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QOCS and Credit Hire

Posted on 29th April 2013

chris-mccauley

Are rules 44.16(2)(A) & (3) undermined by the common law principles relating to credit hire?

‘One man’s satellite litigation is another man’s helpful clarification.’ The new costs rules, relating to Qualified One Way Costs Shifting (‘QOCS’), will create a new tide of satellite litigation. Chris McCauley from Guildford Chambers, addresses one of the satellite litigation arguments that will arise from QOCS.

QOCS is a trade-off for the abolition of ATE recovery, inter partes, and the idea is that it should protect the Claimant[1] (as an individual) rather than the insurer and credit hire company. The protection does not extend to claims brought for the financial benefit of a person other than the Claimant but what does that mean?

The Costs Practice Direction (‘CPD’), at 12.2, states that: subrogated claims, and claims for credit hire, are examples of claims that are for the financial benefit of a person other than the Claimant. Rule 44.16(3) provides the Court with a discretion, subject to the requirements for non-party costs orders at rule 46.2,[2] to make a non-party costs order against a ‘person,’ other than the Claimant, for whose financial benefit the whole, or part, of the claim was made.

The word ‘person’ in rule 44.16(3) has the potential to cause some confusion. A corporation, or a company, is a persona ficta. Therefore pursuant to, common law and, statute the hire company will be treated as being a person in legal fiction.

Therefore if a Claimant were to bring a claim for personal injury, and credit hire, and the credit hire were found to be unenforceable[3] the Court would have the discretion to make a costs order against the hire company. This, of course, would be subject to a finding that the credit hire was for the financial benefit of the hire company rather than the Claimant.

Discussion

When the common law principles relating to credit hire are considered, it is difficult to see how the claim for credit hire can be regarded as being for the financial benefit of the hire company. The credit hire company has no direct right to damages (Giles v Thompson). The credit hire is recoverable, in damages, because the Claimant has suffered loss of use of his vehicle due to the Defendant’s negligence (Lagden v O’Connor). By hiring a car, on credit, the Claimant mitigates his loss of use (Lagden v O’Connor) and the cost of the replacement car becomes a measure of the damages for loss of use (Giles v Thompson).

Traditionally, where the claim is funded by the credit hire company there is no division of spoils (i.e. champerty) because the agreements do not create a charge over the proceeds of the claim, nor do they assign them, they merely require the motorist to press ahead with the litigation to recover sufficient funds to discharge the debt to the company (Giles v Thompson). Likewise, as the company’s profit derives from the hiring of the vehicle rather than the litigation, there is no maintenance even where the credit hire company funds the claim and there is an undertaking that the Claimant, upon being successful, will procure a cheque in the credit hire company’s favour (Devlin v Baslington). The reason being there is ‘no wanton and officious intermeddling’ (British Cash and Parcel Conveyors v Lamson Store Services Company) in the dispute that undermines public policy. The claim is, therefore, the Claimant’s claim for damages and he is perceived to be controlling the litigation.

In light of this, a real problem arises. There is cogent argument that, pursuant to the common law principles, the claim for credit hire cannot fall within rule 44.16(2)(a) as it cannot be regarded as a claim that is brought for the financial benefit of the hire company. The problem is that, if the credit hire does not fall within rule 44.16(2)(a) then, the claim for credit hire will be caught by rule 44.16(2)(b) and, with the Court’s permission, can be enforced against the Claimant.

Comment

When common law principles are applied to the rule, there appears to be a conflict between the rule and its apparent intention (set out in the ‘CPD’). As the rule is brought into force by statutory instrument, and the practice direction is a statement of best practice (CPR Glossary), the rule must prevail (Re C ( Legal aid: preparation of a bill of costs) and KU v Liverpool City Council).

To give effect to the true intention of the rule, the Court might attempt to utilise its wide discretion bestowed by virtue of section 51 of the Senior Courts Act 1981. In normal circumstances, statute will override a statutory instrument such as the Civil Procedure Rules. However, the statutory power, in question, is stated to be subject to the rules of Court. Therefore, the exercise of the wide discretion, under section 51, is controlled by the rules making authority (Aiden Shipping Co Ltd v Interbulk) and they have created a rule that is specific to these circumstances. In light of this, it appears section 51 will not be the answer to the problem.

In good conscience, I should state the following: Claimants should be extremely cautious of running this argument, as it has the potential to place their advocate in ethical hot water. The argument could expose the lay client to an adverse costs liability. Claimants should also be astute to Defendants using it, in an attempt, to escape the rigmarole of adding the hire company to the proceedings and attending another hearing.

Under the old rules, non-party costs orders were relatively rare. Therefore I hope, that as we have a new emphasis on the proportionality of litigation, that the Judiciary takes into account the costs that will be incurred, in ordering a further hearing, when considering whether it is just to exercise their discretion.

[1] ‘Claimant’ means a person bringing, or an estate on behalf of which such a claim is brought, a claim for damages; for personal injury; under the Fatal Accident Act 1976; or a claim arising out of death or personal injury and survives for the benefit of an estate by virtue of section 1(1) of the Law Reform (Miscellaneous Provisions) Act 1934. Claimant includes a person making a counterclaim or an additional claim.

[2] The non-party must be added to the proceedings for the purposes of costs only and they must be given a reasonable opportunity to attend the hearing at which the Court will consider the matter further.

[3] For example due to a breach of the Consumer Protection: Cancellation of Contracts made at home or place of work Regulations 2008.

Guildford Chambers have specialist costs and litigation expertise and regularly appear in detailed assessments in the Senior Courts Costs Office and the County Courts. We also advise on technical costs issues. The combination of our costs and personal injury expertise means that we can help you achieve the most out of the post-Jackson litigation landscape.