Costs risks and credit hire

In Kindertons Ltd v Murtagh [2024] EWHC 471 (KB), which we examined in a July 2024 article (see tinyurl.com/29jetu66), the High Court upheld a non-party costs order (NPCO) against a credit hire company. The decision confirmed that the financial interest and control exercised by credit hire providers over proceedings can justify such orders, even in the absence of ‘but for’ causation. Turner J emphasised that the key test is whether justice requires such an order, with the credit hire company’s commercial interest and structural control over litigation being decisive factors. The Court of Appeal has now revisited and expanded upon these principles in the conjoined appeals of Tescher v Direct Accident Management Ltd and AXA Insurance UK Plc v Spectra Drive Ltd [2025] EWCA Civ 733. These judgments represent the most comprehensive appellate authority to date on the applicability of NPCOs in the context of credit hire litigation. 

The appeals

In Tescher, the claimant’s personal injury and credit hire claim was dismissed. A costs order was made in favour of the defendant, but qualified one-way costs shifting (QOCS) protections prevented enforcement. The defendant then sought an NPCO against Direct Accident Management Ltd (DAML), the credit hire provider. At first instance, the application was refused on the basis that DAML was not the ‘real party’ to the litigation, nor was causation established.

Similarly, in AXA v Spectra, the claim was discontinued following threats of a fundamental dishonesty defence. Although the insurer recovered 65% of its costs at first instance, this was overturned on appeal. The judge found that Spectra was the principal beneficiary of the claim and a cause of the litigation but concluded that AXA’s ‘good fortune’ in escaping a costs liability at trial militated against a costs order.

In both cases, the Court of Appeal reversed the lower court’s findings. 

Principles reaffirmed and clarified

The Court of Appeal held that in credit hire cases involving an impecunious claimant, where credit hire charges vastly exceed other heads of claim, the litigation is ‘for all practical purposes’ driven by the hire provider. The court confirmed that:

• The credit hire company is typically the real party in all but name and stands to benefit financially from the litigation.
• The structure of credit hire agreements, particularly where payment is deferred pending recovery from a third party, creates both a strong commercial stake and an element of litigation control.
• A strict ‘but for’ causation test is not required. The inevitability of litigation due to the credit hire structure suffices to establish the causal link necessary for an NPCO.
• Paragraph 12.5 of Practice Direction 44 is consistent with the principle that where the claim includes a component made for the benefit of a non-party, that party will usually bear the associated costs if the claim fails.

Furthermore, the court confirmed that the XYZ v Travelers [2019] UKSC 48 line of authority, often invoked to resist NPCOs, does not govern credit hire cases. That case addressed the liability of insurers, a distinct category of non-parties. Consequently, its emphasis on exclusivity of interest and strict causation was held not to undermine earlier authorities such as Dymocks v Todd [2004] UKPC 39 and Farrell v Birmingham CC [2009] EWCA Civ 769.

In Tescher, Birss LJ, delivering the leading judgment, suggested a two-stage approach: first, ask whether the jurisdiction for an NPCO is engaged (that is, whether the credit hire company is a real party and a cause of the litigation); and second, determine what proportion of the defendant’s costs should be borne. In both cases before the court, he concluded that these conditions were satisfied and awarded 100% of the defendant’s costs against DAML and 65% against Spectra. He further noted that attempts to draw analogies with solicitors acting under conditional fee agreements were misplaced. Unlike lawyers, credit hire companies derive their commercial benefit directly from the damages pursued and often exercise implicit control over whether a case proceeds or settles.

The Court of Appeal’s decision provides long-awaited clarity. It confirms that where a credit hire provider initiates or substantially controls litigation and stands to gain financially, it cannot shelter behind QOCS protections or the formal status of being a non-party. Credit hire companies operating on a commercial basis, particularly in cases involving allegations of impecuniosity, now face a significant costs risk when claims fail. This development, while preserving access to justice for claimants, rebalances the litigation landscape by ensuring that those who drive and profit from the proceedings share in the risks.

Masood Ahmed is an associate professor of law at the University of Leicester and a member of the Law Society’s Dispute Resolution Committee. Lal Akhter is director of Docket Live and an unregistered barrister