Trying to discern the exact nature of the relationship between claimants and credit hire company can often be like trying to nail so much jelly to the wall, except the wall is made of tissue paper. and someone has replaced your hammer with a tickling stick. This chronic problem can become acute when questions arise of to what extent, if at all, a defendant can rifle the deep pockets of a credit hire company (rather than the rather shallower ones of the always-allegedly-impecunious claimant) in satisfaction of any costs order made in its favour, particularly since the introduction of QOCS. Robust attention has now been paid to the issue by the High Court in Kindertons Limited v Murtagh and Esure Services Limited [2024] EWHC 471 (KB).
The facts
“For those who believe that most civil litigation does not end up being about the costs that were incurred in pursuing that same litigation in the first place, look away now”. So began Turner J’s judgment, quoting Goknur v Aytacli [2021] 4 W.L.R. 101. It is not difficult to see his point, when a claim which began when the hapless Ms Murtagh shunted a car ahead on the A13. giving rise to a repair bill for the shuntee of £2,543.80, generated costs on appeal (shared between the parties) of nearly £100,000.00.
In Turner J’s words, the shuntee in the above collision was “readily persuaded” that he should not continue driving his car, and that he ought straightaway to hire an alternative vehicle from Kindertons (although even the engineer whom Kindertons appointed considered it roadworthy, and predicted that repairs would take just 4 to 5 days). 2 days post-accident, the shuntee spoke to Kindertons by telephone (in a call whose transcript, remarkably, found its way into evidence at trial). During this, the terms of the agreement into which he was invited to enter were explained in terms which were arguably just on the right side of making the hire agreement unenforceable, but which involved a substantial measure of reassurance that Esure (Ms Murtagh’s insurer) would ultimately pick up the tab for hire.
The shuntee was also told by Kindertons to ignore any offer of a replacement car from Esure. As it happened, Esure did offer the shuntee a replacement car 2 days after he began hire with Kindertons, on the basis of a daily rate charged to it of £63.45 (as opposed to the Kinderstons rate of £345.08 per day). It is perhaps unsurprising that Turner J expressed himself unsurprised by the shuntee’s failure to take up this offer, in light of what Kindertons had already told him.
3 days post-accident, the shuntee signed a credit hire agreement with Kindertons. Turner J recited in detail the features arising from its terms and conditions, including rights ascribed to Kindertons to appoint an 'external contractor' (the new name for solicitors, it seems) to assist with the shuntee’s claim, and to pursue an action in the shuntee’s name against the third party; an obligation on the part of shuntee to co-operate in the conduct of the action; and a provision that any breach of this would result in termination of the hire agreement forthwith, and repayment of the (deferred) hire charges being immediately due in full. His Lordship noted too that the shuntee entered a credit repair / recovery / storage agreement with Kindertons on the same date, which included not just terms similar to those set out above in the hire agreement, but also permitted Kindertons to appoint a repairer and engineer, obliged the shuntee to pay any settlement cheque to Kindertons (and to permit Kindertons to deduct any sums due to it from the settlement amount), and granted Kindertons a lien over the shuntee’s vehicle until all sums due to it were paid.
When proceedings were issued, all but £50.00 (in Turner J’s words, ‘airily attributed to “undocumented miscellaneous expenses” ’) of the £16,757.75 special damages claimed related to sums claimed under the shuntee’s agreements with Kindertons. Both the shuntee, and Mrs Shuntee, who claimed to have been his passenger, claimed damages for personal injury. Turner J noted that, as the value of the overall claim was limited to £20,000.00, the combined value of the personal injury claims could not have exceeded £3,192.25.
At trial, suffice to say (as Turner J) did, it all went very wrong for the happy couple. The recorder who heard the trial found that the damages claimed in respect of the repairs and hire charges had not been caused in the accident. Mrs Shuntee, he found, had not even been in the shunted vehicle at the time. Both she and her husband were found to have been fundamentally dishonest in saying that she had been. (Although Turner J’s judgment does not spell this out, it seems reasonable to assume that Mr and Mrs Shuntee’s claims were dismissed in their entirety, pursuant to s 57, Crime and Courts Act 2013). They were ordered to pay the defendants’ costs in the sum of £12,000.00, but ‘promptly disappeared from forensic view leaving the costs bill unpaid’.
In due course, the defendants applied for a non-party costs order against Kindertons. A different recorder to the trial judge heard this, concluded that the claim had been brought for the financial benefit of Kindertons, and ordered Kindertons to pay 80 % of the defendants’ costs. Kindertons appealed.
The relevant law
Turner J referred both to the statutory foundation of the power to make the costs order sought in s 51(3), Senior Courts Act 1981, and to CPR 44 and its accompanying practice direction. The relevant rules provide as follows:
CPR 44.16
- (2) Orders for costs made against the claimant may be enforced up to the full extent of such orders with the permission of the court, and to the extent that it considers just, where –
- the proceedings include a claim which is made for the financial benefit of a person other than the claimant…or
- a claim is made for the benefit of the claimant other than a claim to which this Section applies
- Where paragraph (2)(a) applies, 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.
PD 44, para 12.2
Examples of claims made for the financial benefit of a person other than the claimant…within the meaning of rule 44.16(2) are subrogated claims and claims for credit hire…
para 12.5
The court has power to make an order for costs against a person other than the claimant under section 51(3) of the Senior Courts Act 1981 and rule 46.2. In a case to which rule 44.16(2)(a) applies (claims for the benefit of others) –
- the court will usually order any person other than the claimant for whose financial benefit such a claim was made to pay all the costs of the proceedings or the costs attributable to the issues to which rule 44.16(2)(a) applies, or may exceptionally make such an order permitting the enforcement of such an order for costs against the claimant.
- the court may, as it thinks fair and just, determine the costs attributable to claims for the financial benefit of persons other than the claimant.
His Lordship quoted the High Court’s previous decision in Select Car Rentals (North West) Ltd v Esure Services Ltd [2017] 1 W.L.R. 4426, to the effect that CPR r 44.16 ‘does not introduce a bespoke and distinct type of discretion to be exercised in cases falling within the QOCS regime as it applies to non-parties’ but was ‘entirely consistent with the way in which the proper approach to the discretion to order costs against a non-party has developed in recent case law’. As he also noted, it was said in Select that ‘the fact that any given credit hire organisation's connection with a claim is no greater than is commonly the case does not, without more, provide it with an automatic immunity from a non-party costs order. There is no room for the argument that it is a prerequisite to the making of such an order that such involvement be exceptional.’
The legal background established, Turner J went on to consider Kindertons’ various grounds for appeal in turn, as I shall below.
Financial benefit
Kindertons argued that the judge at first instance had been wrong to conclude that it had had a financial benefit in the litigation such as to found a non-party costs order. Channelling, perhaps, Sit Humphrey Appleby, Turner J called this ‘a brave contention’. (Disappointingly, it is unclear from his pithy judgment how exactly Kindertons sought to develop this point.) In common with credit hire companies generally, in his view, the whole purpose of Kindertons providing credit hire facilities was to make a commercial profit out of the client’s legal claim.
His Lordship quoted Ritchie J’s view in Amjad v UK Insurance Limited [2023] EWHC 2832 (KB) (another case involving a credit hire company) that ‘ the words "for the benefit of the claimant" ‘ in CPR 44.16(2) “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’. Ritchie J had noted that CPR 44.16 was designed to give claimants (as opposed to, it seems, anyone else benefiting from their claims) costs protection. He described a “who benefits ?” test, which was used to trigger the “gateways” (to the disapplication of QOCS protection) in CPR 44.16(2)(a) and (b) respectively. If a non-party gained the benefit then gateway (a) was open against the non-party. If the claimant benefited, then gateway (b) was open, and the claimant was subject to uncapped costs enforcement.
In the present case, Turner J was of the view that Kindertons stood to gain substantially from the claim brought in Mr Shuntee’s name. The price of the services which they provided ‘very significantly exceeded’ the value of the personal injury claims (let alone the ‘undocumented miscellaneous expenses’). It followed that Kindertons had a very strong financial stake in the litigation, and that any benefit to Mr Shuntee in pursuing the claim for hire charges was “all but illusory”. [Ssssssshhh, Turner J. Don’t say the quiet part out loud.]
Control of the litigation
In response to Kinderton’s contention that there had been no proper basis for the judge’s finding that it controlled the litigation, Turner J said that it was wrong to treat the concept of ‘control’ as if it were a traffic light, showing either red or green, governing access to the exercise of court’s discretion to make a non-party costs order. Control, he said, is almost invariably a matter of degree. The greater the level of control exercised by the non-party. the more likely it would be that a court will exercise its discretion in favour of making the order.
Turner J held that, in the present case, Kindertons had exercised a high degree of control. The terms of Mr Shuntee’s contracts with Kindertons had tied him into bringing a claim and continuing it at the risk of incurring serious financial consequences in the event that he were to failed to comply. The threat of such repercussions was sufficient, even if they were not executed. Turner J also considered it important that Kindertons were “directing” Mr Shuntee not to engage with Esure, which was, he felt, intended not to protect his interests, but to avoid compromising Kindertons’.
Causation
Kindertons’ submissions on this point do not, it has to be said, emerge particularly clearly from Turner J’s judgment. As far as can be discerned, its case appears to have been that a non-party costs order could only be made if the costs in question would not have been incurred had it not been for its actions - i.e. its actions were a “but for” cause of the costs.
His Lordship referred to XYZ v Travelers Insurance Co Ltd [2019] 1 W.L.R. 6075, a case in which a non-party costs order had been sought against a liability insurer. He drew a contrast between the position of that insurer, which Lord Briggs had described in XYZ as ‘an involuntary rather than voluntary funder of litigation’ whose control over the litigation arose from a pre-existing contractual entitlement, and that of Kindertons, which had ‘involved itself voluntarily and enthusiastically in the claims after the accident giving rise to it’. In contrast to the liability insurer, its involvement in the case had been a matter of choice for it.
On this basis, Turner J distinguished the position of a credit hire company from that of an ‘intermeddler’ in litigation, as described by Lord Briggs in XYZ, whose actions would have to have causative effect before a non-party costs order could be made against it. As His Lordship commented, ‘[o]t 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’.
Whilst expressly stating that he was not seeking to lay down any general rule relating to the appropriateness of non-party costs orders against credit hire companies, Turner J was satisfied that the judge had been correct in Murtagh to conclude that it was just to make the order (it seems, as a matter of general discretion), without needing to make any specific finding in respect of ‘but for’ causation before so doing. He referred again to the degree of control which Kindertons had exercised over the claims, and its intention of ‘neutering’ any attempts by Esure to limit its exposure to the hire charges claimed. In Turner J’s view, it was neither fair nor just that it should be permitted to do this without exposing itself to the potential consequences of a non-party costs order. By ordering Kindertons to pay 80% of the costs, the judge 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 Shuntee’s claim’.
Notice of the intention to seek a third party costs order
‘Kindertons wisely opted not to develop this ground below. Less wisely, it sought to raise it for the first time on this appeal.’
As stated in a passage which Turner J quoted from 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” ’. As his theatrical analogy continued, ‘[i]n 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’.
In His Lordship’s opinion, the wording of CPR 44 PD 12.2, insofar as it relates to claims for credit hire, provided express warning - if any such were needed - of a possible non-party costs order. (The contrast with the show cause procedure in respect of a wasted costs application is instructive.) He was unable to discern any prejudice to Kindertons in the timing of Esure’s application.
The overarching question whether it was just in all the circumstances to make the order
Kindertons’ case in this respect appears to have focused on the alleged injustice of the costs order against it having arisen from the dismissal of the Shuntees’ claims, on the grounds of their dishonesty. According to Kindertons, in a submission made - presumably - with a straight face, it was ’just as much a victim of that dishonesty’ as the defendants.
Turner J felt that it was important to remember that it was not the finding of fundamental dishonesty which precluded the Shuntees from sustaining otherwise viable residual claims. As he put it ‘[t]hey lost because they were found to have no claims at all’ - an apparent reference to the original trial judge’s findings that none of the damage on which their claims rested (insofar as they had suffered any damage) had been caused by the accident.
In a rare example of the answer to the question “couldn’t they both lose ?” being “yes”, His Lordship said that the fact that Mr and Mrs Shuntee were found to have been dishonest did not make it unjust to make a costs order against Kindertons. On the contrary, Kindertons had voluntarily assumed the risk that they would turn out to be dishonest, and it was up to them what level of scrutiny they sought to adopt. The defendants had no say in the matter.
The correct interpretation of PD 44 para 12.5
Kindertons contended that the judge had wrongly regarded PD 44 para 12.5 as a self-standing basis for the making of a non-party costs order, despite the practice direction being a source of neither law nor jurisdiction. Nothing in it, Kindertons said, diluted the defendants’ obligation to establish a proper basis for a non-party costs order in accordance with the substantive general law. Taking perhaps less time to give his reasons to dismiss this ground of appeal than Kindertons appear to have taken to formulate it, Turner J said that it followed from his finding that, as there was a proper basis for the costs order, this ground also had to fail.
Conclusions
On the one hand, it is important not to overstate the effects of the resounding defeat inflicted on the credit hire company in Murtagh on the general principles of law which apply to this area. Turner J reminded himself of the Court of Appeal’s statements in Deutsche Bank AG v Sebastian Holdings [2016] 4 W.L.R. 17, that ‘the only immutable principle [when considering an application for a non-party costs order] is that the discretion must be exercised justly…. 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.”
Similar caution might be thought appropriate in respect of the decision in Murtagh, even if it was made on appeal. If Turner J had not been strongly influenced by the facts of the individual case, would it have bene necessary to set them out in such detail ? Comments like ‘I will now deal with the history of this litigation in order to explain how what should have been a straightforward claim came to such spectacular grief’ underline this impression.
On the other hand, none of the factors which, in Turner J’s assessment, justified the judge the non-party costs order seem in the slightest bit unusual in the credit hire context (and not just in respect of cases involving Kindertons). Most credit hire companies stand to make substantially more money from the litigation than their customers do, in most of the litigation in which they are involved. Most credit hire companies inveigle their customers into standard form agreements granting them as much control over the litigation as Kindertons arrogated to itself in Murtagh. A cynic might suspect that most credit hire companies direct the behaviour of their clients (particularly in relation to Copley offers) in the way Kindertons was found to have done, and that the only distinguishing feature about this case is that someone had the gumption to adduce evidence showing what took place behind the big green curtain. (But I am not a cynic, so I couldn’t possibly comment.) The actions of most credit hire companies have a similar degree of causative effect on the costs incurred in most of their litigated cases (and it could, I think, be said that, even if some of the costs might have arisen even if Kindertons had never been involved, at least a substantial proportion of the costs are likely to have arisen from the substantial and, it seems, hotly contested hire claim).
When Turner J quoted from Select v Esure the adage that ‘[t]here is no room for the argument that it is a prerequisite to the making of such an order that [the hire company’s] involvement be exceptional’, it is hard not to see this as a reflection of just how many hire cases are, at least in terms of the factors relevant to whether or not a non-party costs order should be made, indistinguishable from Murtagh. In cases heard at circuit judge level, non-party costs orders have not been made against hire companies on the apparent basis that, unless such orders were confined to unusual circumstances, hire companies would be at risk of having to pay the costs of every unsuccessful claim in which they were involved. Murtagh, Turner J’s protestations about not wishing to set down any sort of rule in credit hire claims notwithstanding, tends to suggest that this should be the default outcome, at least where the hire company stands to gain from litigation to the extent that Kindertons did, and where the control exercised over litigation is as great. Nothing in this approach seems inconsistent with what CPR 44.16(2), and in particular PD 44 para 12.2, have to say about non-party costs orders in QOCS cases in general, and making such orders in credit hire cases in particular.
More generally, it is worth noting that, while the Court of Appeal’s seminal decision in respect of non-party costs orders in Farrell and Short v Birmingham City Council and Direct Accident Management Services Ltd [2009] EWCA Civ 76 was not mentioned in Turner J’s judgment, his decision seems consistent with both the principles set out in that case (particularly the stress on financial benefit and control of litigation), and its outcome.
A particular procedural point which did arise in Murtagh was the strong indication that non-party costs orders should be determined by the judge who heard the relevant trial. Turner J said that it was ‘regrettable’ that this had not happened in this case, though he also described himself as ‘presented with a fait accompli’, and held that ‘no purpose consistent with the overriding objective would be served by doing anything other than re-emphasising that this should not have happened before moving on to determine the appeal’. It is easy to imagine a case, however, in which arguments might arise about whether any judge other than the trial judge who sits on the non-party costs order application has sufficient grasp on the evidence to make the order (or at least for it to be just for it to be made).
Finally, one perhaps mischievous hare set running by Murtagh was the reference to s 71(2), Consumer Rights Act 2015, pursuant to which
- the court must consider whether the term [in a consumer contract] is fair even if none of the parties to the proceedings has raised that issue or indicated that it intends to raise it.
Turner J raised this provision (before deciding a paragraph later that it took the matter no further) in reference to the onerous terms of the hire, and repair etc agreements, which not only forced the Shuntees to hand over control of their claim to Kindertons, but also forced them to co-operate with any subsequent litigation, on pain of quite drastic financial penalties. I am not aware of any credit hire or similar case where s 71(2) (or any more specific provision of the 2015 Act relating to contractual terms) has been raised, but nothing suggests that a defendant cannot, in principle, invite a court to consider it, even if its purpose is to the protect the claimant as consumer, in the same way a defendant can challenge the enforceability of a hire agreement even when the claimant does not object to it. It is perhaps ironic that a judge who commented in the introduction to his judgment that ‘so opens yet another chapter in the continuing war of forensic attrition between motor insurers and credit hire companies’, has sketched out a map of what may be a new battlefield in this most ancient and intractable of conflicts.
