The “Real Beneficiary” Rule in Credit-Hire Litigation:
Non-Party Costs Liability of Credit-Hire Companies under QOCS

Introduction

Tescher v Direct Accident Management Ltd ([2025] EWCA Civ 733) combines two conjoined appeals that called on the Court of Appeal to set out general guidance on when, and in what circumstances, a credit-hire company should bear the defendant’s costs after a failed claim protected by Qualified One-Way Costs Shifting (QOCS).

The cases – one involving Direct Accident Management Ltd (DAML) and the other Spectra Vehicle Solutions – arose from routine road-traffic accidents but raised acute questions about:

• the interaction between QOCS and the court’s power to order costs against non-parties;
• the status of credit-hire companies as the “real” or “a real” party to litigation they fund and benefit from; and
• the extent to which causation and control must be shown before such orders are made.

Lord Justice Birss (with Nicola Davies and Coulson LJJ agreeing) allowed the insurers’ appeals, imposed costs orders against both credit-hire companies, and, crucially, distilled a structured two-stage test for future cases. The decision re-aligns credit-hire litigation with the policy goals of QOCS and s.51 Senior Courts Act 1981, sending a clear signal to the industry that it must shoulder adverse costs risk when claims fail.

Summary of the Judgment

1. Jurisdiction engaged – In credit-hire/PI hybrids, the claim for hire charges is “for the financial benefit of a person other than the claimant” within CPR r.44.16(2)(a). That person is usually the hire company. Paragraph 12.5 PD 44 therefore points to a usual order that the non-party pays the relevant costs, the claimant retaining QOCS protection.

2. The Two-Stage Approach
(a) Stage 1 – Should an order be made?
• Ask whether the credit-hire company is a “real beneficiary” and a factual cause of the defendant’s costs.
• “Control” need not be overt; the deferred payment structure and inevitable litigation suffices.
(b) Stage 2 – Quantum of the order
• Options include all costs, proportional apportionment, or incremental costs; when hire charges dwarf the PI element, an order for all costs is likely.

3. Causation Standard – A strict “but for” test is inappropriate. The hire agreement is an “essential catalyst”; that satisfies the causal requirement identified in XYZ v Travelers.

4. Application to the Appeals
• DAML: Order for 100% of the defendant’s costs.
• Spectra: District Judge’s original order (65% of costs) restored; the “good fortune” rationale for refusing an order was wrong in principle.

5. Guidance – Courts dealing with fast-track credit-hire trials should expect to make non-party costs orders against hire companies when claims fail or are discontinued, absent special circumstances.

Analysis

Precedents Cited and Their Influence

• Giles v Thompson (1994) – Confirmed credit-hire agreements are not champertous; Lord Mustill anticipated that adverse costs orders would exert a “healthy discipline” where claims proved unnecessary.
• Lagden v O’Connor (2003) – Allowed recovery of credit-hire rates for impecunious claimants, fuelling an industry model in which hire charges typically exceed other heads of loss.
• Dymocks v Todd (2004) – Set modern framework for non-party costs orders; justice usually requires a funder who both controls and benefits from litigation to bear the costs if it fails.
• Farrell v Birmingham CC (2009) – First appellate example of a credit-hire company ordered to pay defendant’s costs; the company was “the instigator of the litigation”.
• XYZ v Travelers Insurance (2019) – Supreme Court emphasised a causative link and re-affirmed the “real party” and “intermeddler” dichotomy.
• Mee v Jones (2017), Kindertons v Murtagh (2024) – High Court authority that credit-hire companies fall within r.44.16(2)(a), paving the way for Birss LJ’s broader guidance.

Legal Reasoning in Tescher

1. Statutory & Rules Framework
   • Section 51 SCA 1981 confers unlimited jurisdiction over costs.
   • CPR r.44.16(2)(a) + r.46.2 expressly contemplate non-party orders where the claim benefits a third party.
   • PD 44 §12.5(a) states such orders will “usually” be made.
2. Stage 1 – Engagement of Jurisdiction
   – Hire agreements defer payment of charges until the claimant recovers damages, virtually compelling litigation.
   – This makes the hire company a real (not necessarily the only) party.
   – Causation is satisfied: the agreement is the “essential catalyst” of the defendant’s cost exposure.
3. Stage 2 – Just Order
   – Given the disproportionality between PI and hire heads, ordering the hire company to pay all costs aligns with commercial reality.
   – Proportional or issue-based orders remain possible where circumstances differ.
4. Rejection of Counter-Arguments
   • Analogy with CFA-funded solicitors: unsound; lawyers do not generate the claim or stand to gain from damages.
   • Exclusive-interest test: drawn from XYZ but confined to liability insurers; not applicable to credit-hire or commercial funding cases.
   • Strict “but for” causation: impractical in multi-cause litigation; a broader, justice-based link suffices.

Impact of the Judgment

Short-term

• District judges now have authoritative, practical guidance; satellite litigation on credit-hire costs is likely to diminish.
• Credit-hire companies face a predictable adverse-costs risk, incentivising tighter screening of claims and realistic settlement attitudes.

Long-term

• The ruling integrates QOCS with non-party costs jurisprudence, ensuring claimant protection does not become a windfall for commercial third parties.
• Insurers may see reduced unrecoverable defence expenditure, potentially tempering RTA premiums.
• The decision may be invoked beyond credit-hire, e.g. in litigation funding arrangements where the funder’s commercial stake mirrors the “real beneficiary” profile.

Complex Concepts Simplified

1. Qualified One-Way Costs Shifting (QOCS)

A rule shielding personal-injury claimants: they pay the defendant’s costs only in very limited situations (e.g., fundamental dishonesty). The cost order exists but cannot be enforced without permission.

2. Credit-Hire

A replacement-vehicle service supplied on credit after an accident. Payment is deferred until the claimant recovers damages from the at-fault driver’s insurer, usually at a rate higher than ordinary “spot hire”.

3. Non-Party Costs Order (NPCO)

An order under s.51 SCA 1981 making someone who is not a party to the case pay costs. Used where that person funds, controls, or benefits from the litigation.

4. “Real Party / Real Beneficiary”

A factual test: is the funder’s commercial stake such that justice demands they share litigation risk? There can be more than one “real” party; exclusivity is not required.

5. Causation in NPCO Context

Not the strict scientific “but for” test. The question is whether the non-party’s involvement was a substantive cause of the costs claimed against them.

Conclusion

Tescher v DAML establishes a presumptive rule: where a credit-hire claim fails (or is discontinued) alongside a personal-injury claim, the hire company – as the real beneficiary – will ordinarily be ordered to pay the defendant’s costs, leaving the claimant’s QOCS shield intact. Lord Justice Birss’s structured two-stage approach brings much-needed clarity to a high-volume area of county-court work and realigns economic incentives in favour of meritorious claims and efficient settlement. Going forward, credit-hire business models must price in a genuine adverse-costs exposure: the “healthy discipline” envisaged by Lord Mustill over three decades ago has, at last, acquired concrete form.