News - QOCS and Non-Party Costs Orders

Costs - Fran McDonald

Background

In Select Car Rentals v Esure Services Ltd [2017] EWHC 1434 (QB) the trial Judge, Mr Recorder Grundy, found that a claimant seeking to recover credit hire charges had failed to prove even that a road traffic accident had occurred.

However, although the Recorder declared the claim ‘very suspicious’, he chose not to go further and make a finding of fraud. His decision to rely on the burden of proof in order to determine the claim was unusual, but it was one perfectly open to him, applying Re B [2009] 1 A.C. 11.

Recorder Grundy’s suspicion might not have come as a total surprise to those who attended the 3-day trial in the County Court at Liverpool, given:

  • the claimant’s admission that she had bought a replacement vehicle about nine weeks after the accident and so had no need whatsoever to continue accumulating any further debt under the agreement;
  • the claimant had admitted she had allowed her boyfriend to use the hire cars provided under the agreement, running up the enormous debt, until he was then involved in a further accident; and
  • the credit hire claim was for £23,456.85, where the pre-accident value of the vehicle was £1,710.

Although they had avoided paying damages, thanks to QOCS and the lack of a finding of fraud, Esure faced being left entirely out of pocket when it came to costs. Esure responded by seeking a costs order against the credit hire company directly.

Non-Party (aka Third-Party) Costs Orders

As most litigators know, CPR 46.2 allows orders to be made against non-parties. CPR 46.16 attempts to incorporate this principle into the QOCS regime, stating:

“[W]ith the permission of the court, and to the extent that it considers just, where:

(a) the proceedings include a claim which is made for the financial benefit of a person other than the claimant…(other than a claim in respect of the gratuitous provision of care, earnings paid by an employer or medical expenses)…

(b) the court may, subject to rule 46.2, make an order for costs against a person, other than the claimant, for whose financial benefit the whole or part of the claim was made.”

Esure invited the court to apply rules 46.2 and 46.12 and make a non-party costs order against the credit hire company, pointing out that PD44 12.2 specifically lists a credit hire claim as one where there is a claim for the benefit of a person other than the claimant.

Recorder Grundy turned to the case law on CPR 46.2 in determining the circumstances in which non-party cost orders should be made, rather than simply applying PD 44.16 and 44.12 as making a credit hire company liable for cost orders where the court considers it is just to do so.

Recorder Grundy held he should be guided by Deutsche Bank v Sebastian Holdings [2016] 4 W.L.R. 17. In Deutsche Bank the Court of Appeal had emphasised the width of discretion in making costs orders under CPR 46.2, but had stated:                                                 

“When an order for costs is sought against a third party, the critical factor in each case is the nature and degree of his connection with the proceedings…”

Noting that:

  • Select had retained its own solicitors, the same firm as the claimant;
  • Select had directly corresponded with Esure on the claims and liability;
  • Select's contract provided it with the right to deduct directly from the claimants’ damages for personal injury claims any shortfall in damages relating to Selects own credit hire claims against the hirer;
  • Select had required the claimant to give an irrevocable authority to provide it with any damaged vehicles’ engineering reports;
  • Select had the right to pursue an action in the claimants’ name; and
  • Select acted as claims managers, not just hirers, as evidenced by their pro forma letter heading, “Revolutionising the way your claims are managed”.

Recorder Grundy concluded that the claimant and Select were “absolutely locked together”. As a result, he ordered that it was just for Select to pay Esure's costs in the sum of £23,456.85.

Select appealed.

The Appeal

Turner J noted that the questions in the appeal had also been raised in “Costs Funding following the Civil Justice Reforms: Questions and Answers”, 3rd Edition:

“Whether the working of CPR 44.16(3) (and CPR 44 PD 12.5) is intended to and does in any way relax the established common law as to the circumstances in which a third party costs order is available is a moot point and will no doubt be argued in due course.”

The Judge, perhaps a little sardonically, observed that:

“Having thus raised the question, however, the authors, perhaps counter-intuitively given the name of their publication, declined thereafter to venture an answer.”

Turner J found that CPR 42.16 did not create a new regime, whereby it became easier for credit hire companies to be identified and penalised in costs where QOCS applied, as submitted by Esure.

There was no special ‘credit hire’ category, despite PD 44 12.2 specifically identifying claims for credit hire as claims made for the financial benefit of a person other than the claimant. PD 44.12 was in Turner J’s view wholly uncontroversial, and certainly not ultra-vires as Select had submitted.

The appellate court agreed with Recorder Grundy that the discretion for making a non-party costs order remained the same as before. Such orders would only be made where there it was a sufficient connection and it was deemed just to do so.

Nor was Turner J persuaded by Select’s submission that the Recorder had failed to sufficiently take into account that its practices and agreement with the claimant were standard in the industry.

Whilst non-party costs orders should only be made in ‘exceptional circumstances’, ‘exceptional’ only meant that the claim was deemed to be:

“outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense”

applying Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 W.L.R. 2807 (PC).

Even if Select were right that these were standard terms, there was no rule that the use of standard terms would give a party immunity from costs orders under CPR 46.2, which would be a fetter on the court’s discretion.

Nor did it matter that there was no evidence Select had actually sought to enforce the contractual provisions the Recorder had identified. Similarly, it did not matter that Select had monitored the litigation’s progress through its solicitors, rather than asking Esure direct.

Outcome

Turner J concluded that the Recorder had acted well within the ambit of his discretion and had made no error of law. Accordingly, the appeal was dismissed.

Tellingly, and rather worryingly for credit hire companies, Turner J added the following comment:

“In my view, [Select’s] objections lack sufficient force to undermine the Learned Recorder’s conclusions. What modest weight they may have is decisively counterbalanced by the other features in the case. He performed a careful balancing exercise and, in my view, reached a result which not only fell within the broad bounds of his discretion but one which I would probably have reached myself if, hypothetically, I had found some flaw in his approach which would have required me to exercise it afresh.” (emphasis added)

Credit hire companies can consider themselves duly warned.

© FRAN McDONALD, Old Square Chambers, 26 June 2017 

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