“SO OPENS ANOTHER CHAPTER IN THE CONTINUING WAR AGAINST OF FORENSIC ATTRITION BETWEEN MOTOR INSURERS AND CREDIT HIRE COMPANIES”: HIGH COURT JUDGE UPHOLD DECISION TO MAKE A NON-PARTY COSTS ORDER AGAINST CAR HIRE COMPANY

March 12, 2024 · by · in Appeals, Costs

I am grateful to barrister Stephen Bailey for drawing my attention to the judgment of Mr Justice Turner in Kindertons Ltd v Murtagh & Anor [2024] EWHC 471 (KB).  The judge upheld the decision to make a non-party costs order against a car hire company.   The judgment deals with many aspects of the award of non-party costs, in particular in relation to “control” of litigation.

 

“There is a danger that the concept of “control” is wrongly treated as if it were a traffic light, governing access to the exercise of court’s discretion to make a non-party costs order, which is showing either red or green. Control is almost invariably a matter of degree. As a concept, it is relevant to the extent that, 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 making a NPCO.”

THE CASE

The claimant had brought an action for damages following an accident. The cost of repairs was £2,543.80.  He entered into an agreement with Kindertons to hire a car at the rate of £345.08 a day.  A claim was brought for repair costs and the hire charges.  The action failed at trial, the judge finding that the claimant had been fundamentally dishonest and that the damage to the vehicle was not caused by the accident.  The claimant was ordered to pay the defendant’s costs of £12,000.

THE NON-PARTY COSTS ORDER

The claimant “disappeared from forensic view”.  The defendant then applied for a non-party costs order against Kindertons.  The matter was listed before a Recorder who was not the trial judge.  The Recorder found that the claim included a claim which was made for the financial benefit of Kindertons. He awarded Esure 80% of their costs against Kindertons.

THE UNSUCCESSFUL APPEAL

Kindertons appealed.

THE JUDGMENT ON APPEAL

GROUND ONE

The judge was wrong to conclude that the appellant had a financial benefit in the litigation such as to found a non-party costs order

 

    1. This is a brave contention; not least because it was not fully articulated below.

 

    1. In common with credit hire companies generally, the whole purpose of Kindertons providing credit hire facilities is to make a commercial profit out of the client’s legal claim. In cases of accidents involving impecunious parties, the provision of such facilities is capable of providing a fair and useful mitigation of the difficulties which would be faced by claimants unable to afford to pay the lower Basic Hire Rate [BHR] up front.

 

    1. As Ritchie J observed in Amjad v UK Insurance Limited [2023] EWHC 2832 (KB):

 

“58. In CHC [Credit Hire Company] charges claims the claimant can only recover damages if he has a lawful and sufficiently drafted contract so that he has a contractual debt to the CHC which is recoverable from the defendant in the proceedings, albeit deferred. Therefore, by definition the claimant has some interest in succeeding to alleviate that potential debt. However, the CHC has a far stronger interest in the success of the CHC charges claim because all the money awarded will end up with the CHC. The whole of the financial benefit in money terms goes to the CHC. All the claimant will achieve, should the head of claim be awarded, is to be relieved of any residual liability to the CHC. I bear in mind that the claimant’s liability is partly illusory, because in most or many of such arrangements there is a tacit agreement that the CHC will not enforce against the (generally impecunious) claimant if the legal claim is lost. Often CHCs insure against losing the subrogated claims so suffer no loss themselves and do not charge the claimant.

59. In my judgment the words “for the benefit of the claimant” are to be construed in accordance with their normal and usual meaning in the context of the rule in which they were used and the funding background. The rules are designed to give access to justice to claimants by QOCS protection, due to the absence of Legal Aid and the qualified OCS protection that provided. The QOCS protection is qualified by a cap upon enforcement which protects the claimant’s money and property and permits enforcement only against damages and interest awarded in the PI claim (and in later cases costs as well). The lifting of the cap in r.44.16(2) is constrained by the “who benefits?” test in relation to the claims. Sub-paragraph (a) relates to all heads of claim and sub-paragraph (b) only relates to non PI heads of claim. The “who benefits” test is used to trigger gateway (a) “or” (b). The rule does not say (a) “and/or” (b). The test of “who gains the benefit?” is common to both options: (a) and (b). These sub-sections open gateways to determine against whom the Courts are permitted to enforce costs. If a non-party is gaining the benefit then gateway (a) is open against the non-party. If the claimant is benefitting then gateway (b) is open and the claimant is the target of the above cap enforcement, but only in relation to the costs of the non PI heads of claim.”

    1. He went on to explain:

 

“61. …So, retuning to CHC charges, at one end of the scale is the claimant who has paid the CHC charges (unlikely though that may be), then the whole benefit of the award for CHC charges is going to the claimant and (b) applies. At the other end is the claimant who has not paid the CHC charges and although stated as liable under the CHC contract that liability is or may be illusory or technical, because the reason for choosing a CHC vehicle was the claimant could not afford to hire one at the BHR. In my judgment the correct interpretation of who benefits at this end of the scale is that this is an (a) case not a (b) case. The award will go to the CHC. If the claimant has paid nothing to the CHC and, despite the passage of years since the vehicle was returned, the CHC has not enforced the charges, or if the CHC has tacitly agreed not to enforce the charges unless and until the claimant wins damages, then there is no real benefit to the claimant in the claim for CHC charges.”

    1. In this case, Kindertons stood to gain substantially from the claim brought in Mr Ibrahim’s name. The price of the services which they provided under the contracts with Mr Ibrahim very significantly exceeded the value of the personal injury and “undocumented miscellaneous expenses’ claims” brought by him and his wife, even if they had been fully made out. The transcript of the telephone conversation with Rachel makes it clear that Mr Ibrahim was led to believe that he would not be expected to pay a penny under the contract. The bill would be footed entirely by Esure.

 

    1. It follows that Kindertons had a very strong financial stake in the litigation and that any benefit to Mr Ibrahim in pursuing the claim for hire charges was all but illusory.

 

GROUND TWO

There was no proper basis for the judge’s finding that the appellant controlled the litigation.

    1. There is a danger that the concept of “control” is wrongly treated as if it were a traffic light, governing access to the exercise of court’s discretion to make a non-party costs order, which is showing either red or green. Control is almost invariably a matter of degree. As a concept, it is relevant to the extent that, 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 making a NPCO.

 

    1. As the Court of Appeal held in Deutsche Bank AG v Sebastian Holdings [2016] 4 WLR 17 at para 62:

 

“We think it important to emphasise that the only immutable principle is that the discretion must be exercised justly. It should also be recognised that, since the decision involves an exercise of discretion, limited assistance is likely to be gained from the citation of other decisions at first instance in which judges have or have not granted an order of this kind.”

    1. On the facts of this case, there was a high degree of control. The contractual terms identified above tied Mr Ibrahim into bringing a claim and continuing it at the risk of incurring serious financial consequences in the event that he were to fail to comply. It matters little, if anything, that such consequences were not, in the event, visited upon Mr Ibrahim. It is the threat and not the execution of repercussions which forms the usual basis for control.

 

    1. Furthermore, within only two days of the accident, Rachel was encouraging Mr Ibrahim to hire a vehicle from Kindertons on credit hire rates at no cost to him and, importantly, directing him not to engage with Esure. This was presented to Mr Ibrahim on the basis that any such engagement might prejudice his interests but, in reality, I am satisfied that any engagement with Esure risked compromising the interests of Kindertons who thus wished to choreograph the progress of the litigation to preclude this.

 

GROUND THREE

The judge wrongly failed to consider causation

    1. Kindertons contends that in the circumstances of this case, Esure cannot establish by the application of a “but for” test that Kindertons’ involvement resulted in Esure incurring more costs in the litigation than they would have done in any event.

 

    1. In Total Spares v Antares [2006] EWHC 1537 (Ch) Richards J held:

 

“54. …it cannot in my judgment any longer be said that causation is a necessary pre-condition to an order for costs against non-party. Causation will often be a vital factor but there may be cases where, in accordance with principle, it is just to make an order for costs against a non-party who cannot be said to have caused the costs in question.”

    1. In Turvill v Bird [2016] EWCA Civ 703 Hamblen LJ endorsed this approach:

 

“69. Mrs Toman submitted that there had to be causation in the strict legal sense of a loss to the Claimant of that or any identifiable sum before a non-party costs order can possibly be made. I do not accept that submission as a matter of law. The only requirement to make an order is if it should be just and strict consideration of causation can sometimes interfere with the Court’s discretionary power to do justice.”

    1. Kindertons relies upon the more recent authority of XYZ v Travelers Insurance Co Ltd [2019] 1 WLR 6075 in which the Supreme Court considered the relevance of causation in a claim for a NPCO against liability insurers. Particular reliance is placed upon the observations of Lord Briggs on the role played by the element of causation in NPCO cases. However, Lord Briggs was careful to circumscribe the scope of his observations in the following terms:

 

“30. It is not the purpose of this judgment comprehensively to reassess those generally applicable principles. It may be (and I am reluctantly prepared to assume but without deciding) that they really are limited, as the Court of Appeal thought in the present case, to the twin considerations of exceptionality and justice. The same general conclusion is to be found in the Deutsche Bank case. That said, I share all Lord Reed DPSC’s concerns as to the lack of content, principle or precision in the concept of exceptionality as a useful test. Rather, this is an occasion to consider, in more granular detail, the principles which ought to apply to that distinct part of the broad spectrum of non-parties occupied by liability insurers. While doing so it will be appropriate to make some brief observations about the impact of those general principles in the liability insurance context, and in particular about the role played by the presence or absence of a causative link between the conduct of the non-party relied upon and the costs which the applicants incurred which they seek to recover against the non-party under section 51 .”

    1. From this passage alone, it is clear that Lord Briggs was not intending to lay down any general guidance on causation applicable to all NPCO applications.

 

    1. He went on to observe:

 

“31. Liability insurance serves an obvious public interest. It protects those incurring liability from financial ruin. More importantly, it serves to minimise the risk that persons injured by the insured will go uncompensated as a result of the insured’s lack of means. Unlike ATE insurance it is not primarily aimed at making a profit by assisting in the funding of litigation but, where liability becomes the subject of litigation, the insurance typically contains provision under which the insurer is obliged to fund the insured’s defence and, as an inevitable concomitant, entitled to exercise substantial (although not always complete) control over the conduct of its insured’s defence. The liability insurer is therefore typically an involuntary rather than voluntary funder of litigation, and the control which the insurer habitually exercises over the conduct of its insured’s defence arises from a pre-existing contractual entitlement, rather than from a freely-made decision to intermeddle.”

    1. The position of Kindertons is different. It involved itself voluntarily and enthusiastically in the claims after the accident giving rise to it. This not to say that the services provided could not, in appropriate cases, serve a public interest but, unlike liability insurers, its involvement was a matter of choice in the expectation of profit specifically related to the legal proceedings to follow.

 

    1. Lord Briggs went on to say:

 

“66. The causation requirement was not the subject of challenge on this appeal. It does not appear to have featured in the other Chapman cases, but their facts suggest that the relevant costs ordered to be paid would not have been incurred, but for the exceptional conduct relied upon. In cases such as the present, where it is the intermeddling test rather than the real defendant test which falls to be applied, the formulation of that test by Phillips LJ in the passage in the Chapman case [1998] 1 WLR 12 quoted above clearly incorporates a need to demonstrate causation, since it is the costs attributable to the intermeddling that the meddler is ordered to pay.”

    1. In this case, the issue of whether or not Kindertons was a real party to the litigation with respect to the recovery of credit hire charges was and remains a central one and so falls to be distinguished from the category of intermeddler cases to which Lord Briggs was directing his attention in this passage on the need to demonstrate causation. It could not be said that it was none of Kindertons’ business to involve itself in the progress of the litigation. On the contrary, it was very much its business both in a literal and metaphorical sense.

 

    1. In my view, on the circumstances of this case and without seeking to lay down any general rule relating to the appropriateness of NPCOs against credit hire companies, I am satisfied that the Recorder was right to conclude that it was just to make the order and he was not obliged to make any specific finding in respect of “but for” causation before so doing. In particular, Kindertons was exercising a degree of control over the most valuable of Mr Ibrahim’s claims on the basis of instructions from Rachel the specific intention of which was to neuter any attempts by Esure to limit its exposure to the hire claim which had the potential to reduce Kindertons’ profits. In my view it was neither fair nor just that it should be permitted to do this without exposing itself to the potential consequences of a NPCO.

 

    1. By ordering Kindertons to pay 80% of the costs, the Recorder was exercising his discretion appropriately to reflect the proportionate benefit which it stood to obtain if the claim for hire charges had succeeded. An attempt mathematically to calculate on a “but for” basis of causation would simply not have reflected the unfairness of allowing Kindertons a free ride on the coat tails of Mr Ibrahim’s claim.

 

GROUND FOUR

The judge failed to take into account that Esure had not given the appellant any notice that they would or might pursue a non-party costs application against the appellant

    1. Kindertons wisely opted not to develop this ground below. Less wisely, it sought to raise it for the first time on this appeal.

 

    1. As Lewison LJ pointed out in Fage UK Ltd v Chobani UK Ltd [2014] EWCA Civ 5 at paragraph 114 the trial is “not a dress rehearsal” but rather “the first and last night of the show”. In this case, the curtain came down on 17 January 2023 when the Recorder heard the arguments then relied upon by the parties. By the time he had handed down his reserved judgment on 6 March 2023, the audience had long since departed the theatre.

 

    1. In any event, the point is without merit. Kindertons would or should have known only too well that the nature of its business put it at risk of a NPCO application. The wording of CPR 44 PD 12.2, insofar as it relates to claims for credit hire, provided express warning of this; if any such were needed. I can discern no prejudice to Kindertons in the timing of Esure’s application.

 

GROUND FIVE

The judge failed to address the overarching question whether it was just in all the circumstances to make a costs order against the appellant. In circumstances where the dismissal of the claimants’ claim and the costs order against the claimants resulted from the claimants’ dishonesty in respect of the injury claims, it was not just to order the appellant to pay the respondents’ costs. The appellant was just as much a victim of that dishonesty as the respondents.

    1. The fact that Mr and Mrs Ibrahim were found to have been dishonest did not make it unjust to make the NPCO against Kindertons.

 

    1. On the contrary, Kindertons voluntarily assumed the risk that Mr and Mrs Ibrahim would turn out to be dishonest. As Miss Murtagh’s road traffic insurers, Esure had no say in the matter. The level of scrutiny which would be applied to any aspect of the claim which it was seeking to adopt was a matter for Kindertons. Little in the way of scrutiny is discernible from the transcript of the conversation between Mr Ibrahim and Rachel. Of course, it may well be that the cost of exercising higher levels of scrutiny would be disproportionate to the money thereby saved but this is a commercial decision the consequences of which must be borne by Kindertons.

 

GROUND SIX

The judge wrongly regarded CPR PD 44 para 12.5 as a self-standing basis for the making of a non-party costs order. This PD as a practice direction is not a source of law or jurisdiction. Nothing in the PD diluted the requirement upon the respondents to establish a proper basis for a non-party costs order in accordance with the substantive general law, which for the reasons aforesaid, they failed to do.

    1. I have found that a proper basis for the making of a NPCO was made out. It follows that the failure of grounds one to five inclusive means that ground six must also fail.

 

DISCRETION

    1. On the facts of this case, I too would have made a NPCO against Kindertons had the matter come before me at first instance for the reasons I have given. But even if I had not been minded to make such an order, I would still have concluded on appeal that the approach taken by the Recorder to the exercise of his discretion fell comfortably within the generous parameters afforded to him. Appellate courts will not lightly interfere with such decisions.

 

CONCLUSION

  1. In all the circumstances, this appeal must be dismissed. I invite the parties to attempt to agree the appropriate costs order.

 

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