PI Brief Update

Appeal judge rules that credit hire company has no costs liability following a finding of fundamental dishonesty in personal injury case: RSA v. Fastrack Solutions Limited [2023] 4 WLUK 92 - David Bowden, Erimus Chambers

29/05/23. Mr Shazad staged a car accident on 25th November 2015. The other driver said at the beginning ‘I thought the accident was suspicious straight away’. A court claim was brought for minor whiplash injuries which the claim form valued at less than £1,000. Included in those court proceedings was a claim for storage of Mr Shazad’s damaged car and the cost of hiring a replacement car (used as a taxi) from Fastrack Solutions Limited. Five years later the liability trial was heard before District Judge James in Wakefield County Court on 9^th September 2020. In his reserved judgement dated 5^th October 2020, DJ James ruled that the claim was fundamentally dishonest and stripped Mr Shazad of his costs protection. On 4^th January 2021 RSA (as insurer of the other vehicle) issued an application seeking a non-party costs order (‘NPCO’) against the credit hire company. Unusually, the insurer obtained an order that its director attend court for cross-examination. The NPCO application was heard over 1 day on 9^th March 2022 before DJ James. Nearly 6 months later, he handed down a ruling granting the NPCO application and ordering the credit hire company to pay two-thirds of the insurer’s £10k costs of the liability trial. The credit hire company appealed on the basis that it was wrong in principle to make a NPCO order against it because it had not been dishonest, nor funded nor controlled Mr Shazad’s claim. In the meantime, in another case called Smithson, HHJ Freedman in Newcastle upon Tyne County Court on appeal had reversed the making of a NPCO against a different credit hire company. The appeal in the Fastrack Solutions case was heard before HHJ Gosnell in the Leeds Appeal Centre on 16^th March 2023. In his reserved judgment dated 6^th April 2023, the NPCO was set aside. Judge Gosnell ruled that in his experience ‘in most modest traffic accident claims the credit hire claim is usually by far the biggest head of loss. If District Judge James is right, then a credit hire company would be at risk of paying the successful insurer’s costs in any claim where a decision on liability went in the Defendant’s favour. This would be the case even where there was no dishonesty on the part of the Claimant and the judge merely preferred the Defendant’s version of events. This is neither fair nor consistent with the authorities’. For this reason, the appeal judge ruled there ‘was no attempt to control the litigation’which was fatal to the insurer’s NPCO application. The insurer has incurred costs liabilities to date of £62,771.96 in its ill-founded NPCO application.

Mr Mirza Shazad v. Royal and Sun Alliance PLC and Fastrack Solutions Limited - [2023] 4 WLUK 92

6^th April 2023

The County Court at Leeds, His Honour Judge Gosnell, Designated civil judge for North & West Yorkshire

What are the facts?

In a Claim Form issued on 2^nd October 2018, Mr Shazad brought a claim against RSA. This sought ‘damages arising out of a road traffic accident on 25th November 2015’.

What do we know about Mr Shazad’s road traffic accident?

Mr Shazad had been driving an Audi vehicle and collided with a Mitsubishi Colt vehicle driven by Miss Hopkinson who was insured by RSA. Miss Hopkinson in her witness statement said: ‘I thought the accident was suspicious straight away.’

What did Mr Shazad do in the immediate aftermath of his accident?

He had used the services of a credit hire company once before and so he returned there to hire a vehicle whilst his own taxi was off the road. His damaged vehicle was stored elsewhere on a site operated by another business.

What were the arrangements between the credit hire company and Mr Shazad?

Mr Shazad signed a standard form credit hire agreement. He was provided with a replacement vehicle on hire which already had taxi authorisation, car tax and insurance. He did not need to make any payment up front as the credit hire company was prepared to wait for the outcome of his claim against RSA’s driver.

What is the business model of Fastrack Solutions Limited?

It is a credit hire company. It has a fleet of around 120 vehicles. It specialises in hiring vehicles to taxi drivers when their own vehicle is off the road. Most of its hire vehicles have prior approval from local authorities to be used for hire and reward. On the whole, vehicles are supplied on a credit hire basis so that the hirer does not need to pay anything up front. Instead, the credit hire company seeks to recover its hire charges from the driver responsible for an accident that led to the need to hire a vehicle. This means it has to wait months or years until any litigation is concluded before it sees any payment.

How did Mr Shazad come to instruct solicitors to pursue his personal injury claim?

Mr Shazad instructed a firm of solicitors in Manchester to pursue this claim. The fee earner moved to another firm and took the file with him. The director of the credit hire company said in oral evidence that Mr Shazad had been free to instruct a firm of solicitors of his own choosing.

What was the claim for?

The claim sought damages for general damages for PSLA, pre-accident value of C’s vehicle, credit hire charges and storage/recovery charges.

What did the insurer say about the claim for credit hire charges?

The claim was defended by RSA. As to the credit hire vehicles provided to Mr Shazad, the insurer said:

· the 116-day period of hire was excessive,

· the hire charges were disproportionate in relation to the value of the Audi,

· even though Mr Shazad was a self-employed taxi driver, he did not need a vehicle and/or should have used public transport,

· the hire charges were disproportionate to Mr Shazad’s daily profit,

· he was put to strict proof that the daily rates were ‘reasonable’, and

· Mr Shazad was not ‘impecunious’.

What happened at trial?

A reserved judgement of DJ James was handed down on 5th October 2021. A clear finding of fundamental dishonesty was made by the judge such that Mr Shazad lost his QOCS protection. DJ James noted that ‘the C was already aware of the existence of Fastrack Solutions because he had made use of their services just a few short months earlier in relation to a previous accident.’ DJ James added that ‘I regret to say that I find that the claim is plainly tainted with dishonesty in its essentials’.

How did the trial judge find Mr Shazad’s claim to have been fundamentally dishonest?

In his conclusion, the judge ruled that ‘this was probably a staged accident in an elderly, cheap and mechanically defective vehicle for the purpose of generating profit for the benefit of the C, Fastrack Solutions and for the passengers who attempted to refer the business elsewhere.’ The credit hire company was not present or represented at the liability hearing and challenged that finding. There was no causal link between the provision of a credit hire car and the staged accident. The credit hire company not and could not have any knowledge when it provided the hire vehicle that Mr Shazad was making (or was about to make) a dishonest claim.

What did the trial judge say about the credit hire company?

In relation to the credit hire agreement, it is striking how little there is on this in the liability judgment. All DJ James states is: ‘The C was already aware of the existence of Fast Track Solutions because he had made use of their services just a few short months earlier in relation to a previous accident.’ Although the judge made a finding in relation to exaggeration by Mr Shazad, this related to storage charges and did not relate to credit hire charges.

What happened after the trial?

RSA issued an application against the credit hire company seeking an order that it pay RSA’s costs of the trial which it quantified as £10,000.

On what basis did the insurer put its claim for costs against the credit hire company?

The insurer made a claim for its costs under section 51 of the Senior Courts Act 1981 on the ground that, even though the credit hire company was not a party to Mr Shazad’s personal injury claim, it should pay the insurer’s costs.

In a nutshell, why did the credit hire company say it had no liability for the insurer’s costs?

The credit hire company said it had not controlled or directed the litigation that Mr Shazad had brought. In those circumstances, it had no liability in costs to RSA. Both the credit hire company and RSA were out of pocket because of the dishonesty of Mr Shazad but that was no basis on which to say the former could be liable in costs to the latter.

What evidence did the insurer rely on?

Surprisingly the insurer led no evidence from anyone within its own organisation. All the court had were 5 witness statements from a fee earner from its solicitors. For one of those witness statements there was no permission to rely on it. The judge at the hearing questioned the validity of some of the evidence noting that the insurer’s solicitor could not give evidence as to the receipt of mail into the insurer’s head office post room. The author of the witness statements did not attend the hearing for cross-examination.

What evidence was tendered by the credit hire company?

Detailed written witness statements from the director of the credit hire company were served. A witness statement on behalf of the company that provided storage of the damaged taxi was also given.

What oral testimony did the director of the credit hire company give at the hearing?

He was subject to a lengthy and hostile cross-examination by the insurer’s counsel. The director said that Mr Shazad had a clean driving licence, this was produced before it offered Mr Shazad one of its hire vehicles and there was nothing at the beginning to put the credit hire company on notice that anything might be wrong. The credit hire company only sent documents to Mr Shazad’s solicitors in relation to credit hire and not in relation to storage. Whilst the credit hire company maintained a panel of 4 firms of solicitors, a hire customer did not have to use any of those 4 firms. The credit hire company paid no referral fee to Mr Shazad’s solicitors. File notes were produced which made it plain that the credit hire company continued to chase payment of hire charges from Mr Shazad’s solicitor. This was a proper thing to do as those charges remained owning to it and, if not recovered in Mr Shazad’s legal action, then he remained liable to pay them. The credit hire company had no reason to chase Mr Shazad personally for payment before trial. It was entitled to wait. This is the usual way it works for credit hire companies. There was no evidence or suggestion that the credit hire company ever waived its rights to pursue Mr Shazad.

What does CPR part 44 and its accompanying practice direction have to say of relevance here?

The ‘fundamentally dishonest’ provision is reflected in CPR part 44.16 which is headed ‘Exceptions to qualified one-way costs shifting where permission not required’ and provides:

‘44.15 Orders for costs made against the claimant may be enforced to the full extent of such orders without the permission of the court where the proceedings have been struck out on the grounds that –

(a) the claimant has disclosed no reasonable grounds for bringing the proceedings;

(b) the proceedings are an abuse of the court’s process; or

(c) the conduct of –

(i) the claimant; or

(ii) a person acting on the claimant’s behalf and with the claimant’s knowledge of such conduct,

is likely to obstruct the just disposal of the proceedings.’

Paragraph 12.2 of the Practice Direction to CPR part 44 provides: ‘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.’ In relation to NPCOs, para 12.5 provides:

‘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) –

(a) 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.

(b) 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.’

Does QOCS protection apply to ‘mixed’ claims?

Lord Justice Vos had this to say on mixed claims in Weekend Travel Limited v. Serradj[2015] 1 WLR 1968:

‘39. It is true, however, that the word "proceedings" in CPR Rule 44.13 is a wide word which could, in theory, include the entire umbrella of the litigation in which commercial parties dispute responsibility for the payment of personal injury damages. I do not think that would be an appropriate construction. Instead, I think the word "proceedings" in CPR Part 44.13 was used because the QOCS regime is intended to catch claims for damages for personal injuries, where other claims are made in addition by the same claimant. There may, for example, in the ordinary road traffic claim, be claims for damaged property in addition to the claim for personal injury damages, and the draftsman would plainly not have wished to allow such additional matters to take the claim outside the QOCS regime.

40. Thus, in my judgment, CPR Rule 44.13 is applying QOCS to a single claim against a defendant or defendants, which includes a claim for damages for personal injuries or the other claims specified in CPR Rule 44.13(1)(b) and (c), but may also have other claims brought by the same claimant within that single claim. Argument has not been addressed to the question of whether QOCS should apply to a subsidiary claim for damages not including damages for personal injuries made by such a claimant against another defendant in the same action as the personal injury claim. I would prefer to leave that question to a case in which it arises. CPR Rule 44.13 is not applying QOCS to the entire action in which any such claim for damages for personal injuries or the other claims specified in CPR Rule 44.13(1)(b) and (c) is made.’

It is clear from this that QOCS applies in this case not just to Mr Shazad’s failed claim for personal injuries but also to his claim against the credit hire company to recover the hire charges that he was personally contractually bound to pay it.

What recent ruling has there been from the Supreme Court that is relevant here?

In Travelers Insurance[2019] 1 WLR 6075, all judges in the Supreme Court were agreed that:

‘A non-party costs order could be made against a liability insurer under section 51 of the Senior Courts Act 1981 either on the basis that the insurer had become the real defendant to a claim which fell within the cover provided by the insurer, or on the basis that it had intermeddled in a claim which fell outside the scope of such cover in a manner which it could not justify and which had caused the incurring by the claimants of the relevant costs; that liability as an intermeddler might be very hard to establish where the insurer had become involved in the litigation under a framework of contractual obligation; that where there was a connection between uninsured claims and claims for which the insurer had provided cover, it ….that lack of reciprocity in costs risk as between an uninsured claimant and the defendant’s insurer was also unlikely on its own to be a reason for the making of a non-party costs order against the insurer, …...’

Although Travelers concerned an insurer, it is clear that a NPCO could only be made against the credit hire company if it had become the ‘real’ claimant or where it had inter-meddled.

What had the Judicial Committee of the Privy Council ruled on non-party costs orders?

In Dymocks Franchise Systems (NSW) Pty Ltd v. Todd[2004] WLR 2807Lord Browne ruled that:

“Where the order being sought was against a non-party it was in the strictest sense supplemental to the judgment already pronounced and in no way varied it; that the order was separately enforceable although the petitioner would only be entitled to recover a maximum of its total costs; that where a non-party promoted and funded proceedings by an insolvent company solely or substantially for his own financial benefit, he should liable for the costs if the claim or defence or appeal failed; and that, in the circumstances, since the respondents would not have pursued their appeal to the Court of Appeal and a further appeal to the Privy Council without the involvement of the third party, the Judicial Committee should in the exercise of its discretion order the third party to pay the costs of those appeals.”

It was clear from Dymocks that the credit hire company could only be liable for a NPCO if it had ‘promoted and funded’ Mr Shazad’s proceedings against RSA. It was clear on the evidence that it had done no such thing.

What is the relevance of the FX Music case here?

Gardiner v. FX Music Ltd [2000] All ER (D) 144 is a decision of Deputy Judge Geoffrey Vos QC before he became the Master of the Rolls. His ruling is:

‘An order for costs against a non-party was always an exceptional order. In the case of a sole or guiding director of an insolvent company, such an order was not normally made unless it could be shown that the director caused the company to bring or defend proceedings improperly. On the facts of the case, the court did not agree that R's evidence was disingenuous. Had the evidence been deliberately misleading, then the fact that the alleged deception was not consummated by reliance upon it in court would not have been sufficient to allow R to escape because costs were incurred as a direct result of the evidence that he swore. The court accepted that R was the guiding spirit behind FX, and that he might, had FX not gone into insolvent liquidation and won the litigation, have been personally financially benefited, however, that was not enough by itself to warrant an order under s 51(3).’

What was the ruling in Select Car Rentals?

InSelect Car Rentals (North West) Limited v. Esure Services Limited (also known as Mee v. Jones) [2017] WLR 4426, Mr Justice Turner (on appeal) ruled as follows:

‘The court's discretion under CPR r 44.16(3) to make a non-party costs order against a person for whose financial benefit the whole or part of a claim under the qualified one-way costs shifting regime had been made was no different to, and no broader than, the court's ordinary discretion to award costs against a non-party under section 51(3) of the Senior Courts Act 1981 and CPR r 46.2 , as developed by the common law; that, therefore, once the court had found that a claim under the qualified one-way costs shifting regime had been made for the financial benefit of a person other than the claimant, within rule 44.16(3), the only immutable principle applying to the exercise of the court's discretion to make a non-party costs order was that the discretion had to be exercised justly; that in a conventional credit hire case the claim for hire charges would be made for the financial benefit of the credit hire organisation, and in giving claims for credit hire as an example of claims made for the financial benefit of a person other than the claimant, paragraph 12.2 of CPR Practice Direction 44 amounted to little more than a statement of the obvious; that the fact that a given credit hire organisation's connection with a claim was no greater than was commonly the case did not, without more, mean that it would not be just to make a non-party costs order against that organisation; and that, accordingly, the recorder had applied the right test when exercising his discretion and, on the facts, had reached a result which fell within the broad bounds of that discretion.’

However, the credit hire company said there were clear factual and evidential differences between this case and that in Select Car Rentals. The evidence of the director of the credit hire company made clear he did not direct or fund the litigation. Whilst the court has a discretion as to whether to award the insurer a NPCO, that discretion has to be exercised justly. The credit hire company said it would not be just to do so, given that the thrust of the pleadings, evidence and findings at trial were directed in relation to Mr Shazad’s dishonest personal injury claim. There was no finding that infected the claim for recovery of the credit hire charges. It would not be just in this case to make a NPCO against the credit hire company.

What ruling had HHJ Waksman QC given in relation to claims management companies and costs orders?

Adris v. Royal Bank of Scotland[2010] 4 Costs L.R. 598 is a decision of HHJ Waksman QC before he was promoted to the Commercial Court. It concerns an application for a NPCO against a claims management company and its director who had supplied leads/new cases to Consumer Credit Litigation Solicitors. Although a NPCO was obtained against Mr Burley (a solicitor at CCLS), HHJ Waksman declined to make a NPCO against the CMC.

This a summary of the findings in this case:

‘A non-party costs order against the solicitor was clearly justified. It had been the solicitor’s responsibility to obtain legal costs insurance for its clients and not only had it failed to do so but it had failed to inform them that they had no insurance and that they were exposed to adverse costs orders. That was a gross breach of its duty to them. As the clients were prevented from giving instructions on anything like an informed view, the solicitor had effectively been acting without instructions. If its clients had been told the true position, it was likely that they would have instructed the solicitor not to progress the claims and the costs would not have been incurred. There was a direct causal link between the defaults of the solicitor and the costs generated by those cases. It followed that it was in a very real sense controlling the litigation, as decisions were being taken without proper instructions. The solicitor had also funded the litigation in the sense that it had borrowed money from the CMC and still owed most of it. That outstanding debt must have put pressure on the solicitor but its financial dependence on the CMC did not mean that control was ceded to the CMC. However, even though the CMC was the funder it could not be said that it was the "real party" to the litigation. Adris were the principal and direct real parties. They had agreed to have their potential claims reviewed and taken forward and if they had succeeded would have recovered in the usual way. The only difference was that the CMC would also have benefited in the event of success, but the notion of success fees and other fees payable to claims management companies was not in itself improper and the CMC was at all material times authorised to carry on business. It was possible for there to be more than one real party, but Adris was a genuine claimant who had decided to make the claims and it could not be said that Mr Carl Wright (the director of the CMC) was the real party to those claims. He had not controlled the litigation. His attendance at the meetings before the hearing in Carey did not mean that he was making decisions about the litigation in any real way or otherwise controlling or influencing it. Those were matters for the lawyers and Mr Wright would have relied on their advice. He had an obvious interest in what was going to happen but that was as far as it went. Although Mr Wright could and should have expressed more concern regarding the insurance, that remained the solicitor’s responsibility. The non-party costs application against Mr Wright had to be dismissed but the application against the solicitor succeeded.’

What criticisms have been made about Select Car Rentals?

The credit hire company said this was a decision per incuriam and the earlier decision in Adris is the better authority. In Adris, even though a director of a claims management companyhad funded the claims and had gone to critical meetings, that was still not enough for HHJ Waksman QC to make a NPCO. Even the 6^th edition of ‘Ellis on Credit Hire’ is circumspect about Select Car Rentals stating:

‘It is therefore suggested that the court has a discretion to order costs against the credit hire company in QOWCS cases. The exercise of that discretion will depend on the nature and degree of the credit hire company’s connection with the proceedings. Where the evidence shows that the credit hire company appointed solicitors and involved itself in the litigation process, a costs order is likely to be made. Where that close connection is not demonstrated, the costs order is not likely to be made. Construction of the terms and conditions of the contract is likely to be important in this regard.’

What do the main academic texts say about this?

Professor Adrian Zuckerman in his work on civil procedure states:

‘28.246. There are mainly two broad reasons that may justify a costs award against a non-party. A non-party may be ordered to pay costs if they controlled the proceedings for their own benefit. In such a case the non-party is effectively a party, and since they would benefit from a favourable outcome of the proceedings, they should also bear the costs of an unfavourable outcome. We may refer to this ground of ordering costs as the control–benefit ground. The second type of justification is more complex and troublesome. It concerns situations where the non-party has helped a party to bring or sustain proceedings by providing financial or other assistance, without which the litigation would not have taken place and the successful party would not have incurred expenses. We may refer to this ground as the funding ground. Although the two grounds appear distinct, they are bound up together because the court would not normally order a funder to pay costs unless the funder stood to benefit from the funding arrangement, as where the funder agrees to fund proceedings in exchange for a share of the recovery.’

Peter Hurst in the 6^th edition of his book ‘Civil Costs’ cautions that a ‘judge should be alert to the possibility that an application for costs against a non-party is motivated by resentment of an inability to obtain an effective order for costs’.

What prior rulings had County Courts made in relation to this credit hire company?

In 2 other cases involving this credit hire company, two different judges each sitting in Leeds County Court had dismissed applications by insurers for a NPCO. In Idrees v. AIG Europe Ltd and Fastrack Solutions Limited in a written reserved judgement handed down on 28th April 2018, the conclusions of District Judge Goldberg were:

‘Taking into account the evidence as a whole whilst it is clear that the Respondent had a substantial financial interest in the litigation, I do not consider that the Respondent with directly or indirectly controlled or was in any sense a ‘real party’ to the litigation. In the circumstances I do not consider that it would be just for the Respondent to bear all or any part of the Defendant’s costs.’

Then in the following year in UK Insurance v. Ayub, Fastrack Solutions Ltd & Fastrack Rentals Ltd again in a written reserved judgment handed down on 17th January 2019, the strikingly similar conclusion of District Judge Greenan was:

‘As I have concluded that the degree of control exercised by FTS was not sufficient to give rise to a non-party costs order, it is not necessary for me to consider this aspect of the application in detail, but I can indicate that it seems to me there would have been significant difficulty for the Applicant to establish that a separate limited company, which was not a party to the hire agreements, had had the requisite degree of control over this litigation.’

What submissions did the insurer make?

Surprisingly before the hearing below on 9^th March 2022 before District Judge James all that was put in was a skeleton argument of 1½ pages. After the hearing, the insurer put in 13 pages of closing submissions followed by another 3 pages of reply submissions that it had not been given permission to submit. The insurer relied heavily on the Select Car Rentals judgment. It also relied on Farrell and Short v. Birmingham City Council and Direct Accident Management Services Ltd [2009] EWCA Civ 769 where the Court of Appeal upheld the decision of a first instance judge who ordered a credit hire company to pay a successful defendant’s costs. HHJ McKenna in the court below had held that the credit hire company was ‘in a real sense the instigator of the litigation’. The insurer claimed that the credit hire company was the real party to Mr Shazad’s failed personal injury claim. As to Adris, all the insurer could say was that it ‘is totally distinguished from the instant facts. It concerned consumer credit of multi parties and was from 2010’.

Did the judge grant a non-party order against the credit hire company?

After a delay of 5½ months, DJ James convened a remote hearing on 17^th August 2022 where he handed down an ex-tempore judgement in which he surprisingly granted a NPCO.

What was the district judge’s reasons for this?

DJ James said there were 2 key factors. Firstly, he ruled that the storage claim had been ‘tainted with dishonesty’. Secondly, he was much taken with what he termed the ‘relative severity in the level of damages’. As to who was the ‘real party’ to this litigation, DJ James ruled quite coarsely that it was ‘the person who stands to benefit’. He noted that the total of the credit hire company’s benefit was £36k whilst Mr Shazad’s benefit was around £8k. He ruled that he accepted that the credit hire company:

‘did not seek to exercise control but it did not need to do so. C went to a firm of solicitors who issued his claim in the County Court. What other control did FTS need to exercise? In terms of settling the claim, C was in a difficult position. C was legally liable to pay £36k to FTS whilst only seeking £3½k losses for his car. Put another way what would have happened were the solicitor to have advised C to discontinue his claim? If C had wished to do so, C would remain liable for £36k that C hasn’t got.’

Applying his flawed logic, DJ James ordered FTS to pay two-thirds of the insurer’s costs of £10k in defending Mr Shazad’s claim. He also ordered FTS to pay the insurer’s costs of the NPCO application which were claimed at £18,997.36 (reduced to £15,000 following a summary assessment).

What were the credit hire company’s grounds for appealing?

There were 3 grounds of appeal submitted. These were:

· The judge below was wrong in principle to make a costs order against the Appellant under section 51 of the Senior Courts Act 1981 and/or misdirected himself as to the correct test and/or the application of that test,

· The judge below was wrong to set the amount of the Appellant’s liability in costs at two-thirds of the costs that the Respondent had incurred in defending the Claimant’s claim. The judge below should, applying the principles from the authorities and reflecting the Appellant’s lack of culpability in relation to the Claimant’s dishonest claim, have set the amount of the Appellant’s liability in costs to the Respondent at a far lower percentage proportion than he did, and

· The judge below was wrong to rule that the Appellant should pay a percentage of the Respondent’s costs. The judge should have assessed what additional costs were incurred by the Respondent in defending the Claimant’s claim that related solely to the Appellant’s claim for hire and/or storage charges and awarded that figure instead.

Was permission to appeal granted?

HHJ Walsh granted unconditional permission to appeal on all 3 grounds on 12^th January 2023.

What points did the insurer make to resist the appeal?

The insurer did not serve a Respondent’s Notice seeking to affirm the decision below on other grounds. Instead, a 4-page skeleton argument was served. Rather oddly, it claimed that rather than appealing, the credit hire company’s counsel should have queried or sought clarification of the 67% costs order that DJ James made below. The insurer relied heavily on Select Car Rentals and claimed the 2 earlier Leeds County Court rulings in relation to this credit hire company did not bind DJ James. The insurer claimed that costs assessment is ‘not an exact science’ concluding with a bizarre submission that it was ‘frankly absurd to complain now’ about the costs order below.

What is the ruling in Smithson?

HHJ Freedman sitting on appeal in Newcastle upon Tyne County Court in On-Hire Limited v. James Smithson (‘Smithson’) handed down his reserved judgment 20th May 2022. Smithson concerns a set of facts that are almost indistinguishable from the facts in this case. Judge Freedman over-turned a NPCO made by District Judge Searle who had ordered a credit hire company to pay 50% of an insurer’s costs. Judge Freedman ruled that the credit hire company was not the real party to the litigation and the test laid out by the Supreme Court in Travellers had not been satisfied. Moreover, Judge Freedman ruled that the insurer’s claim for a NPCO had to fail on causation and that the involvement of a credit hire company had not caused the insurer’s costs of dealing with the personal injury case to increase. Judge Freedman’s conclusion was:

‘66. Generally, whilst it is conceivable that the credit hire element of the claim added a little to the overall costs of the litigation, I am satisfied that the bulk of the costs would have been incurred in any event. I repeat that this is particularly so because liability was contested and, also, because there was a claim for general damages for PSLA. Both these aspects of the claim necessitated extensive investigation. There is simply no evidence to support the proposition that the costs would have been significantly less if there had been no claim for credit hire.’

What happened at the appeal hearing?

The appeal had been listed by Judge Walsh for 2 hours but in the end, it took all day to hear. The appeal judge was taken to what happened below and the authorities. It was stressed that if Mr Shazad had terminated the hiring when his own insurer declared his car to be a write off, then the costs of hiring would have been around £8k. It was this further additional dishonesty that made the loss greater. Moreover, it was pointed out to the appeal judge, that DJ James had clearly stated at the start of the hearing on 9^th March 2022, that both the insurer and the credit hire company were out of pocket as a result of Mr Shazad’s dishonesty.

What was the conclusion of the appeal judge in his ruling?

The appeal judge allowed the appeal on Ground 1 ruling that a NPCO should not have been made. If he was wrong about that, the appeal judge said a percentage costs order was wholly wrong in principle and that a judge should have assessed costs on a NPCO application in relation to any additional costs incurred as a result of an insurer dealing with a credit hire claim. Here the insurer had not even sought to put in evidence from a rates surveyor as to the prevailing rates in the open market of the type of car that Mr Shazad had hired.

What observations did the appeal judge make in his judgement?

He ruled that it was ‘difficult to do justice to the breadth and depth’ of the credit hire company’s submissions in his judgment. The critical part of the appeal judge’s ruling is paragraph 67 where he concludes as follows:

‘67. My own experience is that in most modest traffic accident claims the credit hire claim is usually by far the biggest head of loss. If District Judge James is right, then a credit hire company would be at risk of paying the successful insurer’s costs in any claim where a decision on liability went in the Defendant’s favour. This would be the case even where there was no dishonesty on the part of the Claimant and the judge merely preferred the Defendant’s version of events. This is neither fair nor consistent with the authorities I have analysed earlier. In my judgment, there must be evidence that the credit hire company has controlled the litigation to such an extent that an objective analysis would suggest that it was the real party and the actual claimant merely a nominal claimant whose interests were distinctly secondary. The Recorder in Select Car Rentals came to this conclusion and the case relied on by Mr André (UK Insurance Limited v Direct Accident Hire Limited) reviewed at paragraph 50 above provide examples of cases where the court has found material to enable it to reach that conclusion. A comparison between those cases and the current case would show why the District Judge found that there was no attempt to control the litigation, and, in my judgment, this should have led him to exercise his discretion by refusing to make an order for costs against the Appellant.’

What costs were the insurer ordered to pay to the credit hire company?

The insurer was ordered to pay the credit hire company’s costs of £26,589.60. The insurer also has to bear its costs of the NPCO application which below totalled £18,997.36. The insurer’s costs of the appeal were claimed at £7,185. The insurer has a £10,000 costs order which it can, in theory, enforce against Mr Shazad. The insurer is out of pocket on legal fees totalling £62,771.96. It was telling that in the insurer’s filed costs schedules, little time was claimed for attendance by their solicitors on their insurer client. Mr Shazad’s whiplash claim was valued all along at less than £1,000.