horwich farrelly

Landmark ruling paves way for insurers to recover costs from credit hire organisations

June, 19, 2017

Horwich Farrelly has achieved a landmark ruling on behalf of esure, in the appeal of Rachel Mee and Others v esure Insurance Ltd, paving the way for insurers to recover costs from credit hire organisations (CHOs).

The High Court judgment, handed down today, dismissed an appeal by Southport-based Select Car Rentals (North West) Ltd that the CHO was to pay 60% of esure’s costs. As a result, esure now expects to recover costs in excess of £20,000 from Select.

This decision, which follows a successful trial in a case dealt with by Horwich Farrelly’s Counter Fraud department, will impact upon all credit hire claims. It is one of the most significant decisions on credit hire and QOCS to date.

Background

The matter concerned claims made to esure by Miss Rachel Mee and three others following an alleged road traffic collision on 27 April 2013. Following the incident, Miss Mee hired a vehicle from Select, which she kept for a period of 388 days at a total cost of £23,456.85. However, when esure investigated the case it emerged that she had purchased a replacement vehicle nine weeks after the incident, so had no need to continue the hire beyond this point.

Following a three day trial in October 2015, Recorder Grundy dismissed all four claims because the claimants failed to prove that they were even involved in the alleged accident. He declined to find that the claims were fraudulent although he made the observation that they were “very suspicious”.

As esure were not able to recover costs from the claimants, we applied for a (non-party) costs order against Select in March 2016. At a hearing on 8 December 2016, Recorder Garside QC ordered Select to pay 60% of the costs to esure, estimated to be minimum of £20,000. Select appealed this order, arguing that the case was wrongly broadening the circumstances in which a costs order may be made against a non-party.

The Appeal

In the High Court on 24 May 2017, Mr Justice Turner rejected Select’s argument citing the observation by the Court of Appeal (in Deutsche Bank v Sebastian Holdings) that “the only immutable principle is that the discretion must be exercised justly”.

In order to have an enforceable costs order, we relied upon the relevant exception to Qualified One Way Costs Shifting (QOCS), CPR 44.16(2) which applies to proceedings that “include a claim which is made for the financial benefit of a person other than the claimant”. CPR 44.16(3) states that in those circumstances the court may make a costs order against a person other than the claimant.

The QOCS Practice Direction (PD) states that examples of such claims “are subrogated claims and claims for credit hire”. Select invited Justice Turner to read the words “which may be” into the PD so as to provide its meaning as “examples of claims which may be made for the financial benefit of a person” but he declined to do so.

He further disagreed that a defendant has to establish that the CHO made a profit from the litigation stating “some money is better than no money”.

Justice Turner also rejected arguments that non-party costs orders should only be made in exceptional circumstances or that the non-party must exercise a degree of control over the litigation stating:

“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.”

Commentary

The court’s jurisdiction to make a non-party costs order is found in section 51(3) Senior Courts Act 1981 which provides that “the court shall have full power to determine by whom and to what extent the costs are to be paid”. CPR 46.2 sets out the procedure for dealing with a non-party costs application but does not offer any guidance as to how the court should exercise its discretion.

Justice Turner found that CPR 44.16(3) was not a new power or a change to the nature of the discretion to be exercised under section 51(3) and CPR 46.2. He agreed with the analysis in Cook on Costs that it is nothing more than a way of identifying specific categories of non-parties “in the firing line” and as a reminder of the availability of a non-party costs order. This is significant in that it does not limit the application of the decision to QOCS cases (many credit hire claims do not include personal injury, thus QOCS will not apply).

Thus far, non-party cost applications were approached on the basis that there was a requirement that the defendant had to establish that the non-party was able to exercise a degree of control over the litigation, a hurdle that is often difficult to overcome. The removal of that hurdle means that there will now be much more scope to obtain costs orders against CHOs which we will incorporate into our Know Your Opponent strategies against those CHOs which behave unreasonably.

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