Non-party costs order (“NPCO”) against credit hire company

Kindertons Limited v (1) Georgina Murtagh (2) Esure Services Limited [2024] EWHC 471 (KB)

Introduction

• This case concerns a non-party costs order made against a  credit hire company, Kindertons Limited (“Kindertons”), in favour of an insurer, Esure Services Limited (“Esure”) and is a High Court decision by Turner J, handed down on 5 March 2024.

Background

• On 20 February 2019, a minor collision occurred when Georgina Murtagh carelessly drove her Volkswagen Polo into gentle contact with the rear of Serhat Ibrahim’s Audi A5.
• Mr Ibrahim’s claim for the costs of repairs was in the sum of £2,543.80.
• Two days after the accident, a representative by the name of Rachel telephoned Mr Ibrahim to discuss providing him with a replacement vehicle.  During the telephone conversation, Mr Ibrahim described the damage to his vehicle as: “…not a lot of damage.  It’s just the back bumper.  It looks a bit out of line…”.
• Notwithstanding his modest description of the damage, Mr Ibrahim was readily persuaded that he should not be driving the car and that he ought to hire an alternative from Kindertons.
• A report later provided by JP Morris assessors on behalf of Kindertons concluded that Mr Ibrahim’s Audi had suffered no damage in the accident that would have rendered it unroadworthy. 
• Rachel told Mr Ibrahim that if the other driver’s insurer, Esure, should offer to provide him with a less expensive alternative hire car he should “just tell them Kindertons are dealing with the claim and end the call from there”. 
• On 23 February 2019, Mr Ibrahim entered into a credit hire agreement with Kindertons for the hire of a Jaguar XF (later replaced with a Mercedes Benz C250 on the same terms) at a rate of £345.08 per day.  The period of hire was 33 days.
• Also on 23 February 2019, Mr Ibrahim entered onto a credit hire agreement with Kindertons in respect of repair, recovery and storage facilities.
• On 25 February (two days after the initial hire period commenced and before Mr Ibrahim entered into the second hire agreement) Esure sent him a letter offering an alternative replacement vehicle at no cost at all to him but at a cost to Esure of £63.45 per day. 

The claim

• Proceedings were brought by Mr Ibrahim and his wife, Sylvia, against Miss Murtagh limited to £20,000.
• All but £50 of Mr Ibrahim’s special damages claim arose under the credit agreements. 
• In addition, both Mr and Mrs Ibrahim claimed general damages in respect of personal injury, the combined value of which could not have exceeded £3,192.25 having regard to the value of Mr Ibrahim’s special damages claim and the overall claim limit.
• Miss Murtagh denied liability and the matter proceeded to a fast track trial.

The trial

• The matter came before Mr Recorder Berkley KC, who found that whilst he was satisfied that a collision had occurred, (i) the damages claimed in respect of the repairs and hire charges had not been caused in the accident; (ii) Mrs Ibrahim was not in the vehicle at the time; (iii) both Mrs Ibrahim and her husband had been fundamentally dishonest in saying that she had been.
• Mr Ibrahim did not take up the offer.
• Mr and Mrs Ibrahim were ordered to pay Miss Murtagh’s costs in the sum of £12,000.
• Mr Ibrahim promptly disappeared, leaving the costs bill unpaid.

The non-party costs claim

• Esure applied for a non-party costs order (“NPCO”) against Kindertons.
• The application ought to have been heard by Mr Recorder Berkley KC but instead came before Mr Recorder Gallagher.
• Para. [29]: “It is regrettable that the trial judge did not hear the costs application and that neither side took the issue below.  Particular care should be taken not to list NPCO applications to be heard by a judge who did not sit on the trial without a compelling reason.”

The decision below

• The parties agreed that the Recorder had the power to make a NPCO.  The issue was whether he should have exercised his discretion to exercise that power in the circumstances of the case (para. [30]).
• The statutory foundation of this power is to be found in section 51(3) of the Senior Courts Act 1981 which provides as follows: “(3) The court shall have full power to determine by whom and to what extent costs are to be paid”.
• The Recorder correctly referred to CPR 44.16(2) as identifying the circumstances in which an NPCO can be made in the context of Qualified One-way Costs Shifting [QOCS]. 
• In addition, CPR 44 PD 12 was noted to provide that “[e]xamples of claims made for the financial benefit of a person other than the claimant…within the meaning of rule 44.16(2) are subrogated claims and claims for credit hire…” and to state at para. 12.5(b) that “the court may, as it thinks fair and just, determine the costs attributable to the claims for the financial benefit of persons other than the claimant”. 
• Noting that Mr and Mrs Ibrahim were found to have no viable residual claims which might have been sustained if not for the finding of fundamental dishonesty, the Recorder found that the claim included a claim which was made for the financial benefit of Kindertons and awarded Esure 80% of their costs against Kindertons.

Dismissing the appeal on all grounds…

• The whole purpose of Kindertons providing credit hire facilities is to make a commercial profit out of the client’s legal claim (para. [39]).
• Kindertons stood to gain substantially from the claim brought in Mr Ibrahim’s name and the price of the services they provided under the contracts with Mr Ibrahim very significantly exceeded the value of the personal injury and “undocumented miscellaneous expenses” claims brought by him and his wife (para. [42]).
• It followed that Kindertons had a very strong financial stake in the litigation and that “any benefit to Mr Ibrahim in pursuing the claim for hire charges was all but illusory” (para. [43]).
• In relation to the contention that there was no proper basis for the judge’s finding that the appellant controlled the litigation, the court stated: “There is a danger that the concept of “control” is wrongly treated as if it were a traffic light, governing the exercise of the court’s discretion to make a non-party costs order, which is showing either red or green.  Control is almost invariably a matter of degree.  As a concept, it is relevant to the extent that, in any given case, the greater the level of control exercised by the non-party the more likely it will be that the court will exercise its discretion in favour of making a NPCO” (para. [44]).  
• The court quoted, with approval, Deutsche Bank AG v Sebastian Holdings [2016] 4 W.L.R. at para. 62: “We think it important to emphasise that the only immutable principle is that the discretion must be exercised justly.  It should also be recognised that, since the decision involves an exercise of discretion, limited assistance is likely to be gained from the citation of other decisions at first instance in which judges have or have not granted an order of this kind” (para. [45]).
• On the facts of the case, there was a high degree of control: “The contractual terms identified above tied Mr Ibrahim into bringing a claim and continuing it at the risk of incurring serious financial consequences in the event that he were to fail to comply. It matters little, if anything, that such consequences were not, in the event, visited upon Mr Ibrahim. It is the threat and not the execution of repercussions which forms the usual basis for control” (para. [46]).   Furthermore, by reference to the phone call between Mr Ibrahim and Rachel, the court was satisfied that Kindertons “wished to choreograph the progress of the litigation to preclude [Esure compromising the interests of Kindertons]” (para. [47]).
• In respect of Kindertons’ contention that Esure needed to have established that Kindertons’ involvement resulted in them incurring more costs in the litigation than they would have done in any event (the “but for” test), the court held that there is no generally applicable guidance on causation applicable to all NPCO applications and that Lord Briggs in XYZ v Travelers Insurance Co Ltd [2019] 1 W.L.R. 6075 was not intending to lay down any such guidance (paras. [51-52]). 
• The position of Kindertons was different to liability insurers.  It “involved itself voluntarily and enthusiastically in the claims after the accident giving rise to it”.  Its involvement was “a matter of choice in the expectation of profit specifically related to the legal proceedings to follow” (para. [54]).
• The intermeddler cases to which Lord Briggs referred in Travelers fell to be distinguished: “It could not be said that it was none of Kindertons’ business to involve itself in the progress of the litigation.  On the contrary, it was very much its business both in a literal and metaphorical sense” (para. [56]).
• On the circumstances of the case (“and without seeking to lay down any general rule relating to the appropriateness of NPCOs against credit hire companies”), the Recorder was right to conclude that it was just to make the order and he was not obliged to make any specific finding in respect of "but for" causation before so doing. It was neither fair nor just that it should be permitted to exercise a degree of control over the most valuable aspect of Mr Ibrahim's claims on the basis of instructions from Rachel the specific intention of which was to neuter any attempts by Esure to limit its exposure to the hire claim, without exposing itself to the potential consequences of a NPCO (para. [57]).
• By ordering Kindertons to pay 80% of the costs, “the Recorder was exercising his discretion appropriately to reflect the proportionate benefit which it stood to obtain if the claim for hire charges had succeeded. An attempt mathematically to calculate on a "but for" basis of causation would simply not have reflected the unfairness of allowing Kindertons a free ride on the coat tails of Mr Ibrahim's claim” (para. [58]).
• Regarding Kindertons’ contention that Esure should have given notice that it would or might pursue a non-party costs order against it, the court held that “Kindertons would or should have known only too well that the nature of its business put it at risk of a NPCO application. The wording of CPR 44 PD 12.2, insofar as it relates to claims for credit hire, provided express warning of this; if any such were needed. I can discern no prejudice to Kindertons in the timing of Esure's application” (para. [61]).
• Regarding the argument that the finding of dishonesty made it unjust to make a NPCO against Kindertons, the court held as follows: “Kindertons voluntarily assumed the risk that Mr and Mrs Ibrahim would turn out to be dishonest….The level of scrutiny which would be applied to any aspect of the claim which it was seeking to adopt was a matter for Kindertons…it may well be that the cost of exercising higher levels of scrutiny would be disproportionate to the money thereby saved but this is a commercial decision the consequences of which must be borne by Kindertons” (para. [63]).
• Under the subheading ‘Discretion’: “On the facts of this case, I too would have made a NPCO against Kindertons had the matter come before me at first instance for the reasons I have given. But even if I had not been minded to make such an order, I would still have concluded on appeal that the approach taken by the Recorder to the exercise of his discretion fell comfortably within the generous parameters afforded to him. Appellate courts will not lightly interfere with such decisions” (para. [65]).