisdiction to make the order against a non-party was established, then if so stage two is engaged looking at what a just costs order would look like.
Then credit hire contracts were looked at. In DAMs case, this specifically included a clause for the hirer to pursue a claim for credit hire; whilst the Spectra contract did not, the requirement to repay the hire claim and the impecunious state of the Claimant meant that litigation was inevitable. LJ Birss went on to say ' it follows 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'. It was held irrelevant for the first stage what had contributed to or increased the cost of the overall mixed claim but that could be addressed at the second stage. Whether there was freedom to instruct a Solicitor was looked at but held irrelevant as the amount and nature of control over the claimant arose already from the credit hire agreement itself.
Judgment
The elements described taken together would be enough for a court to come to the conclusion that when a claimant has been ordered to pay the costs but QOCS applies, a non-party order against the credit hire firm would be a reasonable outcome. Equitable reasons not to do so such as the service provided to hirers when they could not hire elsewhere were considered but rejected: it was felt that the cost risk would not prevent credit hire firms offering their services. The credit hire company was the real beneficiary of the litigation for damages.
Amount of Costs order
It was felt that there were three options for the amount of costs, the full amount, a split between costs incurred on the credit hire claim and the PI claim and an award of extra costs brought by the credit hire claim compared to litigation without it. When the credit hire claim was much larger than the PI, in normal circumstances the full amount would be appropriate.
In terms of the DAM's case, the court decided that the appropriate order was to pay all the costs. The judge in the previous court had said that DAMs had not decided when to litigate and were not informed about settlement or strategy – this of course ignores the fact that their solicitors were Bond Turner and within the same ownership umbrella of Anexo – although LJ Birss refused to comment on this point as he would have made the order regardless. A non-party costs order was also made in Spectra, and with no appeal raised over the 65% provided in the original order, that was maintained. Both other appeal judges agreed.
Impact
The appeal decision brings welcome transparency to the issue of non-party costs orders when a claim fails and in what circumstances it is appropriate to make an order, then moving on to the amount of the order for costs. It should cut satellite litigation in this specific area of credit hire significantly, leading to less pressure on the courts.
Will Claimants attempt to bring additional elements to the special damages claim to reduce the overall percentage of it being credit hire? It is noted that 'exceptions to the exception', on QOCS reversal for damages for care, employment or medical expenses is mentioned, could larger care or loss of earnings claim be brought in to cloud the issues? Would this make a difference? Probably not, as the Court of Appeal seemed to be clear in that the lack of an injury claim would not make a difference to whether a non-party costs order would be made in circumstances where the CHO is in effective control of the claim.
Appeal
We now know that an appeal to the Supreme Court has been made so this is not the final word on the matter. What we would say is that the judgment appears well founded and is already binding on the lower courts so how much worse could it get – it appears they have nothing to lose, except the additional costs of a failed further application.
Gavin Perry, National Head of Credit Hire at DWF, stated as follows: "For those who remember the early days of credit hire litigation, the House of Lords considered whether the very existence of the credit hire companies and their role in bringing claims, was unlawful by reason of the principles of champerty and maintenance (Giles v Thompson [1994] 1 AC 142). The conclusion was that the claims were not champertous, and the industry snowballed from there. CPR 44.16 reintroduced (without using the word)the suggestion of champerty in relation to the ability to recover costs from a non party where the claim was brought for the benefit of another party, and thirty years on from Giles we have a Court of Appeal decision that assists.
In reality we have already obtained NPCO's against CHO's in non OIC cases. In addition we have had cases where the Court has made a show cause Order against a CHO, or we have made an application for one, and the CHO has voluntarily paid costs. This decision just adds a further string to our bow. Whether it changes the behaviours of CHO's in issuing claims where litigation should be a matter of last resort, is of course another matter."
