This is a Court of Appeal case on Third Party costs (specifically against credit hire companies) which has been widely reported.
Costs can be at the heart of any civil case and credit hire cases are no different. After nearly a generation of “war” between credit hire companies and defendant insurance, we have yet another case in this long running war.
This article will discuss this case in the following way:
1. Summary of the county court cases being appealed to the Court of Appeal. and
6. Conclusion
There were two cases under appeal both being heard together.
In Tescher v Direct Accident Management Limited (Daml). There was a claim for personal injury and special damages – 85% of the special damages comprised of credit hire charges. In the County Court, the District Judge dismissed the claim and ordered that the claimant pay the defendant costs, not to be enforced without leave of the court (the usual Qualified One-Way Costs Shifting, QOCS order). He also gave directions for the resolution of an application of a non-party costs order against the hire company. At a further hearing, another District Judge dismissed the application for non-party costs order against the hire company as (1) he was not satisfied that the hire company was the “real party” and (2) further the claimant had not established causation, that is it had not been proven that the hire company had caused costs to be incurred which would not have been otherwise.
In Axa Insurance v Spectra. There was a claim for personal injury and special damages – the bulk of the special damages comprised of hire charges. The claimant discontinued the claim. The usual costs order followed, namely that the claimant pay the defendant costs, not to be enforced without leave of the court. There was an application for setting aside QOCS on the grounds of fundamental dishonesty. There was also an application for a costs order against hire company which came before a Deputy District Judge. The claimant was found not to have been fundamentally dishonest. The Deputy District Judge however made an order that the hire company pay 65% of the defendant's costs. This was appealed to a Circuit Judge who allowed the appeal. He found that the hire company had sufficient control over the litigation as it was likely to have been consulted and to have determined whether to accept any offer or payment from AXA for credit hire. The judge concluded that the hire company was the “principal beneficiary” of the proceedings. On the issue of causation, the judge decided that up to a point (to the point whereby the defendant had made a Part 36 offer on personal injury only) the hire company was “...at least a cause of the costs incurred…” by AXA and thereafter the “…primary cause of AXA’s costs...”.
The Circuit Judge held that if the matter had proceeded to trial, the claimant would have succeeded in part and but for the discontinuance, AXA would have to bear its own costs and pay the claimant’s costs. This was referred to as the “good fortune” of AXA and was a factor which suggested that it would not be “just” to make a costs order against the hire company.
At the outset of the judgment by the Court of Appeal, it was made very clear as to the precise question they were seeking to answer, namely:
“If a credit hire case fails, when and in what circumstances should the non-party credit hire company be made liable for the defendant's costs?”
The above is an extremely wide question. However, it is important to note that these questions were in the context of two cases where there was in addition to the hire claim, a personal injury claim and therefore the QOCS provisions applied. These cases did not involve a standalone claim for credit hire which do not have QOCS provisions. So, despite the wide question posed by the Court of Appeal, the area it covers may not be as wide as it appears at first blush. The judgement essentially covers the situation where the claimant has lost the trial, but as it's a QOCS case the defendant does not have any real prospects to obtain any costs as the order in their favour is not enforceable without the leave of the court.
(e) This clear exception to QOCS (as mentioned in paragraph (d) just above) can manifest itself in two ways, namely the person for whose financial benefit the claim was made may have to pay for the legal costs (in this case it would be the hire company) or the claimant may lose their QOCS protection [as per Practice Direction 44, paragraph 12.5 (a)]. But the difference between the person for whose financial benefit the claim was made (in this case it would be the hire company) and the claimant is that in the former case the court will “usually” order that person to pay the costs, whereas in the latter case they may only “exceptionally” order the enforcement of the order of costs against the claimant - Practice Direction 44, paragraph 12.5 (a) (as confirmed in paragraph 44 of the judgement). This situation only reflects the fact that the QOCs was introduced only to protect a claimant in personal injury claims, not to protect non-parties (as per paragraph 45 of the judgement).
(f) There was a large focus by Lord Justice Birss that credit hire claims are brought on the basis that the claimant is “impecunious” and in this regard, Lagden v O’ Connor [2003] UKHL 64 was cited which established that credit hire rates can be recovered in this situation. I will come back to this point later in the article.
(g) It was made clear that for a non-party costs order to be made against a credit hire company, the credit hire company does not have to be the only party but only a “real party” (paragraphs 53 and 54 of the judgement). This was stated in the context of the House of Lords case of Giles v Thompson [1994] 1 A.C. 142, which made it clear that the claimant in a credit hire claim had a “real liability” and a “real loss” (referred to in paragraphs 20 and 21 of the judgement of Tescher). So, a non-party costs order can be made against a credit hire company, even though there are two “real” parties, namely the claimant and the credit hire company.
(h) There was some discussion of paragraph 2 of the Practice Direction 44 which stated that examples of claims made for the financial benefit of a person other than a claimant include “...claims for credit hire...”. This paragraph was referred to by the respondent as “…divisive…” and “…wrong…” - it was pointed out practice directions have no legislative force if they contain statements of law that are wrong (paragraph 41 of the judgement). Lord Justice Birss thought that the paragraph 12.2 was “unsurprising” (paragraph 41) and as the paragraph was made at the same time as the rule, it might be a “…legitimate aid to the rules interpretation…” - (paragraph 42). But he stated that there had not been a “full argument” on the issue and therefore no account was taken of this paragraph in his decision.
(i) Causation was an “important aspect” of what was needed to be proved (paragraph 55 of the judgement). Any suggestion by the appellant that causation only applied to “intermeddler” cases and did not apply to “real party cases” was rejected by the Lord Justice Birss (paragraph 55 of the judgement).
(j) The Court of Appeal stated whilst the “...only immutable principle is to do justice...” some principles can be “...pulled together...” - (paragraph 65). Lord Justice Birss stated: “While the overall decision can always be made in the round, I suggest 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 on the amount of costs. In other words, the first stage involves examining if the non-party costs jurisdiction is engaged, while the second stage looks at what a just costs order would be, including questions of attribution.” - paragraph 66.
(k) For the “first stage” (on whether a costs order should be made against the credit hire company) Lord Justice Birss took account of the following factors to be considered, namely:
(i) the obvious point that this was a QOCS matter with costs made in the defendant favour and yet the claimants are protected on costs, as its not enforceable without leave of the court (paragraph 67);
(ii) there is an allegation that the claimant is impecunious. This is important as the hire company cannot expect to realistically recover the credit hire charges from the claimant (paragraph 68);
(iii) the terms and conditions of the credit hire contracts. In both cases the terms amounted to a “hire on credit with deferral by reference to an action for damages are the essential characteristics...” - paragraph 69. In the DAML contract, the claimant was explicitly required to a pursue a claim for hire charges. In the Spectra contract there was no explicit term as such, but the deferral of the hire charges was conditional upon a pursuit of the claim for damages against the third party (paragraph 70). So, in both cases “Litigation (including settlement) is the only realistic means by which the credit hire company will be paid for the hire.” - paragraph 70. This fulfilled the condition of causation (paragraph 70);
(iv) the requirement of causation did not require the “but for” test – “...it is not necessary to consider whether, but for the credit hire claim, the costs would be any higher than the costs of the PI claim” - paragraph 71. `The “but for” test “generally breaks down when there are multiple causes” (paragraph 71) and in these cases there were also personal injury claims.
(l) In summary Lord Justice Birss states: “The elements I have described together are enough for a court to conclude that absent some reason why not, when a claimant has been ordered to pay costs and QOCS applies, a non-party costs order against the credit hire company is likely” - paragraph 74.
(m) Lord Justice Birss also stated that “...it is the credit hire company which is the real beneficiary of the litigation for the damages in respect of charges for credit hire.” - paragraph 74. He stated, “Therefore these credit hire companies satisfy the real party in all but name test.” - paragraph 76.
(n) In relation to the real party test, Lord Justice Birss also stated (paragraph 39), “I must say I can see scope for an argument that the right approach to the exercise of the s51 jurisdiction in a QOCS case under CPR Part 44 might be simply to start by applying the rule, asking whether the proceedings include a claim which is made for the financial benefit of a person other than the claimant, rather than (for example) seeking to fit the non-party into an existing category such as an intermeddler or "real" claimant. It may not make any difference in the end and in the light of the way the case has been put I will not pursue that further.”
(o) If the first stage is satisfied, then one gets to the second stage, namely the amount of the costs. The second stage was described in the following way in paragraph 77: “Having found that the jurisdiction is engaged, the second step is to consider what the appropriate costs order would be. No doubt there are others but three obvious possibilities are: 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. 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.”
(p) The appeals were allowed.
So, I have been through the “legal jargon”. But in simple terms, what does this actually all mean? I will summarise it in the following way:
(a) Costs orders being made against credit hire companies derives from primary legislation, namely s51 of the Senior Courts Act.
(d) For this purpose, the QOCS regime has introduced exceptions in CPR 44 to allow enforcement of the costs in certain circumstances. One such exception is when a claim is made for the “financial benefit of a person other than the claimant...”. The Practice Direction 44 (para 12.2) gives an example of a credit hire claim as being for the financial benefit of another. The Court of Appeal did not use this paragraph of the PD to conclude that a credit hire company fell under the criteria of “…financial benefit of a person other than a claimant…”, albeit in any event it interpreted “financial benefit of a person other than a claimant” to include a credit hire company.
(e) So, a fair interpretation of Tescher is that credit hire companies come within the definition of “…a person other than a claimant...” for which a claim is made for their “financial benefit”.
(f) However, it is not enough that a credit hire company comes within the definition of being that other person for “whose financial benefit the whole or part of the claim was made”. Firstly, permission is required under CPR 44.16 (2). Further the word “may” make an order for costs against another person is used in CPR 44.16 (2) (a). The word “shall” is not used. Albeit if the hire company has a financial benefit from the claim, then PD 44, para 12 (5) (a) states that an order for costs will “usually” be made – this is something the Court of Appeal specifically mentioned. Nevertheless, there is a discretion to be exercised here.
(g) Lord Justice Birss puts forward a two-stage test, which can be simply explained as follows:
(i) should an order for costs be made?
(ii) if an order should be made, then what is the amount of costs that a hire company should pay?
(h) The only principle is to do justice in the exercise of the discretion. For the first stage of the test, the Court of Appeal referred to number of factors to be considered to assist on whether it was “just” to make a costs order against the credit hire company, though I presume these are not the only factors that can be considered. The factors advocated by the Court of Appeal are the following:
(i) it needs to be taken into account that whilst the claimant has not succeeded at the trial, yet the costs orders are not enforceable without leave of the court;
(ii) as credit hire claims are often predicated on the basis that the claimant cannot afford to hire and therefore s/he requires the hire of a vehicle on credit, the only way that the credit hire company in practical terms can recover this debt is through litigation or settlement of the case – this is clear through the terms and conditions of the credit hire agreements. This fulfils the causation test and a “but for test” is not required for causation. A “but for” test would mean having to prove that the costs were higher due to the credit hire claim, – a “but for test” is not the test of causation in these types of cases. The test of causation is understood in a more general sense, namely the only way the credit hire company is going to get its money is through litigation or settlement. The “but for” test are best addressed at the “second stage” when deciding on the amount of costs.
(i) In effect the credit hire company is the “real beneficiary” of the claim for credit hire. In that sense the credit hire company is a “real party”.
(j) The Court of Appeal had also confirmed that there can be more than one party and therefore it does not matter that the claimant is also a real party. The test is not whether the credit hire company is the real party” but whether it is a real party.
(k) Lord Justice Birss also flirted with the idea that one did not even need to decide whether the non-party (in this case the credit hire company) was in an “...existing category such as an intermeddler or a "real" claimant” (paragraph 39) and the jurisdiction under s51 Seniors Act could simply be exercised by applying the rule under CPR 44. But he did not take that option due to the way the case was put – paragraph 39. So, the Court of Appeal speculated on the idea of a short cut, going straight to CPR 44 without even having to place a credit hire company within a category of a “real party”. But in the end the Court of Appeal did not do that and decided that the credit hire company was indeed a “real party” in the cases before them.
(l) Where a claimant has not succeeded at trial and a costs order is made subject to QOCS, then absent some reason, a cost order should be made against the credit hire company. This ties in with Lord Justice Briss's analysis that the PD 44 basically states that where the there is a financial benefit for someone else, then that someone else will “usually” be ordered to pay the costs. The QOCS protects only claimants.
(m) If the court decides that a costs order should be made against the credit hire company, then if the credit hire claim is “several times” larger than the personal injury claim, then the credit hire company can expect to be ordered to pay the full costs, absent some “special” feature in the case.
(n) Where the credit hire is not several times larger than the personal injury claim, then the court will also have options of looking at the size of the credit hire claim compared to the personal injury and make an apportionment based on this, or make a costs order based on the additional costs of the credit hire litigation as compared to without it.
Interesting points arising from the judgment by the Court of Appeal
There are some very interesting points in my view. I would summarise them in the following way:
(1) A clear focal point of the Court of Appeal was that as the claimant is impecunious, the only realistic chance of recovering the debt was if there was litigation (or settlement) as the claimant was unable to afford to pay the hire company. But what if the claimant was pecunious? I have come across many cases where the pleadings state from the outset that impecuniosity is not being pleaded. Not all credit hire cases involve a plea of impecuniosity. What effect would this have on the discretion of the court?
(2) The terms and conditions of the credit hire companies contracts were instrumental as to how the discretion was exercised against the hire companies, as it showed:
(i) the credit hire companies were in control and (ii) closely connected to (i) was that this control fulfilled the test of causation.
(3) But what if terms and contracts in future credit hire contracts were changed? I can certainly think of different terms and conditions that may have an impact! To understand credit hire, you must understand its history. In Dimond v Lovell [2002] 1 A.C. 384, the House of Lords found the terms and conditions of the contract made the agreement unenforceable and there was no real way around it. Of course, credit hire companies then going forward ensured that the terms and conditions were amended to make them more watertight. Something similar could happen, if this judgement in Tescher is not overturned.(4) This case only applies to a QOCS case where the claimant has lost but the cost order is not enforceable without leave of the court. But will it tempt defence to ask for a costs order against the credit hire company in stand-alone credit hire cases, where there is no personal injury? It's something worth thinking about.
It's an interesting decision. Whilst it holds out that it is still a matter of discretion for the court as to whether a costs order will be made against a credit hire company on a QOCS case, in effect it seems to weigh all the factors against the credit hire companies. There seems to be a presumption that in a QOCS case where the claimant has lost and there is a costs order which is not enforceable without leave of the court, that a costs order will be made against the credit hire company, unless some reason can be shown why not to make one.
If the decision remains, then one side may be joyous. However, that may be a premature celebration. The “secular credit hire wars” having been going on for a generation now. I do not believe this decision will help in ending this war. Dimond v Lovell decided that the agreement was unenforceable, and all the various arguments put before them did not change the situation. However, after Dimond v Lovell, the terms and conditions became more watertight than ever. There is in my view nothing to stop credit hire companies from carefully looking at the terms and conditions going forward.
It should not be forgotten that for an application for non-party costs order to even be an option for a Defendant, the Claimant has to lose in court. My understanding is that only a very minimal amount of cases ever find their way to court and with careful risk management and good case planning, there can be more success than failure for claimants.
I hope this article has provided some clarity to a much-discussed decision.
Please note this article does not constitute legal advice for any specific case or cases.
© Mohammed Azeem Ali 2025