The Court of Appeal holds that non-party costs orders (NCPOs) can be imposed against credit-hire companies when credit hire claims fail.
In the case of Yehuda Tescher v Direct Accident Management Limited and AXA Insurance UK PLC v Spectra Drive Limited [2025] EWCA Civ 733, the Court of Appeal has provided guidance as to when NPCOs can be imposed against credit-hire companies.
Both cases arose from road traffic accidents where the claimants brought a claim for damages for personal injury and credit hire costs. The claims were unsuccessful, and the claimants were ordered to pay the defendants’ costs, not to be enforced without permission of the court pursuant to the Qualified One-Way Cost Shifting regime (QOCS).
At first instance in the case of Tescher, the matter went to trial at the County Court and the claim was dismissed. DJ Swan directed that the claimant pay the defendant’s costs, as per the QOCS regime. DJ Swan also directed that Direct Accident Management Limited (DAML) be joined as second defendant for the purposes of costs and gave directions to facilitate resolution of an application for a NPCO.
The application by the first defendant (Tescher) was heard before DJ Jeffs. The first defendant’s solicitors (Bond Turner) exhibited evidence of a number of documents from DAML, including a prospectus for the Anexo group (of which DAML and Bond Turner were members) which described the group as “an integrated credit hire and legal services group focused on providing replacement vehicles and associated legal services to impecunious customers who have been involved in a non-fault accident.”
DJ Jeffs dismissed the first defendant’s application for an NPCO against DAML on the basis that DAML was the “real party” and that the first defendant had not established causation. The first defendant sought permission to appeal which was granted.
In the case of AXA Insurance v Spectra, the driver had been involved in a car accident. Her car had been written off and she had entered into a credit hire agreement with Spectra. Liability for the accident was admitted by AXA, the defendant’s insurers. The claimant’s solicitors (DGM) commenced proceedings against AXA. The claim included general damages and special damages, the majority of which was in relation to credit hire charges.
The defendant’s solicitors subsequently argued that the claimant had insured another vehicle within 10 days of the index accident and therefore her assertion that she needed a hire car was false as she had an alternative vehicle available to her. They demanded that the claimant discontinue her claim or face a plea of fundamental dishonesty, one of the exceptions to the protection of the QOCS scheme.
The claimant discontinued her claim, explaining that she had done what her solicitors had “told her” to do. The subsequent costs order under CPRr38.61 followed, that the claimant pay the defendant’s costs subject to QOCS.
AXA subsequently brought an application for two orders – the first setting aside QOCS protection on the grounds of fundamental dishonesty and the second for a NPCO against Spectra.
The DDJ hearing the applications decided that the claimant had not been fundamentally dishonest. In relation to costs, an order was made in the defendant’s favour requiring Spectra to pay 65% of the defendant’s costs under s.51 of the Senior Courts Act 1981.
On appeal to HHJ Gargan, the judge refused the defendant’s application for an NPCO against Spectra, concluding that Spectra was the principal beneficiary of the proceedings throughout. Whilst there were some factors which distinguished this case from a standard credit hire claim and militated in favour of a NCPO, what the judge had called AXA’s “good fortune in escaping a judgment and costs”, was a factor which suggested that it would not be “just” to make an NPCO against Spectra.
HHJ Gargan also suggested that it would be helpful to have “clear guidelines on this issue for judges dealing with credit hire cases.”
In relation to the conjoined appeals, at paragraph 19 of the judgment, LJ Birss stated
“There are different strands of law to examine. I found the best approach was to work essentially in chronological order.”
Thereafter LJ Birss set out case law in relation to credit hire in general, and the law in relation to NPCOs, the starting point of which is s51 of the Senior Courts Act 1981. LJ Birss then proceeded to review the case of Farrell v Birmingham City Council, a case concerning a NPCO in a credit hire case and the changes to the costs regime in 2012, namely QOCS.
At paragraph 65 of his judgment, LJ Birss set out guidance applicable to NPCOs in credit hire cases to assist judges in determining these types of applications in credit hire cases in future. He suggested that
“in most cases in the credit hire context it would be convenient to approach the exercise of the discretion in two steps, first by asking whether in the circumstances a non-party costs order of some kind against the credit hire company should be made, and second, if so, then deciding the amount of costs.”
At paragraph 70, he stated that the requirement for causation at the first stage of the exercise was satisfied by the fact that in both the DAML and Spectra cases, the “deferral arrangements in both cases, connected as they are to a claim for damages by the hirer against the third party who caused the accident, coupled with the alleged impecuniosity of the claimant, combine to make litigation (or its settlement) inevitable for all practical purposes. Litigation (including settlement) is the only realistic means by which the credit hire company will be paid for the hire.”
It therefore followed that the credit hire agreement for which the credit hire company was responsible, was a fundamental cause of the defendant’s legal costs, thus satisfying causation.
In relation to previous cases which examined who did or did not appoint the solicitors in the claim, LJ Birss believed that this was likely to be irrelevant in these circumstances.
Paragraph 73:
“The relevance of who appoints the solicitor, in the context of a non-party costs order, would be to the question of control.” The credit hire company had “sufficient control of the litigation arising from the structure of the credit hire arrangements themselves, with the deferral of payment and the practical inevitability of litigation against the defendant or their insurers, or settlement with them.” This control did not have to be “absolute”.
Further, at paragraph 74:
“The elements 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 costs order against the credit hire company is likely.”
Thereafter, the second step was to consider the appropriate costs order to apply. He set out three possibilities as: i) an order for all the costs of the litigation; ii) an apportionment based on the sizes of the credit hire claim and the PI claim; and iii) an award of the extra costs attributable to the credit hire as compared to the litigation without it.
Further,
“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.”
In relation to DAML, LJ Birss held that it was the real beneficiary of the claim for damages for credit hire charges. At first instance, the judge’s conclusion that the “real party” test was not satisfied, was not right. The fact that DAML did not decide when to issue proceedings, that they were not given court documents, and that they were not informed of strategy or significant events, was irrelevant – they did not undermine the “tacit control” that DAML had over the litigation. Given that DAML’s charges were several times larger than the claimant’s damages for personal injury, LJ Birss ordered that DAML pay all of the defendant’s costs.
In relation to Spectra, and in relation to the refusal of a non-party costs order turning on AXA’s “good fortune”, the fact that a claim which was discontinued, would or might well have succeeded, did not justify a different order. LJ Birss restored the DJJ’s original order requiring Spectra to pay 65% of the defendant’s costs.
In conclusion, where a credit hire claim fails and a costs order is made in favour of the defendant against the claimant, courts are “likely, absent some special feature” to order a NPCO against the credit hire company.
Here at PIC, our experienced costs consultants can assist in relation to the criteria required to support a non-party costs order.
Allison Green, Costs Consultant
03.07.2025