The Court of Appeal has ruled that credit hire organisations must pay defendants’ legal costs when claims are unsuccessful. The defendants in rolled-up cases in Tescher v Direct Accident Management Ltd had both applied for a non-party costs order against the credit hire company that had brought the claims.

Lord Justice Birss ruled that the companies should have to pay – albeit allowing 100% of the defendant’s costs in one case and 65% in the other.

The impact is likely to be significant, with credit hire RTA cases representing a significant volume of county court work. The Anexo group, which handled one of the claims through its credit hire company Direct Accident Management Ltd and solicitors Bond Turner, litigated more than 1,000 cases a year alone.

Defendant representatives said the decision should bring greater discipline to credit hire organisations and reduce the number of unmeritorious claims.

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In Tescher, the court heard, the motorist had claimed for around £20,000, of which 85% was for credit hire charges. In 2022, the claim was dismissed at trial and the distrcit judge ordered that the claimant pay insurer Admiral’s legal costs. Defendant firm HF, representing Admiral, applied to join the credit hire company DAML into proceedings as a non-party to recover legal costs of around £18,000.

That application was dismissed in 2023, but HF was later granted permission to leapfrog the appeal directly to the Court of Appeal due to the wider importance of the issue.

The case was joined with AXA v Spectra, in which the insurer had unsuccessfully applied for a fundamental dishonesty ruling but had been awarded 65% of its costs after a successful non-party costs order.

Lord Justice Birss said the nature of credit hire arrangements, where charges are deferred pending a claim for damages, made litigation inevitable.

‘Litigation (including settlement) is the only realistic means by which the credit hire company will be paid for the hire,’ he said. ‘It follows therefore that in a very real sense the credit hire agreement, for which the credit hire company is responsible, is a fundamental cause of the legal costs incurred by the defendant.’

In DAML, the credit hire company was the real beneficiary of the claim and so the court could make a non-party costs order against it.

The judge added: ‘Absent some reason why not, when a claimant has been ordered to pay the costs and [costs shifting] applies, a non-party cost order against the credit hire company is likely.’

Following the ruling, HF partner Graeme Mulvoy said the decision had brought an end to a hard-fought battle fought for many years over this issue. He added: ‘It was right for us to leapfrog this case to the Court of Appeal and this decision will hopefully see more discipline from CHOs when pursuing unmeritorious claims given the risks associated with that approach.’