NEWS: COURT OF APPEAL ISSUES GUIDANCE RE NON-PARTY COST ORDERS AGAINST CREDIT HIRE COMPANIES

Jun 30, 2025
15 min read

Updated: Feb 8

CASE: YEHUDA TESCHER -v- DIRECT ACCIDENT MANAGEMENT LTD AXA INSURANCE UK PLC -and- SPECTRA DRIVE LIMITED [2025] EWCA Civ 733

IN JUNE 2025 THE COURT OF APPEAL (COA) ALLOWED 2 CONJOINED APPEALS FOR NON-PARTY COST ORDERS (NPCOs) AGAINST CREDIT HIRE COMPANIES (CHCs). IN DOING SO, THEY SET SPECIFIC GUIDANCE PROVIDING FOR THE LOWER COURTS WHEN CONSIDERING NON-PARTY COSTS.

We are one of the few law offices to succeed in not just acquiring Non-Party Costs Orders (the easy part), but to also complete execution against a Bankrupt fraudster through a subsequent Charging Order and Possession Order. Drawing from that experience, we are now pleased to provide this article summarising the COA’s considerations in this field.

EXCLUSIONS:

Content & Advice: As with all content published on our website, this article does not constitute legal advice and you are referred to the terms and conditions of use accordingly.
Criminal Law: Nothing in this article relates to criminal law.
Opinions: Any opinion(s) expressed herein unless otherwise expressly stated are solely the personal opinion of the author.

BACKGROUND SYNOPSIS

For a concise synopsis of the law relating to NPCO and costs expand the items below.

WHAT ARE NON-PARTY COSTS ORDERS (NPCOs)?

Pursuant to s.51 Senior Courts Act 1981 the courts have the power to order the financial costs of litigation be paid by non-parties. This procedure is governed by CPR r.46.2 which provides that they are exceptional orders.

You can read our explanatory note concerning NPCS by clicking here.

WHAT IS QUALIFIED ONE-WAY COST SHIFTING (QOCS)?

In the legal jurisdiction of England & Wales; the immemorial keystone of justice is that the vanquished litigant should always pay the victor’s legal costs.

The 2013 Jackson Reforms tempered this principle and since then, solicitors acting for claimants in the fields of Personal Injury (PI) Road Traffic Accident (RTA) & Industrial/Occupational Disease have been subject to Fixed Recoverable Costs (FRC) together with QOCS. What these acronyms mean is that:

The successful claimant; instead of claiming legal costs at an hourly rate (even under a no-win no-fee) will be subject to fixed costs set by the Ministry of Justice (MOJ). While in the reverse scenario;
The successful defendant; while receiving an order that the Claimant do pay their legal costs, cannot enforce these without permission of the court.

Consequently, in a ‘normal’ PI or RTA case, when the insurer is victorious it does not get its money back. The trade-off is when the insurer losses, it has to pay approximately 10% of what it used to prior to 2013.

That being said, there are exceptions to ‘the QOCS Protections’ the most obvious being Fundamental Dishonesty pursuant to CPR r.44.16(1). Where CPR r.44.16(2)(a) applies, the court will normally order the claimant or the person for whose benefit a claim was made to pay the costs.

Its irrelevant if the aggregate sum of costs exceeds the amount of damages claimed (PD 44.12.6).

ARE THERE ANY EXCEPTIONS TO QOCS i.e. WHEN A VANQUISHED LITIGANT WOULD NOT HAVE TO PAY THE VICTORS LEGAL COSTS?

Yes. The QOCS Protections contained in CPR r.44.13 are subject to the exceptions set out in CPR r.44.15-16. As stated above, an order for costs against an vanquished claimant cannot be enforced in the defendant’s favour without permission from the court.

The exception contained in CPR r.44.16(2)(a) is where the proceedings include a claim that is for the financial benefit of a person other than the claimant or the defendant.
An example of such a claim is given in Practice Direction (PD) 44.12.2 and it is a claim for credit hire.
Where the exception applies, the court may (subject to CPR r.46.2 Cost Orders in Favour of or against Non-Parties) make an NPCO against that person for whose financial benefit the whole or part of the claim was made in according with CPR r.44.16(3).

THE MATERIAL FACTS

The CoA's guidance follows 2 conjoined appeals from the defendants Tescher and AXA. They had appealed against the lower courts refusal to grant their applications for NPCOs against 2 separate credit hire companies. Both unsuccessful claims arose from Road Traffic Accidents (RTA) and were for Personal Injury (PI) and credit hire charges.

CASE: TESCHER -v- DIRECT ACCIDENT MANAGMENT LTD:

MATERIAL FACTS:

The claimant in the first set of proceedings (Q) entered into a Credit Hire Agreement with Direct Accident Management Ltd (DAML).
Claimant Q sought damages from Tescher (T) for alleged PI and credit hire charges the latter of which represented 85% of the quantum claimed.
Regretfully for Claimant Q, the court dismissed their claim for damages and made the usual QOCS costs order i.e. Q to pay Defendant T’s legal costs not to be enforced with out permission of the court.
Due to QOCS, this meant that in practice that T would receive £0.00. Consequently;
T applied for a NPCO against DAML arguing that they were the real party in litigation as they would receive >85% of Claimant Qs damages.

CASE: AXA INSURANCE UK PLC (A) -v- SPECTRA DRIVE LTD (SDL):

In contrast to the above, AXA's case went through a prior from District Judge to Circuit Judge before reaching the Court of Appeal.

MATERIAL FACTS:

The claimant driver sued for alleged personal Injury and credit hire charges.
The Defendant’s insurer AXA (A) admitted liability for the RTA and the claimant received payment equalling the total loss of his damaged vehicle. However;
The claimant subsequently discontinued the case and pursuant to CPR r.38.6(1) that claimant was ordered to pay A’s costs which were subject to QOCS protection. Due to QOCS, this meat that in practice that the victorious defendant A would receive £0.00. Consequently;
A applied for an order setting aside the QOCS protection based on Fundamental Dishonesty (CPR r.44.16(1) and for a NPCO against SDL).
At first instance, it was held that the claimant had not been fundamentally dishonest (and so had QOCS protection) and the SDL was ordered to pay 65% of A’s costs.
On a first appeal; the first instance decision was reversed and A’s application for an NPCO was rejected. The appeal judge concluded that while there were some factors in support of an NPCO, had the claim not been withdrawn, it would have succeeded in part. It was suggested that it would not be just to make an order for costs against SDL in credit of AXA’s “Good Fortune in escaping a judgement and costs.”

JUDGEMENT

You can view the complete judgement here.

In concise summary, the CoA's judgement was unanimous. They ordered a NPCOs against DAML for all of T’s costs and a further order against SDL for 65% of A’s Costs.

TESCHER'S JUDGEMENT ON APPEAL:

The CoA held that real beneficiary of the claim for damages and for credit hire charges with tacit control over the ligation was the Credit Hire Company. Consequently the first step of the exercise was satisfied insofar as the court's jurisdiction had been engaged. There were no ‘special circumstances’ to consider. Overturning the decision under appeal, the court made an NPCO against DAML for all T’s costs.

AXA'S JUDGEMENT ON APPEAL:

The lower court had exercised its discretion on the wrong basis. Pursuant to CPR r.38.6(1) whether a claimant would or might well have succeeded at trial was not a good reason to “order otherwise” and relieve the claimant from the the liability to pay costs on discontinuance. This was in lien with Nelson’s Yard Management Company an others vs. Eziefula [2013] Civ 235 and ought to have been brought to the court’s attention on first appeal. There was simply no “principled reason” to distinguish between the claimant’s position and the position of the CHC seeking to derive a financial benefit from he claim. Due to the matters aforesaid, the CoA restored the first instance order required SDL to pay 65% of A’s costs.

The Judgement delivered by Birss LJ was specifically crafted to provide guidance for the lower courts when determining these issues and can be found at paragraphs 65-79 of the judgement. This was essentially a 2 stage approach summarised as follows:

Jurisdiction: Has the courts jurisdiction pursuant to s.51 Senior Acts 1981 against the Credit Hire Company (CHC) been engaged? And thereafter consider;
Costs: Once engaged, what is the appropriate amount of costs that should be paid?

GUIDANCE 1st STAGE: JURISDICTION

Both cases had the following common features:

QOCS: Proceedings arose from an RTA wherein the respective claimants were pursuing a cause of action for both PI and credit hire. This meant that QOCS protection applied.
IMPECUNIOSITY: Both credit hire claims were naturally based on the allegation that both claimant were impecunious (in the sense of Lagden vs O’Connor [2003] UKHL 64). What this meant was that the CHC could not be expected to recover the credit hire charges from the claimant on “any realistic commercial basis.”
DEFERRAL OF PAYMENT: While not exact duplicates, the credit hire agreements which are contracts in the normal sense of the word, naturally deferred payment until the conclusion of the case.

BLISS LJ In considering the court's jurisdiction to make an NPCO order against a Credit Hire Company determined as follows:

DEFERRAL ARRANGEMENTS i.e. THE CREDIT HIRE AGREEMENT

The Credit Hire Agreement was held to be fundemental cause of the legal costs incurred by the defendant. There was no other way to reconcile its connection to a claim for damages by a claimant whom alleged to be impecunious. The only "realistic means" by which the claimant could afford to pay the CHC was by settlement of his claim or by victory in court. The hire company was in the driving seat.

[70] "The contract may explicitly require the hirer to pursue a claim for hire charges as the DAML contract does at clause 5(ii). However, while the Spectra contract does not contain words to that express effect, its version of clause 5 makes the deferral of the hire charges conditional on the pursuit of a claim for damages against the third party alleged to be liable. By Spectra clause 8, if the condition in clause 5 does not apply , then all the hire charges are due on demand. In my judgement the deferral arrangements in both cases, connected as they are to a claim for damages by the hirer against the third party who caused the accident, coupled with the alleged impecuniosity of the claimant, combine to make the litigation (or its settlement) inevitable for all practical purposes. Litigation (including settlement) is the only realistic means by which the credit hire agreement, for which the credit hire company is responsible, is a fundamental cause of the legal costs incurred by the defendant. That is enough to satisfy the requirement for causation sufficient at the first stage of the exercise. For this reason, I would hold that Turner J was right on causation in Kindertons.

FOR JURISDICTION, IS IT NECESSARY TO CONSIDER THE COSTS?

No this is literally the second stage. To engage the NPCO jurisdiction it is not necessary to consider if 'but for the credit hire claim' the costs would be any higher than the costs of the PI claim.

71] “To engage this jurisdiction, it is not necessary to consider whether, but for the credit hire claim, the costs would be any higher than the costs go the PI claim. This follows from the inevitably of the litigation (to its settlement). Moreover a”but for” causation approach generally breaks down when there are multiple causes. It could equally be asked how much modes personal injury claim caused by way of an increase in the costs of a large credit hire claim. Questions about dividing litigation costs into elements relating to personal injury or credit hi9re, or looking at additional costs of one element as compared to the other, are best addressed at the 2nd stage if the exercise gets that far.

CONTROL. WHO WAS IN CONTROL OF THE LITIGATION?

YES! The structure of the respective Credit Hire Agreements meant that both CHCs exercised sufficient control over the litigation to be considered 'the real party' in accordance with the established common law.

[72] Previous cases have examined who did or could appoint solicitors. I believe that is likely to be irrelevant in these circumstances. In the DAML contract clause 5(ii) which required the hirer to pursue the claim also provided that they would appoint solicitors nominated by DAML. We were told that in practice DAML would not prevent a hirer from appointing other solicitors but if the solicitors were not DAML’s liking they might refuse to hire the vehicle. In the Spectra case a separate Form of Authority document was signed and the authorised and requested Spectra to recover all the claimant’s uninsured losses, authorised Spectra to appoint a solicitor but also explicitly made clear that the Claimant could also appoint a solicitor of their choice.

[73] The relevant of who appoints the solicitor, in the context of a non-party costs order, would be to the question of control. However, in my judgement the credit hire company has sufficient control of the litigation arising from the structure of the credit hire arrangement themselves, with the deferral of payment and the practically inevitably of litigation against the defendant of their insurers, or settlement with them. Any competent solicitor advising a claimant in an RTA case with PI and credit hire elements would understand the implications of the deferral of the credit hire charges. They would know, for example, that the wise course if a settlement was offered was to ensure the credit hire company was content with the sum involved. The control is not absolutes as the Spectra case illustrates, but it does not have to be. As a practical matter the structure of the arrangements puts all the risk associated with the credit hire charges on the claimant if they were to settle at what the credit hire company considered to be an undervalue, or as in Spectra, to discontinue. That is why the circumstances give the credit hire company effective control in practice. The control is all the more effective for not having to be overtly exercised.

TAKING ALL OF THE ABOVE, WHO IS 'THE REAL PARTY' OR 'THE REAL BENEFICIARY?'

The CHC was the real party to the litigation in all but name. "Unless there was good reason not to" the above factors when taken together should be enough to conclude that a CHC is 'the real party to litigation' as it is for their benefit that the credit hire claim was really being made. It was the "practical and economic" reality of the litigation.

[74] The elements I have described taken together are enough for a court to conclude that absent some reason why not, when a claimant has been ordered to pay the costs and QOCS applies, a non-party costs order against ht credit hire company is likely. The credit hire company is a person for whose benefit the credit hire claim was being made. As Giles vs Thompson establishes a claimant in a credit hire case does have a real legal claim, although it is relevant to have in mind that the premise here is that the claimant is being ordered to pay the defendant’s costs, no doubt either because their claim failed or was discontinued. As a mater of reality - practical and economic - it is the credit hire company which is the real beneficiary of the litigation for the damages in respect of charge for credit hire. The fact that payment of the sums obtained in a successful claim to the credit hire company benefits the claimants by extinguishing their debt to that company does not alter reality.

For all the aforesaid and in line with Dymocks the credit hire companies were held to be ‘the real party’ in litigation with a real financial interest and the courts jurisdiction pursuant to s.51 Senior Courts Act 1981 was engaged accordingly.

GUIDANCE 2nd STAGE: COSTS

As to the 2nd stage, Birss LJ found that there were 3 obvious possibilities in relation to legal costs.

Costs of the entire litigation: This would be likely absent a special feature when the credit hire claim was several times greater than the personal injury claim.
Apportionment: Based on the respective sizes of the credit hire and PI claims.
Extra Costs: Attributable to the credit hire, as compared to the litigation absent it.

[77] Having found that the jurisdiction was engaged, the second step is to consider what the appropriate cost order would be. No doubt, there are others but the three possibilities are: I) an order of all the costs of the litigation, ii) an apportionment based on the sizes of the credit hire claims and the PI claim; and iii) an award of the extra costs attributable to credit hire as compared to the litigation without it. When the credit hire claim is several times larger than the pI claim an order of all the costs of the litigation would be likely, absent some special feature.

Interestingly to some, the LJ went onto to decry any inappropriate analogy between solicitors acting on a no-win, no-fee basis and CHCs under such contracts.

THE GUIDANCE

Having shielded unashamedly solicitor profession, Birss LJ recounted that his guidance was derived by applying general principles an opined that:

The same approach would arise had the court applied the QOCS exceptions found in CPR r.44.16(2) and (3), then Pd 44.12 which in any event, listed credit hire claims as examples of claims made for the financial benefit of third parties.
The court there y confirmed that a credit hire claim should fall within the ambit of CPR r.44.16(a) when brought with a PI claim for PSLA damages which would trigger QOCS. As the credit hire charges are a claim made for the financial benefit of a person other than the claimant this aligns with PD 44.12.2. Again, expressly identified.
Ultimately, the court agreed with Turner J’s observation in Select Car Rentals (North West) Ltd vs ESURE Services Ltd [2017] EWHC 1434 (QB), that the application of CPR r.44.16(2)(a) did not automatically necessitate an NPCO; however, it would be likely absent special circumstances.

[80] I have derived the guidance above by applying the general principles to this kind of case. The rules and PD were also described above and looking at the two together, in my judgement the same approach would arise if one applied r.44.16(2)(a) and (3) and then worked through the terms of PD paragraph 12.

[81] In general terms a credit hire case is one to which r.44.16(2)(a) applies (assuming of course it is brought alongside a PI claim to which QOCS applies and in which a costs order against the claimant has been made). This is because a claim for credit hire charges is a claim made for the financial benefit of a person other than the claimant. It also therefore follows that the PD para 12.2 makes an accurate statement about the application of rule 44.16(2)(a). Credit hire necessarily falls within that provision. In Mee vs. Jones (Select) at [38] Turner J made the point that the fact that CPR r.44.16(2)(a) applies does not mean a non-party costs order must follow. I agree, although as I have now explained such an order will be likely absent special circumstances, which is in effect what is provided for in paragraph 12.5(a).

COMMENT

This is a confused judgement that will be difficult to follow if challenged correctly.

Personal Injury/claim for PSLA: While we acknowledge that the claim for credit hire made up in one instance 85% of quantum claimed, in cases where the claimant is suing for Pain, Suffering and Loss of Amenities arising from either a physical or psychological injury to his person, it is simply wrong to suggest that the credit hire company is in control of the litigation. There is nothing in a credit hire agreement connecting a CHC to the damages for PSLA or their disposal thereafter. Where there is a claim for PSLA at best, the control of the litigation is shared.
The fundamental principle of Non-Party Cost Orders (NPCOs) are that they are ‘Exceptional Orders.’ This means that their use is entirely at the discretion of the court i.e. there is no automatic-right of entitlement and they are to are to be used by the courts sparingly. We note a tacit nod in this direction at [81] which we have underlined above. Further;
1. That NPCOs are Exceptional Orders is contained in the Privy Council's Dymocks summary the use of which the CoA has reaffirmed. And;
2. That NPCOS are Exceptional Orders is also in the Symphony Guidance i.e. the original higher-court guidance.
However, in making his judgement Birss LJ acknowledged anecdotally that such PI & Credit Hire cases represented a “significant volume” of the trial work of district judges i.e. the county court work. By any understanding of the word ‘exceptional’, an object or action thus described is not something that should be used but for 'special circumstances' and so, the attempt to preserve 'exceptionalism in [74] would appear confused.

While the CoA has correctly acknowledged its jurisdiction under s.51 Senior Courts Act 1981 and the correct procedures under the CPR, in its desire to provide guidance, it has misinterpreted the examples set out in the CPR as to how these 'exceptional orders should operate', as being instructions that they 'are to be operated'.

We should suggest that a Credit Hire Company would correctly (and easily) challenge an application for NPCO on the following basis:

Impecuniosity: On the facts of the case, should the claimant fail to prove his impecuniosity then by law, he can afford to pay the hire charges. It is legally incorrect then to say that the CHC can be in control of the litigation as by law, the claimant can pay the CHC accordingly.
The Credit Hire Agreement/Contract: We understand from the judgement that Credit Hire Agreements under consideration operated whereby the payment was not due until the conclusion of the litigation. Should the contract itself stipulate an end-point of re-payment schedule without any mention of the litigation then it should be difficult to argue that Credit Hire Agreement can be used as evidence the CHC was in control of the litigation.
Evidence of Control: Equally if there is no evidence that the CHC is even aware of the litigation, being updated with regards to the litigation, has not instructed the claimant's solicitors and is NOT receiving updates from the solicitors; then CHC is simply an unfortunate creditor of the claimant debtor.
PSLA: This is factual and as stated above; in cases where the claimant has been injured and is going to sue the Defendant for damages arising from his PSLA anyway, then that claimant is in control of the litigation. The facts of the case and the division of damages claimed should be used to distinguish. E.g. should the credit hire claim make up e.g. 60% of the claim for quantum and the claimant is in employment and earning; then debarring some other evidence of control that should NOT be enough for a court to determine the CHC is in control.
Exceptionalism: This is legal as CoA has failed to address the exceptionalism of these orders in its guidance. This requirement however is in the Supreme Court (formerly HoL) authorities and so it stands despite the Guidance. It could simply be argued, that 'the special circumstance' for NOT granting the NPCO, is that there is nothing exceptional or unique about the RTA and credit hire case under consideration. That on its own however, would not be enough.
Alternatives: Equally, the aggregate of the common law is that when there is an alternative order such as one for 'wasted costs' to be made in place of an NPCO the court should make the non 'Exceptional' order. In PI/RTA cases with QOCS, a wasted cost order will nearly always be more suitable and should have been considered here (in our view).