Is it possible for a non-party to be designated as the “real party” in a claim?

A non-party can be the “real party” in a claim, Court confirms.

Is it possible for a non-party to be designated as the “real party” in a claim? That was the question His Honour Judge Saunders (“HHJ Saunders”) had to grapple with in a recent County Court judgment for Luan Phillipe Pereira and Others v Jermaine Chambers and Others and Direct Accident Management Limited (Respondent) [2024].

HHJ Saunders had before him 4 applications by the Defendants for non-party costs orders (“NPCOs”) against Direct Accident Management Limited (“DAML”).

DAML was a credit hire company which (either trading by its name or via the name “McAMS”) provided each of the Claimants with a replacement vehicle on a credit hire basis following road traffic accidents with their respective Defendants. The Claimants (acting via their insurers) filed claims to recover the value of the credit hire arrangements from the Defendants (also acting via their insurers).

In the circumstances, the outcome of each case was different. The First and Second Claimants (Pereira and Edhouse) accepted a Part 36 Offer from their respective Defendants to settle their claims. They did so for sums which were substantially lower than their original claims, as brought. The Third Claimant’s (Nasri) case was struck out for non-payment of a Court fee, whereas the Fourth Claimant’s (Ali) was dismissed after a trial on liability.

Each of the Defendants (acting via their insurers) thereafter filed applications on 28 February 2023 for a NPCO against DAML, which they assert was the real instigator of the proceedings and should bear the risk of paying the Defendants’ costs in the litigations.

In making his decision, HHJ Saunders reminded himself of the test for making an NPCO. Per the Court of Appeal’s decision in Deutsche Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23, [2016] 4 WLR 17, the test for an NPCO was very simple. The Court simply had to ask itself: would it be just, in all the circumstances, to grant a NPCO against a party that was not directly involved in the proceedings?

HHJ Saunders also reminded himself that the decision in Deutsche Bank AG was guided by the Privy Council’s earlier decision in Dymock Franchise Systems (NSW) Ltd v Todd [2004] UKPC 39. In that case, the Privy Council confirmed that an NPCO should only be awarded in “exceptional” circumstances, and that consideration should be given to whether a non-party is not so much facilitating access to justice for a named party, but is itself gaining access to justice for its own purposes.

In response to the applications, DAML maintained that it was not the instigator of the claims by the Claimants. DAML simply provided a replacement hire vehicle to the Claimants on a credit hire basis, but it took no additional steps in respect of the litigations. For example, it did not fund the claims, and nor did it take control of the litigations in terms of strategy, documents, or instructions. According to DAML, the “real party” in a claim would be the party that had the entire interest in the proceedings. DAML further asserted that there must be some sort of intermeddling by it, which would prove causation. Causation was an essential requirement in demonstrating that there was a causative link between the particular conduct of the non-party relied upon and the incurring by the Defendant of the costs sought to be recovered.

HHJ Saunders did not accept that there was an additional requirement of “causation”. The Court of Appeal made clear in Deutsche Bank that the test for an NPCO was simply, whether it would be just in all the circumstances for an NPCO to be drafted.

HHJ Saunders further noted the distinction between a party who had a commercial interest in a case, and one which initiated the prosecution of the case and stood to benefit from it. In his view, the terms of the credit hire arrangements entered into by DAML and each of the Claimants was operative.

Each of the credit hire arrangements had the following clauses, which were material in demonstrating DAML’s control of the proceedings:

Clause 5

Where the hire is consequent upon the Hirer’s own vehicle being unroadworthy as a result of a road traffic accident;

1. The Lessor will allow the Hirer to defer payment of the hire charges until the earlier of (i) the conclusion of a claim for damages including the hire charges which is made against the party or (ii) the expiry of 11 months, starting with the date of this agreement….
2. The Hirer shall diligently pursue a claim for the hire charges against the third party and shall appoint solicitors nominated by the Lessor for this purpose. The Hirer shall thereafter use all reasonable endeavours to recover the hire charges from the third party and shall fully co-operate with the Lessor and the appointed solicitors in this respect.

Clause 6

If, and only if, the Hirer is in default of condition 5(ii) then the deferred payment facility allowed by the Lessor to the Hirer shall be terminated and the hire charges will be due from the Hirer to the Lessor 14 days from the Lessor giving notice thereof to the Hirer by reference to this condition (6).

Clause 10

The Hirer will at the request of the Lessor do all required by the Lessor and permit his name to be used by the Lessor for enforcing any rights or remedies against parties in connection with the vehicle.

The Judge’s reading of those terms was that, as soon as the Claimants agreed to hire a vehicle, they would be bound to bring a claim for recovery of hire charges for payment to DAML. Moreover, they would be bound to use Bond Turner (solicitors) on their behalf. The Judge was aware from the underlying disclosure that both DAML and Bond Turner were part of the same group of companies.

For those reasons, HHJ Saunders came to the view that the initiation and prosecution of each of the claims was directly linked to the hire of a vehicle on credit hire terms. That is, the party that would stand to benefit principally from the claims would be DAML. The terms of the credit hire agreements provided adverse financial consequences to a Claimant if they did not agree to bring a claim, and each of the claims themselves were primarily brought on account of recovering credit hire charges rather than any other head of loss.

HHJ Judge additionally considered the wording in CPR 44.16(3), which makes it clear that a Court may make an NPCO against a third party whose benefit the whole or part of a claim was made. Having considered paragraph 12.2 of Practice Direction 44, HHJ Saunders was satisfied that, one such example of a claim being made for the financial benefit of another, includes subrogated claims and claims for credit hire. Paragraph 12.5 of the same Practice Direction further stipulates that, in such cases, the Court will usually Order the other person (the non-party) to pay the costs of the proceedings.

For those reasons, a non-party can be the “real party” in a claim, and it can be exposed to costs consequences as a result of pursuing such claim.

Commentary

HHJ Saunders’ judgment has been seen by Defendant insurers as a significant turning point on costs liability. Although the Judge emphasised that his decision was “fact-specific”, Defendant insurers have hailed the decision as setting a precedent for credit hire companies potentially being liable for paying the Defendant’s costs in unsuccessful claims for recovery of credit hire charges.

That being said, insurers should be reminded that the granting of an NPCO is an “exceptional” remedy, and judges will no doubt be conservative and cautious in taking a fact-specific approach to similar applications for an NPCO against a credit hire company that is not a named party to a claim.

Nazifa Chowdhury