Credit hire companies and non party costs Orders

I have been asked on many occasions by insurance companies and their instructed solicitors how one “gets round” QUOCS. The answer for the most part, is “you can’t.”

QUOCS represents part of the post LASPO 2012 settlement in personal injury and clinical negligence claims, where as part of the package which included the abolition of recoverable success fees and ATE premiums, defendants and paying parties are required to stand their own costs, even when vindicated at trial.

There are exceptions to this general principle within the rules however.

The principal exceptions which will be relevant after a trial are set out in rule 44.16 which provides as follows:

(1) Orders for costs made against the claimant may be enforced to the full extent of such orders with the permission of the court where the claim is found on the balance of probabilities to be fundamentally dishonest.

(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 –

(a) the proceedings include a claim which is made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 (other than a claim in respect of the gratuitous provision of care, earnings paid by an employer or medical expenses); or

(b) a claim is made for the benefit of the claimant other than a claim to which this Section applies.

(3) 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.

Most claims which are lost at trial, will not be lost for reasons of fundamental dishonesty. Most claims are lost at trial because a witness fails to come up to proof, the defendant’s witnesses are more compelling, the claimant’s lawyers have miscalculated, or some other example of the vissitudes  of litigation has occurred.

But where a claim is brought for the financial benefit of a third party, the broad sunlit uplands of the non-party costs jurisdiction can be trespassed upon for the benefit of the defendant.

The principal type of claim where this will prove to be of interest, is where alongside a modest claim for personal injuries, there is a more substantial claim for credit hire.

I elect upon credit hire with deliberation.

This is because the example of a credit hire claim is expressly contemplated by the Practice Direction to part 44 as an example of a claim brought for the financial benefit of someone else, namely the credit hire company.

Paragraph 12.2 provides as follows:

Examples of claims made for the financial benefit of a person other than the claimant or a dependant within the meaning of section 1(3) of the Fatal Accidents Act 1976 within the meaning of rule 44.16(2) are subrogated claims and claims for credit hire.

So far so good.

But there is a problem with this Practice Direction in that it appears to conflict with the analysis of the House of Lords in the case of Giles.v.Thompson [1994] 1 AC 142 where Lord Mustill, rebutting suggestions that the credit hire companies in that case were engaged in maintenance and champerty observed as follows:

Although the arguments before the Court of Appeal, and initially before the House, proceeded on the footing that the two appeals were the same, it is I believe clear that there are significant differences between them, and that they call for separate consideration. I will begin with Devlin v Baslington. An essential preliminary is to answer certain questions concerning the rights and liabilities created by the hiring agreement. Since, however, I believe that the resolution of this particular appeal admits of no doubt I will deal with these questions quite briefly.

The first is this: what rights does the company possess in the sums recovered by the motorist from the defendant? The answer is plainly: none. Neither the contract nor the form of authority purported to create a charge over the proceeds of the claim, either as regards the hiring charges, or the damages for personal injuries, or any other item. Clause 5(iv) merely required the motorist to press ahead with the recovery of sufficient funds to discharge her indebtedness to the companies. Equally, there was no assignment of the proceeds of the action or of the cause of action itself. As for the second part of the form of authority, even if this was irrevocable (which I doubt) it was no more than a mechanism designed to ensure that, once the motorist was put in funds by the successful actions, the appropriate part of them reached the company.

And in the second appeal, that of Giles v Thompson:

As in Devlin v Baslington an essential preliminary is to ascertain the rights and obligations created by the hiring agreement. First, one must see whether the companies obtain any direct rights over the fruits of the claim for the element of damages representing the hire charges. Here, the answer is just as clear as it was before. The companies have no interest, whether by charge or assignment, which give them any claim to the proceeds which they can enforce against the defendant. Nor is any part of the recovery shared with the motorist, in the sense (for example) that they have a preferential claim to it against the other creditors of the motorist. The position is simply that the success of this part of the claim will equip the motorist with extra money, from which the hire charges can be satisfied.

This seems clear enough: in those cases at least, the credit hire companies had no financial interest in the litigation on the analysis propounded by Lord Mustill.

That does not of course mean that in all conceivable factual scenarios where a a credit hire claim is made that there can never ever be a financial benefit accruing to a credit hire company, but where does it leave paragraph 12.2 of the Practice Direction which seems to contemplate that all credit hire claims will be caught? And whether or not a non-party costs order can be properly made against a credit hire company?

The simplest answer is that paragraph 12.2 must be “read down” as an ordinary exercise in construction, so that it only applies to credit hire claims where there is something more or additional to Lord Mustill’s analysis based on the facts before him, and so the paragraph should be given a narrow construction.

The bolder answer is to conclude that paragraph 12.2 is ultra vires. The law has been established by Giles v Thompson and as a Practice Direction is neither primary or secondary legislation, not being made by Parliament in either an Act of Parliament or a statutory instrument, it is not open to a Practice Direction to alter the substantive law as declared by the House of Lords.

The answer to this question matters tremendously.

It will dictate whether the cost of the “saecular war” still raging between the insurance industry and the credit hire companies, is borne by the insurance industry, come what may.

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