Article by Christine Rutkowski

Yehuda Tescher v. Direct Accident Management and AXA Insurance UK Plc v. Spectra Drive Limited [2025] EWCA Civ 733

Two recent appeals have considered the question of when and in what circumstances a non-party credit hire company should be made liable for a Defendant’s costs in a credit hire claim.  It is worthy of note that the guidance provided by the Court of Appeal considered cases where the Claimant was protected by Qualified One-Way Costs Shifting (QOCS) and where the Claimant was alleging that they were impecunious.

Both cases had their origins in claims brought for damages including personal injury and credit hire following road traffic collisions; therefore QOCS applied.  In each case, albeit for different reasons, costs orders were made against the Claimant and in favour of the Defendant. However, due to the effect of QOCS, neither of those costs orders were enforceable. The Defendants each applied for a non-party costs order (NPCO) against the credit hire companies. Those applications were refused; however permission to appeal was granted and the cases were sent straight to the Court of Appeal for consideration (given the disparity of decisions on NPCOs at County Court level).  The Justices allowed the appeals and gave guidance as to when non-party costs orders would be made in QOCS cases where credit hire charges were included.

Background to Tescher v. Direct Accident Management Limited (DAML)

On 19 November 2018 the Defendant, Mr. Tescher’s vehicle struck the Claimant (Mr Quesda’s) motorcycle. The Claimant signed successive credit hire agreements with DAML. In due course, the Claimant brought proceedings. The Particulars of Claim included a claim for general damages for personal injury and the sum of £19,633.36 for credit hire charges incurred over a period of 88 days hire. Those credit hire charges represented over 85% of the value of the special damages claim. The Claimant pleaded a positive case that he was impecunious in accordance with Lagden v O’Connor [2004] 1 AC 1067.

The matter was listed for a Fast Track trial before District Judge Swan in the County Court in Clerkenwell & Shoreditch on 08 December 2022 where the Judge dismissed the claim and directed that the Claimant pay the Defendant’s costs, not to be enforced without permission of the court, as QOCS applied. However, directions were given for DAML to be joined as a Second Defendant for the purposes of considering an application for an NPCO.

The application came before District Judge Jeffs on 10 May 2023, who dismissed the application for an NPCO, as he was not satisfied that DAML was the “real party” or that DAML had caused costs to be incurred, which otherwise would not have been incurred save for DAML’s involvement. Mr. Tescher sought permission to appeal.

Background to AXA Insurance UK Plc v. Spectra Drive Limited (Spectra)

On 23 October 2019, the Claimant (Ms. Nicola Smith) was involved in a road traffic incident with a vehicle insured by the Defendant (AXA) and liability was admitted.  The Claimant’s vehicle was written off and on the same date, she entered into a credit hire agreement with Spectra. The credit hire lasted for 89 days. On 24 August 2020, the Claimant’s issued proceedings directly against AXA and her claim included general damages for pain, suffering and loss of amenity (PSLA) as well as a claim for special damages of £16,160.94 – the lion’s share of which was made up of credit hire charges. Again, the Claimant pleaded impecuniosity and sought to recover from AXA the full credit hire rate and as in the DAML case, all aspects of the claim for credit hire charges were put in issue by AXA.

Despite making a claim for 89 days of credit hire, there was evidence that the Claimant had insured another vehicle after 10 days, which (AXA asserted) proved that the Claimant had been fundamentally dishonest in bringing her claim.  The Claimant subsequently discontinued her claim on 28 May 2021 – later explaining that she had simply done what her solicitors “told her” to do. The usual costs order under CPR r. 38.6(1) followed – with the Claimant ordered to pay the Defendant’s costs not to be enforced without permission of the court pursuant to QOCS.

On 29 June 2021, AXA brought an application for two orders. One was an order setting aside QOCS protection on the grounds of fundamental dishonesty. The other was for an NPCO against Spectra.

The application came before Deputy District Judge Carson on 18 February 2022. The Claimant represented herself with Spectra and AXA respectively represented by Counsel. DDJ Carson found that the Claimant had not been fundamentally dishonest because the vehicle that she had insured 10 days after the accident had not been available for her to use until she received the benefit of the total loss claim and that she had used the hire car during the claimed period.

The NPCO application was adjourned and after a second hearing; further written submissions and a substantial delay; an order was made in AXA’s favour requiring Spectra to pay 65% of AXA’s costs.

On appeal to HHJ Gargan, various findings of fact made by DDJ Carson were overturned and AXA’s application for a non-party costs order was refused.  In his judgment, HHJ Gargan concluded that Spectra was the principal beneficiary of the proceedings throughout and held that there were some factors which distinguished this case from a standard credit hire claim.  However, what the Judge called AXA’s “good fortune in escaping a judgment and costs” was also considered a factor which suggested that it would not be ‘just’ to make a costs order against Spectra.

The Appeals

Permission to appeal to the Court of Appeal was granted in both cases and it was directed that they be conjoined.  The Appellants in both DAML and Spectra contended that NPCOs ought to have been made against the respective credit hire companies.

The Court of Appeal considered in detail the law relating to Credit Hire in general at [20 – 24]; NPCOs at [25 – 33]; QOCS and its exceptions at [34 – 45]; authorities on NPCOs generally and High Court decisions on NPCOs made in credit hire cases after the implication of QOCS at [46 – 64], following which Lord Justice Birss (giving the leading judgment) gave guidance applicable to NPCOs in credit hire cases – suggesting that a two-stage process should be approached by the court in the exercising of its discretion in such cases and applications as follows:

It should firstly be asked whether in the circumstances an NPCO of some kind should be made against a credit hire company (which involves examining if the non-party costs jurisdiction is engaged) and secondly, if so, the amount of costs awarded should be decided (in so doing, determining what a ‘just’ costs order would be – including questions of attribution).

In the DAML case, it was held that the credit hire company is the real beneficiary of the claim for damages for the credit hire charges and had tacit control over the litigation. The causation and control aspects of the test to engage the NPCO jurisdiction were therefore satisfied. There were no other special circumstances which suggested that no order should be made at the first stage and an NPCO ought to be made.  Regarding the second stage of the exercise, it was found that as DAML’s credit hire charges were several times larger than the damages for personal injury, DAML were ordered to pay all of the Defendant’s costs.

In the case of Spectra, it was held that an NPCO would be the ‘just’ outcome.  The fact that the claim which was discontinued would or might well have succeeded does not justify a different order.  Further, as the DDJ’s original order required Spectra to pay 65% of the costs and this had not been challenged in respect of apportionment, the original NPCO was restored.

Conclusion

The Court of Appeal confirmed that the elements of a credit hire case – when taken together – are enough for a court to conclude that “absent some reason why not” an NPCO against a credit hire company is likely when a costs order is made against a QOCS protected Claimant.

In relation to Stage 1 of the process, where the claim includes a claim for hire obtained on credit (i.e. where payment is deferred by reference to an action for damages) and there is an allegation that the Claimant is impecunious, for all intents and purposes litigation (including settlement) is the only realistic means by which the credit hire company will be paid for hire.  It therefore follows that the credit hire agreement (for which the credit hire company is responsible) is a “fundamental cause of the legal costs incurred by the Defendant” which is sufficient to satisfy the requirement for causation for NPCO purposes.  A ‘but for’ causation approach was considered unnecessary.  Further, Lord Justice Birss found that a credit hire company has sufficient control of the litigation as a result of the structure of credit hire arrangements – absolute control is not required.

It was also found that “as a matter of reality” (both practically and economically) a credit hire company is the real beneficiary of the litigation for damages in respect of credit hire.  They are essentially the ‘real party’ in a claim which includes credit hire charges.

As for Stage 2 (the amount of costs payable), in cases where the credit hire claim is several times larger than the personal injury claim (as was the case in both DAML and Spectra), the Court of Appeal found that an order for all the Defendant’s costs would be payable – absent some special feature.

The Court of Appeal’s judgment can be found here.