Credit Hire Companies Liable For Costs As Real Parties Under QOCS Exception

TESCHER V DIRECT ACCIDENT MANAGEMENT LIMITED & SPECTRA DRIVE LIMITED [2025] EWCA Civ 733

In Tescher v Direct Accident Management Limited and AXA Insurance v Spectra [2023] EWCA Civ, the Court of Appeal addressed non-party costs orders against credit hire companies where claimants, protected by Qualified One-Way Costs Shifting (QOCS), had failed in claims involving credit hire charges. The appeals concerned whether credit hire companies could be liable for defendants’ costs under CPR r44.16(2)(a) as persons for whose financial benefit claims were made, and whether they were the “real parties” to litigation under section 51 of the Senior Courts Act 1981. The court rejected a strict “but for” causation test, holding that the structure of credit hire agreements—where litigation was inevitable for recovery—established sufficient control and benefit to engage the jurisdiction. Distinguishing conditional fee agreements, the court found credit hire companies were the genesis of claims, with hire charges often dwarfing personal injury damages. Applying Farrell v Birmingham City Council [2009] EWCA Civ 769 and CPR r44.16(3), the court held such companies were properly subject to non-party costs orders, with quantum determined by proportionality. In Tescher, DAML was ordered to pay all costs given the hire claim’s dominance; in AXA v Spectra, 65% of costs were awarded against Spectra, reinstating the deputy district judge’s initial order. The judgment clarified that PD 44 para 12.5(a) ordinarily requires non-party enforcement where r44.16(2)(a) applies, absent special circumstances. Both appeals were allowed, establishing precedent for future credit hire cases under QOCS.

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.

Citations

Giles v Thompson [1994] 1 AC 142 A credit hire company may be liable for costs when a credit hire claim fails, as it is the instigator of litigation undertaken for its commercial benefit. Lagden v O’Connor [2004] 1 AC 1067 Where a claimant is impecunious, the full credit hire rate—despite being higher than spot hire rates—may be recoverable as damages, making credit hire companies primary financial beneficiaries of such claims. Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39, [2004] 1 WLR 2807 A non-party who controls litigation or stands to benefit from it substantially may be ordered to pay costs if it is just, even if they are not the only real party. Myatt v National Coal Board [2007] EWCA Civ 307 Non-parties significantly benefitting from or controlling litigation may be ordered to pay costs, even where the named claimant maintains a personal interest. Farrell v Birmingham City Council [2009] EWCA Civ 769 A credit hire company may be made liable for costs where it instigated, funded, and controlled proceedings initiated for its own commercial interests. Deutsche Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23 Courts have broad discretion to award non-party costs orders where it is just to do so, particularly where the non-party financed or directed the litigation. Excalibur Ventures LLC v Texas Keystone Inc [2016] EWCA Civ 1144 Commercial litigation funders may be liable for costs where they finance proceedings to obtain a financial return, even without controlling all aspects of the litigation. XYZ v Travelers Insurance Co Ltd [2019] UKSC 48 A non-party must have caused the incurring of costs and exercised sufficient control or received substantial benefit from litigation to justify a non-party costs order. Kindertons Ltd v Murtagh [2024] EWHC 471 (KB) A credit hire company that controls litigation through deferred hire arrangements and stands to profit from successful claims may be liable for costs if the claim fails.

Track allocation housing disrepair CPR 46.13 settlement sum costs restriction SCCO

MRO fee markup cap 25% detailed assessment personal injury Senior Courts Costs Office

Security for costs refused CPR 25.27 very high probability success excessive estimate King's Bench

IPEC scale costs transfer Patents Court PD 30 para 9.2 costs caps Court of Appeal

Costs budget variation CPR 3.15A promptness significant development unfair prejudice Chancery Division

Costs budgeting inter partes proportionality high hourly rates AI disclosure Patents Court CPR 3E

Beneficiary personal liability section 71(3) Solicitors Act 1974 indemnity costs VAT self-supply SCCO

Summary assessment indemnity costs unless order payment on account disclosure default Chancery Division

Provisional assessment set aside CPR 3.1(7) points of dispute filing duty PD 47 para 14.3 SCCO

Fixed recoverable costs police claims CPR 26.9(10)(e) intentional tort exemption

Key Points

A credit hire claim made in conjunction with a personal injury action constituted a claim made for the financial benefit of the credit hire company and thereby engaged the exception at CPR 44.16(2)(a), potentially exposing that company to a non-party costs order. [74–76, 81]
A credit hire company with a substantial financial interest in the outcome of litigation, who effectively controls or influences the pursuit of a claim by structuring deferred payment terms linked to the litigation’s resolution, may be treated as a real party for the purpose of a non-party costs order. [70, 76]
Establishing a causative link sufficient to justify a non-party costs order against a third party does not require strict application of a “but for” test; it is enough that the third party’s conduct was a real and material cause of the costs incurred. [55, 70–71]
The discretion to impose non-party costs orders under CPR 44.16(3) must be exercised justly, taking into account that where a claim has been brought for the financial benefit of a non-party rather than the claimant, an order for that party to pay costs will usually be appropriate. [45, 81]
Standard features of the credit hire model—such as deferred payment, pursuit of damages in the hirer’s name, and the economic reality of recovery through litigation—were generally sufficient to satisfy the requirements of causation, control, and financial benefit necessary to support a non-party costs order. [66–76]

"In my judgment there is no relevant analogy between lawyers acting on a no-win no fee basis and credit hire companies and I do not accept this submission. CFAs were introduced to improve access to justice and as Hodgson decides (at p1065F-G) the circumstances in which a lawyer acting under a CFA can be made personally liable for costs of the other party do not differ from those applicable to lawyers not acting under a CFA. The lawyer still owes the client the same duties they would owe absent a CFA and remains under the same duty to disregard his own interests in giving advice to the client and in performing their other responsibilities (Hodgson p1065B-C). The lawyer is not the genesis of the claim, the lawyer's fees are not the subject of the claim, and neither the CFA nor the lawyer acting under the CFA can or do expressly or in effect bind the claimant to pursue the claim. For these reasons, which are a summary of Mr Mallalieu KC's submissions on the point, comparing credit hire with lawyers on a no-win no-fee basis does not advance the respondents' case."

Key Findings In The Case

The credit hire companies—Direct Accident Management Ltd (DAML) and Spectra Drive Ltd—were found to be the real or principal beneficiaries of their respective claimants’ credit hire claims, satisfying the requirement that the claims were made for the financial benefit of a person other than the claimant under CPR 44.16(2)(a) [74–76, 84].
The contractual structure of the credit hire agreements, which deferred payment until resolution of the litigation and conditioned relief from immediate payment on the pursuit of a damages claim, was held to effectively render litigation inevitable and to place practical control in the hands of the credit hire companies [69–71, 73].
The courts found that in both cases the credit hire companies’ involvement was a real and material cause of the litigation costs incurred by the defendants, thereby satisfying the causation requirement for a non-party costs order without needing a strict “but for” test of causation [55, 70–71].
In the Spectra case, the judge at first instance inferred—based on evidence including corporate directorial overlap and the structure of the claims—that Spectra had day-to-day influence over claim strategy and continuation, including in response to settlement offers and discontinuance, even though the claimant acted in her own name [13–14, 84].
In the DAML case, the district judge’s findings that DAML had not instructed solicitors, was not copied into court documents, and was not overtly controlling the litigation, were held to be irrelevant in light of the underlying contractual arrangements that conferred effective control and financial interest upon DAML [82].

“In general terms a credit hire case is one to which r44.16(2)(a) applies (assuming of course it is brought alongside a PI claim to which QOCS applies and in which a costs order against the claimant has been made). That is because a claim for credit hire charges is a claim made for the financial benefit of a person other than the claimant. It also therefore follows that PD paragraph 12.2 makes an accurate statement about the application of rule 44.16(2)(a). Credit hire necessarily falls within that provision. In Mee v Jones (Select) at [38] Turner J made the point that the fact that r44.16(2)(a) applies does not mean a non-party costs order must follow. I agree, although as I have now explained such an order will be likely absent special circumstances, which is in effect what is provided for in paragraph 12.5(a).”

Background

These consolidated appeals concerned two road traffic accident cases where claimants had entered into credit hire agreements and subsequently brought proceedings that included claims for personal injury and credit hire charges. In both cases, the claims failed and costs orders were made in favour of the defendants. However, due to the operation of Qualified One-Way Costs Shifting (QOCS), these costs orders could not be enforced against the claimants. The defendants then sought non-party costs orders against the respective credit hire companies.

In the first case, Tescher v Direct Accident Management Limited, a motorcycle accident occurred on 19 November 2018. The claimant entered into credit hire agreements with Direct Accident Management Limited (DAML) and brought proceedings through solicitors Bond Turner. The claim included damages for personal injury and special damages of over £22,000, of which £19,633.36 related to credit hire charges for 88 days. The claimant pleaded impecuniosity. District Judge Swan dismissed the claim on 8 December 2022 and ordered the claimant to pay the defendant’s costs, subject to QOCS protection. The judge directed DAML be joined as a second defendant for costs purposes.

District Judge Jeffs subsequently heard the defendant’s application for a non-party costs order on 10 May 2023. Evidence was filed including documents showing DAML and Bond Turner were part of the Anexo group, which described itself as focused on providing replacement vehicles and legal services to impecunious customers involved in non-fault accidents. DJ Jeffs dismissed the application, finding DAML was not the “real party” and that causation had not been established. Permission to appeal was granted and the matter was transferred to the Court of Appeal.

In the second case, AXA Insurance v Spectra, an accident occurred on 23 October 2019 resulting in the claimant’s vehicle being written off. The claimant entered into a credit hire agreement with Spectra Drive Limited on the day of the accident. Liability was admitted on 28 October 2019, but the hire continued for 89 days. Proceedings were commenced against AXA Insurance under the European Communities (Rights against Insurers) Regulations 2002, claiming general damages for personal injury (unlikely to exceed £3,800) and special damages of £16,160.94, predominantly credit hire charges.

AXA made a Part 36 offer of £2,750 for the personal injury claim only on 18 November 2020. On 25 May 2021, AXA’s solicitors highlighted that the claimant had insured another vehicle within 10 days of the accident and threatened to plead fundamental dishonesty. The claimant discontinued on 28 May 2021, resulting in the usual costs order under CPR r38.6(1), subject to QOCS.

AXA applied for two orders: setting aside QOCS protection on grounds of fundamental dishonesty and a non-party costs order against Spectra. Deputy District Judge Carson found no fundamental dishonesty but initially awarded 65% of AXA’s costs (£3,432) against Spectra. On appeal, HHJ Gargan overturned various findings and refused the non-party costs order, noting AXA’s “good fortune in escaping a judgment and costs” as a factor against making such an order. He suggested general guidance would be welcome given the frequency of credit hire cases.

Costs Issues Before the Court

The central issue before the Court of Appeal was whether and in what circumstances non-party costs orders should be made against credit hire companies when credit hire cases fail and the claimant is protected by QOCS. This required the court to consider the interaction between the QOCS regime introduced in 2013 and the established principles governing non-party costs orders under section 51 of the Senior Courts Act 1981.

The court needed to determine whether credit hire companies could be characterised as “real parties” to the litigation or persons for whose financial benefit claims were made within the meaning of CPR r44.16(2)(a). This rule provides an exception to QOCS where proceedings include a claim made for the financial benefit of a person other than the claimant, and r44.16(3) expressly contemplates non-party costs orders in such circumstances.

A crucial subsidiary issue was causation – whether the credit hire companies’ involvement had caused the defendants to incur costs they would not otherwise have incurred. This included examining the nature and extent of control exercised by credit hire companies over litigation and whether a strict “but for” test applied.

The court also had to consider the proper approach to exercising discretion when the jurisdiction for non-party costs orders was engaged, including questions of attribution between different elements of mixed claims (personal injury and credit hire) and what proportion of costs should be ordered against the credit hire company.

The Parties’ Positions

The appellants (the defendants in the original proceedings) contended that non-party costs orders should have been made against both credit hire companies. They argued that the credit hire companies were the real beneficiaries of the litigation relating to hire charges and exercised sufficient control over the proceedings through the structure of their agreements. They submitted that the inevitability of litigation flowing from credit hire agreements with impecunious claimants satisfied the causation requirement.

The appellants relied on Farrell v Birmingham City Council [2009] EWCA Civ 769, where a non-party costs order was made against a credit hire company, arguing this established the principle in the credit hire context. They contended that Lord Mustill’s observation in Giles v Thompson [1994] AC 142 about “healthy discipline” through costs orders supported their position. They also argued that CPR r44.16(2)(a) and Practice Direction 44 paragraph 12.2 specifically identified credit hire as an example of claims made for another’s financial benefit.

Regarding the Spectra case specifically, the appellants submitted the judge erred in relying on AXA’s “good fortune” in obtaining a costs order following discontinuance, citing Nelson’s Yard Management Company v Eziefula [2013] EWCA Civ 235 that potential success at trial does not justify departing from the usual costs consequences of discontinuance.

The respondent credit hire companies argued that credit hire claims were legitimate claims by claimants, validated by Giles v Thompson and Lagden v O’Connor [2003] UKHL 64. They contended they were not the “real party” as they had no direct right to damages and the claimant retained a genuine legal liability for hire charges. They submitted that any benefit they derived was consequential rather than direct.

The respondents argued there was no principled distinction between credit hire companies and solicitors acting on conditional fee agreements, neither of whom face non-party costs orders in ordinary circumstances. They challenged Practice Direction 44 paragraph 12.2 as wrong and without legislative force. On causation, they argued for a strict “but for” test, submitting the defendants would have incurred similar costs defending the personal injury claims regardless of the credit hire element.

In the Spectra case, the Respondent’s Notice challenged the judge’s findings that Spectra was the principal beneficiary and primary cause of the litigation, arguing these conclusions were incorrect even without the “good fortune” point.

The Court’s Decision

The Court of Appeal allowed both appeals and made non-party costs orders against the credit hire companies. Lord Justice Birss, giving the leading judgment, established comprehensive guidance for future cases involving non-party costs applications against credit hire companies in the QOCS context.

The court held that credit hire companies in these circumstances satisfy the “real party in all but name” test. The essential characteristics of credit hire agreements – hire on credit with payment deferred until conclusion of damages claims – combined with claimants’ alleged impecuniosity made litigation inevitable for all practical purposes. The court found this created sufficient control over the litigation and established the necessary causation, as litigation was the only realistic means by which credit hire companies would be paid.

On the interpretation of CPR r44.16(2)(a), the court confirmed that credit hire claims are made for the financial benefit of a person other than the claimant. While QOCS was introduced to protect claimants in personal injury claims, it was not intended to protect non-parties for whose financial benefit claims were made. The court noted that r44.16(3) expressly contemplates non-party costs orders in these circumstances.

The court rejected the respondents’ analogy with solicitors acting on CFAs, distinguishing that solicitors are not the genesis of claims, their fees are not the subject of claims, and CFAs do not bind claimants to pursue claims. Credit hire companies, by contrast, were found to be the real beneficiaries of litigation for hire charge damages through the structure of their agreements.

Regarding causation, the court rejected a strict “but for” test, holding that the inevitability of litigation flowing from the credit hire agreement structure was sufficient. The court stated it was unnecessary to consider whether costs would be higher without the credit hire element, as such questions were better addressed at the stage of determining quantum.

The court proposed a two-stage approach for future cases: first, determining whether the non-party costs jurisdiction is engaged, and second, deciding the appropriate amount. Where credit hire claims are several times larger than personal injury claims, an order for all costs would likely be appropriate absent special circumstances.

In the DAML case, the court found the judge’s conclusions on the “real party” test and causation were incorrect. The court ordered DAML to pay all the defendant’s costs, given the credit hire charges were several times larger than the personal injury damages.

In the Spectra case, the court dismissed the Respondent’s Notice and found the judge correctly identified Spectra as the principal beneficiary. However, the judge’s reliance on AXA’s “good fortune” was held to be an error. The court reinstated the Deputy District Judge’s original order requiring Spectra to pay 65% of AXA’s costs.

The court emphasised that PD 44 paragraph 12.5(a) provides that when r44.16(2)(a) applies, courts will usually order the other person to pay costs, while it will only be exceptional to permit enforcement against the claimant. This guidance aligned with the court’s analysis that non-party costs orders against credit hire companies would be likely absent special circumstances.

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