SHAHZAD v ROYAL & SUN ALLIANCE [2023]

An application for a non-party costs order by an insurer against a credit hire organisation (CHO) was refused – following a finding of fundamental dishonesty against its customer at trial – where the CHO had not had sufficient control of the underlying litigation to suggest it was the real party to those proceedings.

In contrast with Select Car Rentals (North West) Limited v Esure Services Ltd [2017] WLR 4426 where a non-party costs order had been granted, the CHO in the instant case had not retained solicitors for the hire customer, was not in direct contact with the at-fault insurer, did not have the power to deduct its hire charges from any personal injury damages, nor did it operate as de facto claims manager for its hire customer.

The applications before the court
[53]… The passage from Professor Zuckerman’s book [Zuckerman on Civil Procedure : Principles of Practice, 4th Edition] provides a reasonable summary of the general position: 
“There are mainly two broad reasons that may justify a costs award against a non-party. 
[1] A non-party may be ordered to pay costs if they controlled the proceedings for their own benefit. In such a case the non-party is effectively a party, and since they would benefit from a favourable outcome of the proceedings, they should also bear the costs of an unfavourable outcome. We may refer to this ground of ordering costs as the control–benefit ground. 
[2] The second type of justification is more complex and troublesome. It concerns situations where the non-party has helped a party to bring or sustain proceedings by providing financial or other assistance, without which the litigation would not have taken place and the successful party would not have incurred expenses. We may refer to this ground as the funding ground. 
Although the two grounds appear distinct they are bound up together because the court would not normally order a funder to pay costs unless the funder stood to benefit from the funding arrangement, as where the funder agrees to fund proceedings in exchange for a share of the recovery. These two grounds are therefore not mutually exclusive. Furthermore, they are not exhaustive. 
A costs order may be made where a person has neither controlled nor funded the litigation, as where solicitors failed to obtain legal expenses insurance for their client and failed to inform them of their costs exposure.”

Decision
[54]    … The court must enquire whether the non-party has controlled the proceedings for their own benefit to the extent that they are the “real party” or whether they have funded the litigation which would not have taken place without their support…
[58]    The District Judge… compared the application he was trying with the facts that were found by the Recorder in Select Car Rentals (North West) Limited v Esure Services Limited [2017] WLR 4426. 
… By way of comparison in the current application:
•    Select had retained the Solicitors for the Claimant – the Appellant did not; 
•    Select was in direct email contact with the insurer – the Appellant was not; 
•    The claimant was obliged by the credit hire agreement to co-operate in the instruction of a solicitor nominated by the company- common to both cases; 
•    The claimant gave Select the power to deduct the hire charges directly from any personal injury damages- not the case with the Appellant; 
•    The claimant gave Select an irrevocable authority to provide any engineering report and updates to Select – not the case with the Appellant; 
•    The claimant granted Select the right to pursue an action in her name – the same was granted to the Appellant; 
•    Select operated as de facto claims managers – the Appellant did not.
[68]    I have found that the District Judge fell into error by ordering the Appellant to pay the Respondents costs and accordingly I intend to grant the appeal.
Author: Andrew Guirguis, Professional Support Lawyer