PI Brief Update

Hire Education: Court of Appeal guidance on non-party costs orders against credit hire organisations - Michael Brooks Reid, Temple Garden Chambers

22/01/26. Michael Brooks Reid comments on the recent Court of Appeal judgment in Tescher v Direct Accident Management Ltd [2025] EWCA Civ 733, a decision which may signify a change of landscape in the world of credit hire litigation.

Facts

This judgment concerned two conjoined RTA claims. In each, an impecunious claimant had hired a replacement vehicle on credit, with payment deferred, in the usual way, until the conclusion of proceedings. The claims included both PI and credit hire elements. In Tescher, the claim was dismissed at trial; in AXA v Spectra, the claimant discontinued. In both, qualified one-way costs shifting (“QOCS”) protected the claimants from costs orders being enforced against them. As such, the defendants sought non-party costs orders against the credit hire organisations (“CHOs”), DAML and Spectra.

The Law

The jurisdiction to make a non-party costs order derives from section 51 of the Senior Courts Act 1981. In Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 WLR 2807, the Privy Council distinguished between a “pure” funder with no interest in the litigation, against whom the discretion to make a third party costs order will not generally be exercised, and a non-party who does not merely fund the proceedings but substantially controls them or is to benefit from them. In the latter case, justice would ordinarily require that if the proceedings fail, they will pay the successful party’s costs.

CPR r 44.16(2)(a) provides for an exception to QOCS, where proceedings include “a claim which is made for the financial benefit of a person other than the claimant.” CPR r 44.16(3) expressly contemplates a costs order against that person, and Practice Direction 44, paragraph 12.2 lists “claims for credit hire” as an example of such a claim. Prior case law, including Farrell v Birmingham City Council [2011] RTR 14, had upheld non-party costs orders against CHOs, but uncertainty remained about the correct approach post-QOCS, particularly regarding the tests for causation and control.

The Decision

Giving the leading judgment, Birss LJ conducted an extensive review of the authorities, following which he gave detailed guidance on non-party costs orders in credit hire cases (from [65]).

The Court outlined a two-stage approach: first, the court should ask whether the jurisdiction to make a third-party costs order is engaged; second, it should determine the just amount to award.

On the first question, Birss LJ set out the features in this type of case which will engage the jurisdiction: (1) The claimant brings at least two claims, one for damages for PI and one for credit hire charges. (2) The claimant is impecunious, meaning the CHO cannot expect to recover the hire charges from the claimant. (3) The hire agreement defers payment pending the outcome of litigation, meaning litigation (or settlement) is the only realistic means by which the CHO will be paid.

In such circumstances, the Court held that the CHO is a “fundamental cause” of the defendant’s costs. A “but for” test of causation is not required. Who did or could appoint the solicitors is likely to be irrelevant; what matters is that, in reality, the CHO has effective (though not necessarily absolute) control.

Birss LJ concluded with a significant proposition of law: “…absent some reason why not, when a claimant has been ordered to pay the costs and QOCS applies, a non-party cost order against the credit hire company is likely.” [emphasis added].

On the second question, there were three obvious options: (i) an order for all the costs of the litigation; (ii) an apportionment based on the sizes of the credit hire claim and the PI claim; and (iii) an award of the extra costs attributable to the credit hire as compared to the litigation without it. Where the credit hire claim is several times larger than the PI claim, the usual order would be for all the costs of the litigation.

Comment

Tescher reinforces the obvious point that QOCS is meant to shield individual claimants from costs orders, not to shield third-party CHOs funding litigation for commercial gain. In reaching its decision, the Court of Appeal has clearly recognised the practical and economic reality of credit hire arrangements. The Supreme Court has already refused permission to appeal, so this will remain the state of play for the foreseeable future.

The Court gave clear guidance on the first question, but precious little guidance on the second question, apportionment. It seems likely that the first instance judge will be given a wide margin of discretion to apportion as they see fit.

CHOs and associated solicitors firms will no doubt be giving careful consideration to their business model, particularly in relation to providing impecunious claimants with credit hire vehicles where liability for the accident remains in issue.

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