Herring: We now expect credit hire companies to volunteer payment
A circuit judge has made four non-party costs orders (NPCOs) against the credit hire arm of AIM-listed Anexo Group, whose customers have to use its law firm, Bond Turner, to recover its costs from insurers.
His Honour Judge Saunders in Central London County Court held that Direct Accident Management Ltd (DAML) was the “real party” to litigation to recover the credit hire charges and should bear the risk of unsuccessful claims.
He recognised the wider significance of the ruling to the credit hire market, “as such arrangements are common, and by no means confined to companies like DAML”.
In the latest battle of the long-running credit hire war, he brought together four applications for NPCOs against DAML brought by three insurers – two of the claims had also involved “modest” personal injury elements.
Each claimant had been ordered to pay the insurer’s costs after one claim was struck out, one was dismissed at trial, and the other two accepted part 36 offers out of time for substantially less than the amounts claimed.
Only £13,052 of the combined total of £131,616 claimed for hire charges was paid and the judge said DAML’s strategy was not to pursue customers for outstanding sums.
The judge recounted: “In each claim, the claim for credit hire was on the basis of rates substantially in excess of basic hire rates – and claimed upon the basis that the claimant had a need for hire and was impecunious…
“From my reading of [the terms of the hire agreement], as soon as the hirer agrees to hire a vehicle in accordance with them, the hirer is bound to bring a claim for recovery of hire charges for payment to DAML, and, moreover, is bound into an agreement whereby they must use Bond Turner to act upon their behalf.”
The insurers did not contend that these terms were improper but said this was not necessary for an NPCO.
HHJ Saunders accepted that it was “often standard practice” for third parties to have a financial interest in cases like this “and that there will be many cases, on an interpretation of the facts, where the case will not be exceptional”.
He continued: “However, in my view, this case has several distinguishing features that set it apart from the norm, that is that make it exceptional.”
The principal reason was that prosecution of the case was “directly linked to the hire of a vehicle on credit hire terms”.
“The secondary reason (and of no less importance) is that the funding of the vehicle by the credit hire company is what has been described as the ‘essential catalyst’ for the claim for credit hire charges.
“If one considers the practice, in cause and effect, the principal financial reward is for the credit hire company (accepting that the claimant must benefit as well) – I do not consider it beyond reason, that the real instigator of the proceedings is the credit hire company because, often impecunious, a claimant will simply not consider or launch such a claim without the CHC’s assistance.
“That, in my view, makes them the ‘real party’.”
Though the instructions came from the claimants, the model was such that DAML, as part of Anexo, controlled the litigation and required the claimant to bring a claim for the credit hire charges.
“Moreover, the terms are strict. If the claimant chooses not to pursue them, they will face adverse financial consequences. They are also directed towards appointing one firm of solicitors, who are within the same corporate structure, Bond Turner, with whom they must fully cooperate.”
The fact the claimant may have other heads of loss, and may have pursued them anyway, was not a bar to an NPCO for some or all of the general costs of the claim.
HHJ Saunders concluded that it was just to make the NPCOs. “It cannot be avoided that the respondent conducts its business (and operates its business model) knowing full well that it charges much higher rates of hire (than say the usual hire spot rates) and does so, intending to make substantial profit.
“It provides this service knowing that it seeks to recover all or part of its charges from the defendant in the action.
“As part of its contract, it requires the claimant to pursue their claim for the third party’s own financial benefit, or, in default, either face an unpayable financial burden and/or allow the third party to pursue the claim in their name.
“It must follow, therefore, that the third party should bear the risk – and that is an order for costs against them. To do otherwise, would be unjust in this overall scenario.”
Gary Herring, partner and head of credit hire at Keoghs, who acted for the insurers, said: “The judgment should go a long way to ensuring that credit hire companies who pursue litigation which is ultimately unsuccessful, are no longer able to escape liability for an adverse costs order.
“Going forward, we would expect credit hire companies to voluntarily agree to meet a defendant insurer’s costs wherever a liability arises.”
James Driscoll, senior claims manager – motor damage and credit hire at Aviva, one of the insurers, said: “This ruling is significant in that it will hold credit hire organisations to account for driving unnecessary cost and litigation into the motor claims process, and should ensure that the customer is the primary beneficiary of services provided.
“Enabling insurers to recover legal costs from them for bringing unmeritorious claims should cut the number of such cases, reducing pressure on insurance premiums.”
Rachael Wong, head of credit hire at Bond Turner, said it was “nonsense” to suggest individual claimants have little or no choice or influence over the proceedings – the court did not find that DAMS controlled the litigation on a day-to-day basis and instead held that causation was not necessary.
“This in itself is a surprising determination given the plethora of binding decisions asserting that control is necessary for an order to be made.”
If the ruling was correct, she added, then insurers themselves could also be liable for costs of litigation when they pursued repair costs, for example, while many others benefited from litigation, such as private health care providers that seek to recover treatment costs.
“If control is not a pre-requisite for the making of an order, then they will also be liable for non-party costs merely by being the beneficiary of a head of loss in a litigated claim.”
Ms Wong pointed out that claimants “actually want to pursue their own losses and restore their no-claims bonuses, having been deprived of the same when liability is in dispute”.
She explained: “I regularly represent clients who are in just that position. The suggestion that they do so merely because they are obliged to do so to recover the credit hire charges is wholly misconceived. All of that appears to have been overlooked by HHJ Saunders.”
The firm has not appealed as it was not a binding ruling and Ms Wong said it has since defeated similar applications in other courts.
Last year, a circuit judge in the same court rejected an application for an NPCO against Anexo over the work of Bond Turner.
Ms Wong will speaking at a sessiono on credit hire at PI Futures on 19 September in Manchester. Click here for early bird tickets.
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