Personal Injury barrister, Patrick West publishes an article on the recent Court of Appeal decision in Tescher v DAML (2025) EWCA Civ 733.
One of the most frustrating obstacles for defendants in credit hire has been the paradox that although the main beneficiary of a claim including credit hire is frequently the credit hire organisation itself, costs have not necessarily been recoverable against them when a defendant wins at trial.
Until now, the picture has been far muddier than that anticipated in the now venerable credit hire case of Giles v Thompson in 1994 when the House of Lords opined (over-optimistically as it turned out) that: “If the motorists are found to have been tempted by the hire companies into the unnecessary hiring of substitute vehicles, the claims will fail pro tanto, with consequent orders for costs which will impose a healthy discipline upon the companies.”
The court’s jurisdiction to award costs against a third party such as a credit hire organisation or CHO is found in s.51 Senior Courts Act 1981 and CPR 46.2 (Non-party Costs Orders or NPCOs).
Section 51(3) Senior Courts Act 1981 provides that: “The court shall have full power to determine by whom and to what extent the costs are to be paid.”
CPR 46.2(1) provides that “Where the court is considering whether to exercise its power under section 51 of the Senior Courts Act 1981 (costs are in the discretion of the court) to make a costs order in favour of or against a person who is not a party to proceedings, that person must – (a) be added as a party to the proceedings for the purposes of costs only; and (b) be given a reasonable opportunity to attend a hearing at which the court will consider the matter further.”
The Costs Practice Direction Section II Qualified One Way Costs Shifting, provides at paragraph 12.2: “Examples of claims made for the financial benefit of a person other than the Claimant […] within the meaning of rule 44.16(2) are subrogated claims and claims for credit hire”.
PD44 also states at paragraph 12.5 that:
“The court has power to make an order for costs against a person other than the Claimant under section 51(3) of the Senior Courts Act 1981 and rule 46.2.
In a case to which rule 44.16(2)(a) applies (claims for the benefit of others) –
- the court will usually order any person other than the Claimant for whose financial benefit such a claim was made to pay all the costs of the proceedings or the costs attributable to the issues to which rule 44.16(2)(a) applies or may exceptionally make such an order permitting the enforcement of such an order for costs against the Claimant.
- the court may, as it thinks fair and just, determine the costs attributable to claims for the financial benefit of persons other than the Claimant.”
Such applications, however, were not necessarily likely to succeed largely due to the wide discretion afforded to the courts in assessing whether to make such orders, no guidance from the senior courts on the matter and conflicting county court decisions.
Recently that has begun to change.
In last year’s considerable body blow to CHOs, Turner J in Kindertons Limited v (1) Georgina Murtagh (2) Esure Services Limited [2024] EWHC 471 (KB) held that it was just to impose a NPCO on a CHO (Kindertons).
All but £50 of the driver’s special damages claim was credit hire with modest personal injury claims by the driver and his wife (Mr and Mrs Ibrahim) which were held to have been fundamentally dishonest by the Judge at first instance and (unsurprisingly) the costs order against the Claimant went unpaid as he disappeared and Esure applied for a non-party costs order (“NPCO”) against Kindertons.
On appeal, Turner J held that Kindertons had a very strong financial stake in the litigation and that “any benefit to Mr Ibrahim in pursuing the claim for hire charges was all but illusory” (para. [43]).
In relation to the contention that there was no proper basis for the judge’s finding that the appellant Kindertons controlled the litigation, the court stated: “There is a danger that the concept of “control” is wrongly treated as if it were a traffic light, governing the exercise of the court’s discretion to make a non-party costs order, which is showing either red or green. Control is almost invariably a matter of degree. As a concept, it is relevant to the extent that, in any given case, the greater the level of control exercised by the non-party the more likely it will be that the court will exercise its discretion in favour of making a NPCO” (para. [44]).
The court quoted, with approval, Deutsche Bank AG v Sebastian Holdings [2016] 4 W.L.R. at para. 62: “We think it important to emphasise that the only immutable principle is that the discretion must be exercised justly. It should also be recognised that, since the decision involves an exercise of discretion, limited assistance is likely to be gained from the citation of other decisions at first instance in which judges have or have not granted an order of this kind” (para. [45]).
On the facts of the case, there was a high degree of control; there was no specific authority for a test to determine causation of costs; it was just to make the order that Kindertons pay 80% of the costs; Kindertons “voluntarily assumed the risk” that Mr and Mrs Ibrahim would turn out to be dishonest; the exercise of discretion fell comfortably within the generous parameters afforded to judges.
So, despite the win for defendants in Kinderton, the Court still underlined the “generous parameters” of the goal posts of discretion under Section 51 and the Rules.
Arguably, those goal posts have been moved far closer together now by the Court of Appeal’s unanimous decision in Tescher v DAML.
In Tescher, in which Horwich Farrelly, on behalf of Admiral, was also successful in obtaining a non-party costs order, this time against Direct Accident Management Limited.
In November 2018, Mr Tescher’s car came into contact with a motorcycle being driven by the Claimant, Mr Quesada. Mr Quesada stated he was unable to afford to pay for a replacement vehicle (known as ‘impecunious’) and therefore signed a credit hire agreement with Direct Accident Management Limited (“DAML”), which ran for 88 days and amounted to c. £20,000.
In line with most credit hire agreements, the agreement obligated Mr Quesada to bring legal proceedings against Mr Tescher if DAML did not recover their money and that any payment (from Mr Quesada to DAML) was deferred until damages were paid by someone else (i.e. Mr Tescher’s insurer).
As liability was disputed, Mr Tescher’s insurer EUI Ltd (Admiral) refused to settle the credit hire and as a result, Bond Turner issued court proceedings in October 2020 on Mr Quesada’s behalf, for personal injury and credit hire which constituted the vast majority of the claim (85%).
The case was dismissed at first instance by District Judge Swan who also ordered Mr Quesada to pay Admiral’s legal costs.
The Defendant/Admiral applied to join DAML into proceedings as a Non-Party to recover Admiral’s legal costs of around £18,000 (“NPCO”) arguing that that they were the real party to the claim as they stood to benefit the most.
The application was dismissed in August 2023.
The Defendant was given permission to leapfrog the appeal directly to the Court of Appeal in October 2024, due to the wider importance of the issue and conflicting county court decisions on NPCO.The Court’s guidance applicable to non-party costs orders in credit hire cases was to ask, first, whether the non-party costs jurisdiction was engaged; and, if so, what amount of costs would be just.
The payment deferral arrangements connected to a claim for damages by the hirer against the third party who caused the accident, coupled with the claimant’ impecuniosity, combined to make litigation practically inevitable as the only realistic means by which the credit hire company would be paid for the hire. Accordingly, the credit hire agreement was a fundamental cause of the legal costs incurred by the defendant, Kindertons Ltd v Murtagh applied.
Importantly, the Court held that unless there was some reason to the contrary, a non-party costs order against a credit hire company was likely where a claimant had been ordered to pay the costs and QOCS applied.
A claimant in a credit hire case had a real claim, although the premise was that they were being ordered to pay the defendant’s costs either because their claim failed or was discontinued, Giles v Thompson [1994] 1 A.C. 142, [1993] 5 WLUK 257 followed.
However, Birss LJ stated:
“74. The elements I have described taken together are enough for a court to conclude that absent some reason why not, when a claimant has been ordered to pay the costs and QOCS applies, a non-party cost order against the credit hire company is likely. The credit hire company is a person for whose benefit the credit hire claim was being made. As Giles v Thompson establishes a claimant in a credit hire case does have a real legal claim, although it is relevant to have in mind that the premise here is that the claimant is being ordered to pay the defendant’s costs, no doubt either because their claim failed or was discontinued. 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.
- The fact that the provision of a replacement vehicle to the claimant obviously means they benefit from the credit hire agreement is true too, but is not the point. Nor is it relevant that credit hire achieves a worthy societal purpose ( Giles v Thompson). There was no suggestion here that fixing credit hire companies with costs risk when the claims fails would prevent them from offering the service. Such a risk is a healthy discipline ( Giles v Thompson). It also bears spelling out that nothing in the analysis I have undertaken involves saying anything which is done is improper or unlawful.
- I do not believe either or both of: (i) the genuine nature of the benefits the claimant derives: from the car they received and from the removal of the debt they incur, and (ii) the legal correctness of the damages claim the claimant brings as claimant in the proceedings, would be enough to negative the practical and economic reality that the credit hire company is the real beneficiary of the litigation for these damages. Therefore, these credit hire companies satisfy the real party in all but name test.”
Having found that the jurisdiction was engaged, the second step was to consider an appropriate costs order.
Three possibilities were: an order for all the costs of the litigation; an apportionment based on the sizes of the credit hire claim and the personal injury 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 was several times larger than the personal injury claim, as in these cases, an order for all the costs of the litigation was likely (para.77).
A credit hire case was one to which r.44.16(2) applied, as it was brought alongside a personal injury claim to which QOCS applied and in which a costs order had been made against the claimant. That was because a credit hire charges claim was one made for the financial benefit of a person other than the claimant within r.44.16(2)(a). The fact that r.44.16(2)(a) applied did not mean that a non-party costs order had to follow, Select Car Rentals (North West) Ltd v Esure Services Ltd [2017] EWHC 1434 (QB), [2017] 1 W.L.R. 4426, [2017] 6 WLUK 349 applied. However, pursuant to CPR PD 44 para.12.5(a), such an order would be likely (para.81).
The Court of Appeal concluded that DAML – The fact that DAML’s involvement did not lead to extra costs being incurred did not mean that the jurisdiction was not engaged; it had tacit control over the litigation and should pay all S’s costs (paras 82-83).
As for Spectra, Rule 38.6 provided that, unless the court otherwise ordered, a claimant who discontinued would be ordered to pay the costs. Whether such a claimant would or might well have succeeded at trial was not a good reason for using the power to “otherwise order” and relieving the claimant of the liability to pay the costs if they discontinued, Nelson’s Yard Management Co v Eziefula [2013] EWCA Civ 235, [2013] C.P. Rep. 29, [2013] 3 WLUK 603 followed.
Following Tescher, it is difficult to foresee any particular reason why a CHO might avoid such costs orders.
Therefore, in most credit hire cases where the claim fails, it seems the only questions to ask now are: was the CHO the real beneficary of the claim and to what degree should the costs award fall upon them directly?
It remains to be seen whether any further challenge will be mounted by the profitable credit hire industry or whether the ensuing losses will simply be taken on the chin.