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No evidence: no non-party costs order

Since Horwich Farrelly’s High Court appeal success in the case of Select Car Rentals (North West) Limited v Esure Services Limited it has become increasingly common for insurers and their solicitors to pursue credit hire companies for non-party costs orders. That said, a recent decision in a first instance appeal has shown that defendants cannot afford to be complacent when applying for such an order.

The case:

The case of On-Hire Limited v James Smithson came before His Honour Judge Freedman at Newcastle-Upon-Tyne County Court. The claim arose from an accident where liability was disputed and the claimant pursued damages including PSLA valued at £3,200, repairs of approximately £12,000 and credit hire charges in the sum of £12,864. With storage and recovery, the claim totalled £28,500 and was allocated to the Fast Track where it fell under the fixed recoverable costs regime.

Following allegations of fundamental dishonesty relating to the claimant’s relationship with an alleged independent witness, his undisclosed career as a semi professional boxer and failure to disclose his claims history to the medical expert, the claim was discontinued. At the hearing that followed judgment was entered for the defendant on the counterclaim and On-Hire were added to proceedings for the purposes of costs. On-Hire were subsequently ordered to pay 50% of the defendant’s costs in the sum of £7,500, a decision which they appealed.

Issues to be decided:

At the appeal it was common ground that in order for a non-party costs order to be made the defendant needed to demonstrate that On-Hire were the “real party” to litigation and that On-Hire’s involvement had caused the defendant to incur substantial costs which would not otherwise have been incurred (the causal link).

On the “real party” test the defendant’s case was that the terms and conditions of hire demonstrated that On-Hire had a very substantial financial interest in the claim, were permitted to manage the claim, appoint solicitors, and determine when proceedings were commenced and, as such, they could properly be described as the “real party”. Counsel for the defendant submitted that it was not necessary for On-Hire to be the dominant party or the only party to be a “real party”, the reality was that On-Hire took control of the claim and to an extent financed the litigation.

On-Hire’s case was that it was not enough that they had a commercial interest in the outcome of proceedings, “it must essentially run the show, and do so in its own interests, rather than the named parties’ interests.” Counsel for On-Hire said that this has not been made out by the defendant. In addition, they argued that the claimant was pursuing a claim for damages which included personal injury and so the claim was clearly being pursued in the claimant’s own interests.

In response to the causation argument regarding costs, the defendant relied on a witness statement from their solicitors which confirmed that the credit hire element of the claim meant the value of the case exceeded £25,000 and therefore the case moved from a fixed fee delegated matter to an hourly rate non-delegated matter. However, no explanation in financial terms was given to explain the difference this would make to the defendant’s insurers. The defendant also argued that once disclosure took place in July 2020, On-Hire should have been aware that the claimant was not being honest about his claim history, profession, and relationship with one of the witnesses. It was submitted that On-Hire should have taken steps to investigate issues of honesty at this point and the costs incurred after July 2020 could have been avoided (the claim was later discontinued in March 2021).

It was On-Hire’s position that the statement from the defendant’s solicitors had no value given its lack of particularity. It did not provide any details of what the extra costs incurred were and there was no explanation as to whether the outcome of litigation had any impact upon the fees charged by the defendant solicitors.

In response to the second argument on costs, Counsel for On-Hire relied on a statement from a manager at On-Hire which confirmed that they knew nothing about the allegations of dishonesty until 17th March 2021 and, even if they had known, they had no power to stop the claim because the claimant was entitled to pursue his injury claim in any event. More generally On-Hire argued that liability was in dispute, the defendant had brought a counterclaim and a significant component of litigation related to the injury claim, as such, the credit hire claim did not account for the majority of costs.

The outcome:

On-Hire’s appeal was successful. HHJ Freedman was not satisfied that either limb of the test for a non-party costs order was met. On the causation point he found that, even if the credit hire claim had not been in dispute, a trial would still have been necessary to determine the question of liability, causation and quantum of general damages. Costs were therefore not significantly increased by On-Hire’s involvement, the bulk of the costs would have been incurred in any event. HHJ Freedman distinguished his decision here from the outcome of Gass v (1) Bobi (2) First Central Management Limited (3) On-Hire Limited where HHJ Roberts allowed a non-party costs order. In Gass liability was not in dispute and it was the credit hire claim that caused ligation to continue.

As to the “real party” test, although it could be argued that the terms and conditions of hire gave On-Hire sufficient control of litigation to be described as a real party, HHJ Freedman preferred to look at what, in practice, On-Hire’s involvement was. He was satisfied with the evidence put forward by On-Hire which confirmed that the claimant made a choice to contract with them, the case pursued was his own given the claims for personal injury and that On-Hire did not interfere with litigation nor were they provided with copies of disclosure. The judgment confirmed:

"I am satisfied that on the facts of this case, at all times the claimant was substantially the main party to the litigation, properly described as the’ real party’.  It was the claimant who was arguing that he was not at fault for the accident and it was the claimant who was pursuing his claim for general damages for pain, suffering, and loss of amenity."

Comment

Although this was not a favourable outcome for the defendant it must be remembered that all applications for the non-party costs depend very much on their own facts. This is something that judges are at pains to point out when considering these matters. In the Court of Appeal decision of Deutsche Bank v Sebastian Holdings [2016] the court observed that:

“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.”

What is clear from HHJ Freedman’s decision is that the party making the application for a non-party costs order has the burden of establishing the facts relied upon. If the party is not able to establish essential facts on the balance of probabilities, the application will fail. In On-Hire v Smithson the court was very critical of a statement from the defendant solicitors because it did not evidence what was being asserted. HHJ Freedman commented that:

“In short, his statement goes nowhere close to demonstrating that as a result of a claim for credit hire being included, the costs of the litigation were significantly increased.  Much more detail was required and it needed to be supported by documentary evidence.  The statement frankly leaves many questions unanswered.”

The decision in Select Car Rentals (North West) Limited v Esure Services Limited is still an authority in this area and Horwich Farrelly have a successful strategy in pursuing these orders. The outcome in On-Hire v Smithson emphasises the fact that applications for non-party costs orders need to be robust and any assertion that costs were increased as a result of a credit hire claim must be backed up with clear evidence. Applications of this nature are still a valuable weapon for defendants, but it is vital to identify the right case to make such an application, the fact a credit hire claim accounted for the bulk of a claim is not enough on its own.

If you are interested in further information regarding non-party costs orders, please get in touch with the contacts below:

 

Publication Authors:

 

 Ben Elliott

Ben Elliott
Associate Partner
Ben.Elliott@h-f.co.uk
0161 413 1555

 

 Darren Mendel

Darren Mendel
Partner & Head of Credit Hire
Darren.Mendel@h-f.co.uk
07712 591824

 

 Max Withington

Max Withington
Partner
Max.Withington@h-f.co.uk
07855 364668