Introduction
In Pereira & Ors v Chambers & Ors (June 2024, Central London County Court, unrep.) (“Pereira”), HHJ Saunders was invited to consider whether to make non-party costs orders against a credit hire organisation in the aftermath of four failed claims for the recovery of credit hire charges. His Honour’s decision to grant the non-party costs orders has far-reaching implications for the credit hire and insurance industries.
Credit Hire: A Brief Introduction
It has become commonplace following a road traffic accident for the innocent party to be put in touch with a third party credit hire organisation (“CHO”) for the provision of a replacement hire vehicle, with whom the innocent party enters into a contractual arrangement.
The replacement hire vehicle is provided by the CHO to the innocent party on ‘credit’, that is, at no upfront or immediate cost to the innocent party or their insurer. Instead, the CHO is normally entitled, under the terms of the contract, to pursue a claim for the ‘credit hire’ against the party liable for the accident in the name of the innocent party, with payment of the credit hire deferred until the outcome of this claim, which may be years later. The innocent party is usually contractually obliged to co-operate in the pursuit of this claim. The CHO expects that it will be paid out of any damages recovered within the claim.
Should the claim fail or if there is a shortfall in the amount of damages recovered, the innocent party is usually liable to the CHO under the terms of the contract for the credit hire, although it is commonplace for CHOs to choose for commercial reasons not to enforce this contractual liability. The amount charged by the CHO for credit hire is normally far higher than the cost of hiring an equivalent vehicle directly, that is, on standard payment terms requiring payment within around 30 days.
Background to Pereira
The applications for non-party costs orders in Pereira arose out of four separate claims for credit hire provided by Direct Accident Management Limited (“DAML”), a CHO. The Claimants in each case had been involved in road traffic accidents, and in two of the claims the Claimants had suffered modest personal injury. Following the accidents, the Claimants entered into hire agreements with DAML for the provision of replacement hire vehicles. Significant sums were then incurred by DAML in respect of credit hire in each of the four cases, amounting to £14,480.84, £71,710.64, £13,920.96, and £31,502.64 respectively.
The hire agreements between DAML and the Claimants in each case were identical as to the rights and obligations they imposed (differing only as to the hire periods and rates). Upon provision of the hire vehicle, the agreements bound the Claimants to bring a claim in their own names for recovery of the hire charges, for payment to DAML. The Claimants were bound to instruct solicitors specified by DAML, namely Bond Turner, described as the in-house legal team of DAML’s parent company. The Claimants were further bound to co-operate with both DAML and Bond Turner.
In the ensuing claims for recover of the credit hire charges against the allegedly negligent Defendant drivers, all claims failed or were compromised for significantly less than the claimed amount. DAML was not originally a party to any of the claims.
Applications were then brought by each of the four Defendants for non-party costs orders against DAML.
The Law & Procedure Applicable to Non-Party Costs Orders
Statutory Power
The power to make a non-party costs order (“NPCO”) arises under section 51 of the Senior Courts Act 1981, which provides that the court shall “have full power to determine by whom and to what extent costs are paid”. Specific provision for the making of an NPCO is set out within CPR r.46.2(1).
Legal Authorities
The making of a NPCO is highly fact-specific, with the key touchstone of the Court’s wide discretion being whether it is just in all the circumstances: Deutsche Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23 at [62]. Further guidance is provided by the case of Dymock Franchise Systems (NSW) Ltd v Todd [2004] UKPC 39, which indicates that the making of a NPCO should be exceptional (outside the ordinary run of cases), and that consideration should be given to whether a party is not so much facilitating access to justice by the named party but is itself gaining access to justice for its own purposes; whether he is “the real party” to the litigation.
A number of further cases were cited to and relied upon by HHJ Saunders in Pereira:
In Farrell v DAML [2009] EWCA Civ 769, a NPCO was made against DAML in circumstances where it hired a vehicle to a claimant on credit hire terms broadly similar to those in Pereira, who was later found to be fraudulent. The reasoning of the Court of Appeal in Farrell was summarised by HHJ Saunders at paragraphs [48]-[49] of Pereira: “[DAML] was the instigator of the litigation, it had controlled that litigation, and finally, stood to benefit from it…” “…the initiation and prosecution of the litigation were a ‘direct consequence’ of the hire of the car.”
In Travelers [2019] UKSC 48, the Supreme Court held that a commercial interest in the outcome of litigation is a necessary but insufficient condition for a real party test to be satisfied. At paragraph [96] of Travelers, Lord Reed explained that what is required is a party “with a direct interest in the subject-matter of the litigation, and, through that interest, master of the litigation itself, having the control and direction of the suit…” To be a ‘real party’ one must have the entire interest in at least the relevant part of the case. The Supreme Court in Travelers considered the making of NPCOs against insurers, noting (at paragraphs [32]-[53] of Lord Briggs’ judgment) that NPCOs will not be made against insurers as ‘real parties’ (even when they directly fund and control the defence of a claim) where they are acting in the shared interest of themselves and their insured. It is only when insurers act exclusively in their own interests that a NPCO will be made.
In Kindertons v Murtagh [2024] EWHC 471 (KB), the CHO appealed against the making of a NPCO by the court below. It was argued on appeal that the judge below had failed to perceive a need to establish ‘control’ of the litigation by the CHO. In relation to control, at paragraph [44], Turner J explained that the concept of ‘control’ is not like a traffic light showing red or green governing access to the court’s jurisdiction, but a matter of degree: “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 make a NPCO.” On the facts of that case the necessary level of control was made out because the contractual terms had required the claimant to bring and pursue a claim, at the risk of incurring serious financial consequences in the event he was to fail to comply; it was immaterial that such consequences were not ultimately visited upon him.
In Select v Esure [2017] EWHC 1434 (QC), Turner J set out the proposition that credit hire companies should in general pay the costs of proceedings to recover the costs of credit hire. HHJ Saunders noted that this proposition “does not seem surprising” (at [72] of Pereira).
There are somewhat diverging opinions in the authorities as to whether causation is an essential requirement of the making of a NPCO. In Travelers, Lord Briggs said at paragraph [80] that: “causation remains an important element… namely a causative link between the particular conduct of the non-party relied upon and the incurring by the claimant of the costs sought to be recovered… If all those costs would have been incurred in any event, it is unlikely that an [NPCO] order ought to be made.” However in Turvill v Bird [2016] EWCA Civ 704, the Court of Appeal had rejected the submission that there had to be causation before a non-party costs order can be made, at least in the strict legal sense of a loss to the Claimant of an identifiable sum. At paragraph [69] the Court held that: “The only requirement to make an order is it should be just, and strict consideration of causation can sometimes interfere with the Court’s discretionary power to do justice.”
CPR 44.16
Claimants bringing claims involving personal injury will usually receive the benefit of Qualified One-Way Costs Shifting (“QOCS”). One of the exceptions to QOCS lies in CPR r.44.16(2)(a). This provides that where the relevant proceedings include a claim made for the financial benefit of a person other than the claimant, the court may allow enforcement of a costs order against a claimant to the extent it considers just. Under CPR r.44.16(3), if CPR r.44.16(2)(a) applies the court may make a NPCO against the person for whose benefit the whole or part of the claim was made. Practice Direction 44 paragraph 12.2 explicitly provides an example of a claim involving the recovery of credit hire charges.
The Decision in Pereira
Following consideration of the relevant authorities, HHJ Saunders then turned to consider whether to make a NPCO on the facts of the case (at [90]-[106]), ultimately holding that it was just to grant a NPCO (at [106]) based upon a number of factors.
HHJ Saunders noted (at [92]) that there were several distinguishing features setting the case apart from the norm, making it exceptional, namely that the initiation and prosecution of the case was directly linked to the hire of a vehicle on credit hire terms, and that the funding of the vehicle by the CHO was the “essential catalyst” for the claim for credit hire charges. The principal financial reward was for the CHO, who was arguably the real instigator of the proceedings (at [93]-[95]). The CHO was in his view the ‘real party’ (at [96]).
Reliance was placed upon the terms of the credit hire contract as establishing the necessary degree of control justifying the making of the NPCO: HHJ Saunders noted (at [98]) that these terms obliged the claimant to pursue a claim for credit hire charges as part of the litigation, failing which the claimant would face adverse financial consequences.
HHJ Saunders considered further that there was no requirement for ‘but for’ causation; in accordance with the Court of Appeal decision in Turvill, he held that causation was “simply a factor in determining what is ‘just’” (at [100]).
Further, the presence of other heads of loss did not prevent the making of a NPCO: as long as the credit hire claim is a “substantial element of the claim” and where the credit hire agreement is entered into shortly after the accident, the claim may properly be regarded as having been initiated by, and as being a direct consequence of, the hire of the vehicle on credit hire terms, whether or not other claims might also be brought (at [101]).
HHJ Saunders found support for his conclusions on the making of a NPCO against DAML in CPR r.44.16(3) and PD 44 paragraph 12, which he interpreted as indicating that the CHO should pay appropriate costs in such circumstances (at [102]).
Finally, HHJ Saunders noted the importance of looking at the arrangements “in the round” to establish whether it is ‘just’ to make the order. The Judge took account (at [103]-[104]) of DAML’s business model, involving much higher rates of hire than the market ‘spot’ rate, substantial profits, and the contractual requirement on the claimant to pursue their claim for DAML’s own financial benefit, or face an unpayable financial burden. Taking this into account, he held that justice required DAML to bear the risk in the case, namely an order for costs against them (at [105]).
Commentary
This case is but the latest decision in a line of non-binding cases in which the Courts have been invited to make an order for costs against the CHO who is, to all intents and purposes, the instigator of and driving force behind the claim for credit hire charges. It is wholly unsurprising that insurance-backed defendants are increasingly seeking to recover costs against CHOs, given the limited alternative options for costs recovery, with claimants often being impecunious or having the benefit of QOCS protection.
Although HHJ Saunders took pains to make clear that the decision to order a NPCO is always fact-sensitive, he also acknowledged that his decision is likely to have ramifications beyond the facts of Pereira. Indeed, he described it as “telling” that both parties in Pereira had instructed leading Counsel for the purpose of the application, and further noted that his decision would be of some significance to the parties “as such arrangements are common, and by no means confined to companies like DAML” (at [3]).
Therefore, although not binding either by reason of the level of court in which it was heard or the fact-specific nature of the NPCO application, going forward significant reliance is likely to be placed upon this decision by defendants seeking NPCOs against CHOs.
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This article was written by 25 Canada Square Chambers Pupil Mark Erridge.